I can’t believe we’re more than a week into August!  I don’t know about you, but I feel like I’m going to have to say goodbye to summer too soon.   I love fall, so maybe that’s not so bad?

Anyway, speaking of farewells, this week we get a back-to-the-basics refresher from the Eleventh Circuit on waving bye-bye to the right to arbitrate.  Although the particulars involved a consumer arbitration agreement, the key reasoning applies more broadly to all arbitrations.

In Freeman v. SmartPay Leasing, LLC, 771 Fed.Appx. 926 (11th Cir. 2019), SmartPay and Freeman entered into an agreement providing that the party initiating arbitration could choose either the AAA or JAMS rules and administrative services.

Freeman had a beef with SmartPay.  So, she sued SmartPay in federal district court. Shortly thereafter, the parties filed a joint motion to stay and to refer the dispute to binding arbitration. Freeman selected JAMS as the arbitration forum, she filled out the required form, and she paid a $250 initial filing fee.

This is where things went off the rails. SmartPay alleged that there were important procedural differences between the parties’ arbitration agreement and the JAMS rules. The details aren’t overly important, but the gist is that SmartPay argued those differences meant that this wasn’t truly a “consumer arbitration” under JAMS rules. (Basically, SmartPay didn’t want to have to pay all of the costs of the arbitration, other than the initial $250 that Freeman paid.)

JAMS didn’t buy it. It said that it wouldn’t administer the “consumer arbitration” unless and until SmartPay finished paying $950 in filing fees and waived any provisions in the parties’ agreement contrary to JAMS’s Consumer Minimum Standards. SmartPay stood firm by its position that this wasn’t a “consumer arbitration.” So it refused to pay the balance of filing fee. It ultimately took the position that if JAMS wouldn’t administer the arbitration, the case would have to be dismissed and refiled with the AAA.

JAMS did dismiss, but Freeman opted not to refile with the AAA. Instead, she went back to the district court and asked that the stay be lifted. She argued that SmartPay had waived its right to demand arbitration by refusing to pay the remaining initial filing fee. The district court agreed.

On appeal, the Eleventh Circuit noted that under FAA § 3, a district court should stay the litigation “until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” Default includes waiver. Waiver, in turn, hinges on whether a party has acted inconsistently with the right to arbitrate and that inconsistent behavior has prejudiced the other party.

The Eleventh Circuit agreed that SmartPay had waived its rights by failing to pay the filing fee. In so doing, it said the issue of whether the alleged conflicts between the arbitration agreement and the JAMS rules could be reconciled was one for the arbitrator. By refusing to pay the balance of the initial filing fee, SmartPay acted inconsistently with its right to demand arbitration. In turn, that prejudiced Freeman because it precluded her from seeking relief through her chosen arbitral forum.

I’m sympathetic to SmartPay in one sense: JAMS seemingly required SmartPay to waive its procedural arguments before it even got into arbitration. That’s problematic. But the lesson of the case is that arbitral institutions aren’t arbitrators. SmartPay could have and should have made its procedural arguments to the arbitrator. It agreed to JAMS as a forum. Once it did, couldn’t escape that forum on the grounds that the forum was applying arguably the wrong rules. That should have been taken up with the arbitrator herself.

Happy August!  What’s a better way to start the month than thinking about class arbitrability!  Again.  Ugh.

Trust me, I would much rather consider so many other exciting arbitration issues, but this one seems to be occupying a lot of court attention, so I’d be remiss not to report on it.

Since my last update, I ran across a recent state court’s perspective on the question of who decides class arbitrability.  In Alabama Psychiatric Servs. P.C. v. Lazenby, 2019 WL 2560096 (Ala. June 21, 2019), the Alabama Supreme Court essentially sided with the SecondTenth, and Eleventh Circuits, concluding that a traditional delegation suffices to commit questions of class arbitrability to an arbitrator. That said, the court only generically references the circuit split.

The underlying facts of Lazenby are straight forward.  A group of employees filed a putative class action against their employer in state court.  The employer brought a motion to compel arbitration and, at the same time, asked the court to determine whether class arbitration was available.  The arbitration agreement was silent on the question. The state court compelled arbitration but declined to determine the class arbitrability issue, instead sending it to the arbitrator.

