Plaintiffs Paul Perruzzi and Jeremiah Sullivan, who operate independent snack food distribution companies, sued their supplier, Snyder's-Lance, Inc., for wage and misclassification claims. Years earlier, the plaintiffs had settled a class action against the company and agreed to a Dispute Resolution Provision requiring arbitration for future disputes. When the plaintiffs filed this new lawsuit, the defendant moved to stay the proceedings and compel arbitration under the Federal Arbitration Act. The plaintiffs opposed this, arguing that Section 1 of the FAA exempts them because they are transportation workers. The district court rejected the exemption argument, stayed the case, and then administratively closed it without entering a judgment or explicitly ruling on the motion to compel arbitration. The defendant appealed, while the plaintiffs urged the appellate court to remand the case so the district court could properly reconsider the Section 1 exemption.
The First Circuit began by establishing jurisdiction under 9 U.S.C. § 16(a)(1)(B), which allows appeals from orders denying a petition to compel arbitration. Although the district court did not issue a formal order denying the motion, its decision to administratively close the case without addressing the arbitration request effectively denied the motion. The court reasoned that the substance of the order, rather than its form, determines appealability. The district court had stated it was 'closing the doors to this court' and proposed conditions for reopening that did not include granting the motion to compel. Because the lower court failed to explain its basis for denying the arbitration request, the appellate court vacated the order. The court emphasized that the FAA mandates judicial enforcement of arbitration agreements, but Section 1 creates a specific exemption for 'contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.' The Supreme Court has interpreted this to exempt transportation workers. Since the district court flatly rejected the exemption argument without explanation, the case must be remanded for the lower court to reconsider whether the plaintiffs fall within this statutory exemption. Additionally, the court noted that if arbitration is compelled, the parties' agreement mandates individual arbitration, not class arbitration.
The case is sent back to the District Court for the District of Massachusetts. The lower court must now explicitly rule on whether the plaintiffs are transportation workers exempt from the FAA under Section 1. If they are not exempt, the court must compel individual arbitration as required by the settlement agreement. If they are exempt, the case will proceed in federal court. The administrative closure is lifted, and the litigation limbo ends once the district court issues a reasoned decision on the arbitration motion.
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