It is unlikely that the City of Laurel, Mississippi anticipated the case would reach the Ninth Circuit Court of Appeals when it filed breach of contract claims against Cintas Corporation No. 2. However, that is precisely what occurred, and the result, which is now connected to the case known as the City of Laurel v. Cintas Settlement Fund, has subtle but important ramifications for how public organizations interpret the agreements they enter into.
At first glance, the dispute seems almost procedural. Two agreements. A single arbitration clause. There was one city excluded from that clause. However, there is a much more compassionate tale about what happens when a big company believes a legal mechanism applies to a smaller party and that smaller party rebels within that technical dispute.
The arrangement had a layered structure. With what the court referred to as a “lead public agency,” Cintas had a “master agreement” that contained an arbitration clause, a customary clause mandating that disagreements be resolved out of court. Cintas also signed a direct contract with the City of Laurel. However, the second contract stated something very different. Conflicts would be settled “directly between them in accordance with and governed by the laws of the State” where the city was located. No arbitration. Just law.
In essence, Cintas argued that the arbitration clause from the first contract should apply to the second when Laurel filed a lawsuit alleging breach of contract. Cintas moved to stay the proceedings and compel arbitration. The district court didn’t agree. Additionally, the Ninth Circuit rejected Cintas’ appeal. It seems that Cintas thought the contractual framework it had created would inevitably give all participating agencies access to arbitration protections. The court didn’t see it that way after closely examining the language.
The logic used by the Ninth Circuit was exact. A court’s role under the Federal Arbitration Act is limited to determining whether the parties have a valid arbitration agreement and, if so, whether it addresses the particular dispute. The court determined that there was no such clause in the city’s contract. More specifically, the judges pointed out that the second contract’s dispute resolution language would be redundant if it were interpreted as a form of arbitration, and courts are not supposed to interpret contracts in a way that makes provisions meaningless. Additionally, Cintas contended that the two contracts ought to be “harmonized” in order for the master agreement’s arbitration clause to be applicable. To stop that, the court cited Morgan v. Sundance Inc., which states that judges cannot create regulations that prioritize arbitration over litigation. That isn’t in harmony. Rewriting is that.
It’s important to note that some panelists disagreed. In his dissenting opinion, one circuit judge claimed that arbitration was required by the parties’ underlying agreement and that the case ought to have been remanded with instructions to proceed in that manner. That disagreement is important. It illustrates how genuinely close the interpretive question was and how different results could have been had the contractual language been written even slightly differently.
The case serves as a silent reminder for public agencies entering into cooperative purchasing agreements. Being a “participating agency” in a master contract does not imply that your relationship with the vendor is governed by all of its terms. In the end, the City of Laurel v. Cintas Settlement Fund case is about seeing what is truly in front of you rather than what you believe must be there. It would be wise for municipalities negotiating similar agreements to pay attention to that lesson.