The arbitrator, in turn, decided that class arbitration was authorized.  He did so, though, on pretty sketchy legal bases.  Essentially, he says that the agreement was written by the employer, so ambiguities should be read against the drafter.  (Of course, you’ll remember that SCOTUS rejected a similar argument earlier this year in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 203 L.Ed.2d 636 (2019).)  He then adds that the arbitration agreement promised employees that it was not altering their substantive rights, but that doing away will class proceedings would alter their substantive rights.  (This, of course, runs afoul of just about everything SCOTUS has said about class waivers, including in American Express Co. v. Italian Colors, 570 U.S. 228 (2013).)

The employer sought to vacate the arbitration clause construction award.  The lower court upheld it.

On appeal, the Alabama Supreme Court assumed without deciding that the “availability of class arbitration is a question of arbitrability,” by which it meant a question that should be resolved by a court absent a delegation provision.  The court then found that the parties included such a delegation.   (Technically, this issue is a little procedurally wonky, as the original court compelling arbitration reached this conclusion on dubious grounds but the employer failed to properly appeal, so the Supreme Court punts.)

The interesting thing about this decision is that Alabama Supreme Court concluded that once the parties delegated the question of class arbitrability to the arbitrator, they were stuck with the arbitrator’s conclusions so long as he arguably applied the law, even if he got it wrong.  In other words, the court determined that there was nothing special about class arbitrability.

As the previous post on this blog indicates, that’s turning into a hotly debated conclusion.  In fact, this Alabama case comes very close to being diametrically opposed to what the Fifth Circuit concluded in 20/20 Communications, Incorporated v. Crawford2019 WL 3281412 (5th Cir. July 22, 2019).

It doesn’t take a crystal ball to guess that this “who decides class arbitrability” issue will be at the heart of the next chapter in SCOTUS’s ongoing fascination with class arbitration.  The trouble, though, is that there aren’t many great cases yet that tee the issue up cleanly.

The Fifth Circuit just deepened (and confused) a Circuit split over the question of who decides whether an arbitration agreement permits class proceedings.  See 20/20 Communications, Incorporated v. Crawford, 2019 WL 3281412 (5th Cir. July 22, 2019).

Liz has written about the split herehere, and here.  (You might also recall that SCOTUS flagged this issue, though it punted on it, in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1417 n.4, 203 L.Ed.2d 636 (2019) (“This Court has not decided whether the availability of class arbitration is a so-called ‘question of arbitrability,’ which includes these gateway matters.”)  Basically, the issue is whether courts or arbitrators should determine the availability of class arbitration.

All Circuits that have spoken about the matter (the 3d, 4th, now 5th, 6th, 7th, 8th, 9th, and 11th) agree that class arbitrability is a gateway question for courts, at least absent a delegation clause.  See Opalinksi v. Robert Half Int’l, Inc., 761 F.3d 326 (3d Cir. 2014); Del Webb Cmtys., Inc. v. Carlson, 817 F.3d 867 (4th Cir. 2016); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594 (6th Cir. 2013); Herrington v. Waterstone Mortg. Corp., 907 F.3d 502 (7th Cir. 2018); Catamaran Corp. v. Towncrest Pharmacy, 864 F.3d 966 (8th Cir. 2017); Eshagh v. Terminix Int’l Co., L.P., 588 F. App’x 703 (9th Cir. 2014) (unpublished);JPay, Inc. v. Kobel, 904 F.3d 923 (11th Cir. 2018).  Moreover, the Second and Tenth Circuits have “assumed without deciding” that class arbitrability is a gateway question for courts.  Wells Fargo Advisors, LLC v. Sappington, 2018 WL 1177230 (2d Cir. March 7, 2018); Spirit Airlines v. Maizes, 2018 WL 3866335 (11th Cir. Aug. 15, 2018).  So, there’s substantial agreement about the notion that the availability of class proceedings constitutes a “foundational question of arbitrability.”  Herrington, 907 F.3d at 507.

