A Massachusetts state appeals court has found that the parent company of a subsidiary that installs artificial turf in sports facilities is subject to an arbitration clause. The clause was triggered when the customer, Nichols College, alleged that the turf was “defective.”
Nichols College met with a representative from Evergrass, Inc., in 2003 to discuss the installation of an artificial turf athletic field on its campus. Nichols was concerned however that Evergrass had only previously installed two fields. The Evergrass representative allegedly “stressed the breadth, experience and financial strength of Rosewood and emphasized that Rosewood would actively participate in the project and in fact would itself manage the same . . . .”
The rep went on to give the college promotional materials, which included a packet called “Information on Rosewood Companies Parent Company of Evergrass.”
Later in 2003, Evergrass made a formal proposal to the college, in which it stated that Rosewood is its parent company and that Evergrass and Rosewood are a “team.” The proposal went on to state that “Rosewood Management is the parent company of EverGrass, Inc., and that Rosewood provides the experience and expertise in coordinating all the trades involved in an EverGrass™ field project.”
The following summer, the college and Evergrass entered into a contract in which Evergrass stated it would install the artificial turf athletic field.
“There is no dispute that Rosewood was not a signatory to this contract,” wrote the court. “The contract contains a section on arbitration, stating in relevant part, ‘Any Claim arising out of or related to the Contract . . . shall . . . be subject to arbitration.’ Citing this arbitration clause, the college filed a demand for arbitration in April, 2006, against both Evergrass and Rosewood, claiming that the field was defective.”
In response, Rosewood filed a motion to dismiss with the arbitration panel, arguing that it was not a party to the contract and therefore could not be compelled to participate in arbitration. That motion was denied by the panel. In October of 2007, Rosewood filed a complaint in Superior Court seeking an immediate stay of the arbitration proceedings. The Superior Court judge denied Rosewood’s request “essentially for the reasons argued in the opposition memorandum of Nichols College.” Rosewood did not appeal from the denial of its request to stay arbitration.
The arbitration proceeding continued and the college was ultimately awarded $1,340,303 in damages against Evergrass and Rosewood, jointly and severally. The college moved in Superior Court to confirm the arbitration award, which Rosewood opposed, again arguing that it was not bound by the arbitration clause in the contract. Rosewood alternatively moved to vacate the arbitration award on the same basis. After a hearing, the Superior Court judge confirmed the arbitration award in the full amount and entered judgment against Rosewood and Evergrass, jointly and severally.
Rosewood appealed.
The appeals court revisited the previous arguments of Nichols College.
“The college listed several grounds for finding that Rosewood is bound by the arbitration clause: party in interest, agency, and equitable estoppel. While the evidence is hardly overwhelming, we conclude that there is sufficient evidence to affirm on the basis of agency.”
The court elaborated on “the question of agency is an issue for the fact finder. Theos & Sons, Inc. v. Mack Trucks, Inc., 431 Mass. 736, 742, 729 N.E.2d 1113 (2000). When the question arises, as it initially did here, in the context of a request for a stay of arbitration, it is to be answered ‘forthwith and summarily’ by the judge to whom the stay request is addressed. G. L. c. 251, § 2(b). See Loche v. Dean Witter Reynolds, Inc., 26 Mass. App. Ct. 296, 297-298, 303 & n.8, 526 N.E.2d 1296 (1988). The issue of arbitrability may also be raised in a motion to vacate an arbitration award. Parekh Constr., Inc. v. Pitt Constr. Corp., 31 Mass. App. Ct. 354, 359, 577 N.E.2d 632 (1991).
“An agency relationship is created when there is mutual consent, express or implied, that the agent is to act on behalf and for the benefit of the principal, and subject to the principal’s control.” Theos & Sons, Inc. v. Mack Trucks, Inc., supra. “Even where an agent-principal relationship exists, however, the principal has liability for the agent’s acts toward third parties only if the agent was acting with the actual or apparent authority of the principal in that transaction.” Id. at 743.
“On this record, an agency relationship can be said to have existed between Rosewood and Evergrass. Moreover, Rosewood authorized Evergrass to act on its behalf. We first note the extensive relationship that exists between the presidents of these two companies (the father was president of Rosewood, the son was president of Evergrass). In addition to being the president of Evergrass, the son was also the treasurer and a director of Rosewood. Given the position of the son as a director and officer of both companies, it cannot be said that either company was ignorant of what the other was doing. Second, as part of the bidding strategy and in the promotional material presented to the college, Evergrass was held out as a division of Rosewood, which was also described as the parent company of Evergrass. Evergrass’s formal proposal to the college represented that it and Rosewood were a ‘team.’ Indeed, there is evidence that the college, anxious because Evergrass had installed only two fields of the same type previously, required assurance that Rosewood would ‘actively participate’ in the construction of the field. Rosewood concedes on appeal that it did in fact assist in the installation, though it argues that its involvement was limited to bookkeeping and coordinating subcontractors. This evidence is sufficient to bind Rosewood to the contract and, therefore, to the arbitration clause that it contains.”
Rosewood Management Associates, INC. vs. Nichols College; App. Ct. Mass.; 10-P-644, 2011 Mass. App. Unpub. LEXIS 987; 8/30/11.
Attorneys of Record: (for plaintiffs) Steven W Crow, Delluomo & Crow, Oklahoma City, OK. (for defendants) F. Andrew Fugitt, Heather N Hendricks, Stephanie J Mather, The Center for Education Law, Oklahoma City, OK. Peter A Erdoes, Peck Erdoes & Wenzel PA, Oklahoma City, OK.
