Antitrust Law Daily Wrap Up, RICO—1st Cir.: Arbitration required for RICO claims against cell phone carrier by former retail agent, (Mar 21, 2014)

By Edward L. Puzzo, J.D.

RICO claims against a cellular phone carrier and its employee by a former retail agent were within the scope of the arbitration clause of the agreement between the parties and must be arbitrated, the U.S. Court of Appeals in Boston has ruled (Grand Wireless, Inc. v. Verizon Wireless, Inc., March 19, 2014, Ripple, K.).

Dispute. Grand Wireless was an exclusive retail sales agent of cellular phone carrier Verizon during the period of 2002 to 2011. The agreement establishing the parameters for their relationship contained an arbitration clause, requiring all disputes “arising out of or relating to” the agreement to be submitted to arbitration, with the exception of certain specified issues, such as intellectual property.

After the initial 5-year period of the agreement had expired, the agreement was extended on a month-to-month basis until 2011, when Verizon notified Grand of its intent to terminate the agreement. Grand then attempted to become an authorized agent for T-Mobile, a Verizon competitor.

During the same month the agreement was scheduled to expire, October 2011, Grand alleged that Verizon’s employee Erin McCahill issued a color postcard mailer stating that Grand stores “had closed” and referring potential customers to a different Verizon store. This action, Grand alleged, was a deliberate attempt by Verizon and McCahill to cripple Grand’s ability to become an agent for one of its competitors, and resulted in Grand ceasing operations. Grand then brought an action in Massachusetts state court, later removed to federal court, alleging that the actions of Verizon and its employee McCahill, had violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and state unfair and deceptive trade practices laws.

Verizon responded that the dispute must be submitted to arbitration, as per the arbitration clause of the agreement between Grand and Verizon. Grand’s response to the motion to compel arbitration was that a) its claims fell outside the scope of the arbitration clause of the agreement and b) the employee McCahill could not enforce the arbitration clause because she was not a signatory to the agreement. The district court ruled for Grand and denied Verizon’s motion to compel arbitration. Verizon appealed.

Scope of arbitration clause. Given that a number of factual disputes arising from Grand’s claims will have to be resolved by reference to the agreement, it was clear that Grand’s claims “arise out of or relate to” the agreement and therefore fell within the scope of the arbitration clause, the court stated.

In addition, whenever the parties have a contract that provides for arbitration of some issues and it is unclear whether a specific dispute falls within that contract, the presumption of arbitrability is applied to scope questions, the court continued. Rebutting the presumption of arbitrability requires a showing that the parties intended to exclude this type of dispute from the scope of the arbitration clause, not merely that the arbitration clause lacked explicit language covering Grand’s claims. Grand did not present evidence sufficient to rebut this presumption, the court ruled.

Arbitration of claims against employees. The allegations against McCahill arose out of actions that she allegedly took in her capacity as an agent or employee of Verizon, the court stated. But Grand alleges that, because employees are mentioned in certain parts of the agreement but not mentioned within the arbitration clause, claims against employees, even for actions taken within the scope of their employment, were meant to be excluded from arbitration. The court rejected Grand’s position.

Since Verizon can operate only through the actions of its employees, the court asserted, it would have made little sense to have agreed to arbitrate if the employees could be sued separately without regard to the arbitration clause. To the contrary, an agent is entitled to the protection of her principal’s arbitration clause when the claims against her are based on her conduct as an agent. Thus, the court ruled, Grand’s claims against the Verizon employee McCahill are also within the scope of the arbitration clause.

The case is No. 13-1149.

Attorneys: Samuel Perkins (Brody, Hardoon, Perkins & Kesten, LLP) for Grand Wireless, Inc. Philip R. Sellinger (Greenberg Traurig, LLP) for Verizon Wireless, Inc.

Companies: Grand Wireless, Inc.; Verizon Wireless, Inc.

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