The Circuit split focuses on delegations.

At least four Circuits (3rd, 4th, 6th, and 8th) have concluded that class arbitrability is a matter for courts even if the parties have included delegation provisions or incorporated institutional rules with a delegation provision, such as the AAA Rules. Similarly, the Seventh Circuit might fall in this camp.  In Herrington, the Seventh Circuit remanded the case for further proceedings at the district court level, without squarely determining whether incorporation of the AAA Rules delegated the question of class arbitrability to the arbitrator.

The Second, Tenth, Eleventh Circuits have openly disagreed.  In all of these Circuits, traditional delegations suffice to commit questions of class arbitrability to the arbitrator.

The Fifth Circuit has now joined the fray charting a confusing middle path.  See 20/20 Communications, Incorporated v. Crawford, 2019 WL 3281412 (5th Cir. July 22, 2019).  Ultimately, the court concluded that, notwithstanding delegation provisions, the question of class arbitrability was for the court.

The facts of the case are pretty simple, and I’ll simplify them even more.  An arbitration agreement between employees and their employer contained a provision permitting the arbitrator to “hear only individual claims,” and prohibiting arbitration “as a class or collective action . . . to the maximum extent permitted by law.”  Notwithstanding this provision, an arbitrator determined that the parties’ class arbitration bar was prohibited by federal law and consolidated the employees’ cases.

The arbitration agreement contained two typical delegation provisions: (1) “If Employer and Employee disagree over issues concerning the formation or meaning of this Agreement, the arbitrator will hear and resolve these arbitrability issues”; and (2) “The arbitrator selected by the parties will administer the arbitration according to the National Rules for the Resolution of Employment Disputes (or successor rules) of the American Arbitration Association (‘AAA’) except where such rules are inconsistent with this Agreement, in which case the terms of this Agreement will govern.” (The court talked about a third provision as well, but I’ll exclude it here because most Circuits would probably not find it sufficient to constitute a clear and unmistakable delegation anyway.)

The Fifth Circuit acknowledged that, “[d]ivorced from other provisions of the arbitration agreement (most notably, the class arbitration bar), these . . . provisions could arguably be construed to authorize arbitrators to decide gateway issues of arbitrability such as class arbitration.”  But the court went on to say that it didn’t need to decide if these provisions together or standing alone were sufficient to “clearly and unmistakably empower the arbitrator to decide questions of class arbitrability.” Instead, it concluded that these delegations could not be read harmoniously with the class action bar for two reasons.

First, the reference to the AAA is conditioned by the phrase “except where such rules are inconsistent with this Agreement.”  In the court’s view, the class action bar was inconsistent with a delegation of class arbitrability to the arbitrator.

Second, “even putting aside the exception clauses, none of these provisions speak with any specificity to the particular matter of class arbitrations. The class arbitration bar, by contrast, specifically prohibits arbitrators from arbitrating disputes as a class action, and permits the arbitration of individual claims only.”

I think both arguments essentially collapse to make the same point: there’s no decision about class arbitrability to delegate because the parties prohibited class proceedings. But the only way you get to the conclusion that the parties prohibited class proceedings is to read and interpret the contract.  The choice of arbitration paired with the delegation provision should send all contract interpretation issues to the arbitrator.

So, this case amounts to an elevation of the issue of class arbitrability.  Its doctrinal logic places the formation of a class action waiver on the same footing as the formation of an arbitration provision itself. If that’s right, then virtually no delegation provision, no matter how “clear and unmistakable” could ever empower an arbitrator to consider class arbitrability when the agreement also contains a class action waiver.

So, remember when we talked about Just How Small the Bullseye Is for Challenging a Delegation Clause a few weeks ago?  Apparently, the target is small but not necessarily as unhittable as I suggested.

You might recall that in that earlier post we were looking at a Missouri Supreme Court decision, State Ex Rel. Newberry v. Jackson, 2019 WL 2181859 (Mo. May 21, 2019).  There, Missouri’s highest court said, “Rent-A-Center teaches that a delegation clause must be treated as a separate contract within the larger arbitration contract and must be challenged on an additional ground or basis beyond the fact that it is contained in an arbitration contract that the party also contends is invalid.”  As a result, the Court rejected arguments that a delegation clause failed for the same reasons that the arbitration clause failed.

Apparently, the Eighth Circuit didn’t read Jackson (or didn’t agree with it) before it issued its recent decision in Shockley v. PrimeLending, 2019 WL 3070502 (8th Cir., July 15, 2019).

In Shockley, an employer was trying to force an employee to arbitrate alleged violations of the Fair Labor Standards Act.  The arbitration agreement, including a delegation clause, was contained in an employment handbook addendum.  This addendum was available to the employee electronically.

The lower court concluded that the employee hadn’t accepted the addendum and thus that there was no formation of either a contract for arbitration or the delegation clause.    The Eighth Circuit noted that the record was “resoundingly clear” that the employee had challenged the formation of the delegation provision.  “Because the delegation provision is ‘simply an additional, antecedent agreement’ that operates like any other contract,” it could be disabled by any contract formation defense, including lack of mutual assent.

Relying on Missouri law, the Eighth Circuit upheld the lower court, reasoning that “acceptance is [only] present when the offeree signifies assent to the terms of an offer in a ‘positive and unambiguous’ manner.”  The “mere continuation of employment” did not manifest “the necessary assent to [the] terms of arbitration” or the delegation clause.

In some language that’s also interesting (read “what the hell!”) in light of our earlier discussions of “wrap” agreements (see here,here, and here), the Eighth Circuit says that although the employee was presented with two opportunities to review the handbook addendum through an optional hyperlink on the company’s network, at best the employer could show that the employee “acknowledged the existence of the delegation provision.” But the court went on to say that “[w]e are aware of no legal authority holding that an employee’s general knowledge or awareness of the existence of a contract constitutes the positive and unambiguous unequivocal acceptance required under Missouri law.”  Huh.

Because the employee never agreed to the delegation provision, the court, rather than an arbitrator, could decide the validity of the arbitration agreement.  And because the arbitration agreement was also contained in the handbook addendum, the court concluded that the employee never agreed to it either.

So, just to drive the key points home, the Eighth Circuit invalidated a delegation clause for the same reason that it invalided the arbitration clause, which seems directly contrary to what the Missouri Supreme Court did in Jackson. Along the way, the Eighth Circuit also, perhaps more importantly, interpreted acceptance in Missouri general contract law, at least in employment relationships, to require more than notice. That conclusion tosses all manner of “wrap” agreements into doubt.

The Sixth Circuit just reminded us all that a forum selection provision identifying courts where any lawsuit may be filed doesn’t necessarily negate an arbitration provision.

In White v. ACell, Inc., 2019 WL 2929933 (6th Cir. July 8, 2019), an employee had entered into two separate agreements related to his employment.  One called for arbitration of “any dispute between us . . . , including but not limited to claims of employment discrimination,” but allowed the employer at its “sole option” to “forego arbitration of disputes relating to violations of” certain specified sections of that contract and “seek judicial enforcement, including injunctive relief” in “the state and federal courts of Montgomery County, Maryland.”  The other provided that “any lawsuit relating to” the employment “may be filed only in the state court located within Howard County, Maryland, or the federal courts located in the United States District of Maryland.”

So, for folks keeping track at home, we have: (1) the employee promising to arbitrate everything; (2) the employer being authorized to bring a public court lawsuit in Montgomery County for certain contract breaches by the employee; and (3) a general forum selection provision saying that any lawsuit related to the employment “may be filed only” in Howard County.  If it seems to you that at least (1) and (3) are in conflict, you’re not alone.

The employee, in fact, argued that all of these provisions conflicted.  As a result, he claimed that there was no mutual assent to the arbitration provision.

The Sixth Circuit, however, made short work of this argument.  “[C]ourts generally have interpreted [similar] contractual provisions to complement, rather than contradict, each other.”  This approach squares, according to the Sixth Circuit, with the general principle of interpretation requiring that contracts be read as a whole and harmoniously, so that all provisions can be given meaning and applied.

The court then went on to say that the arbitration clause was mandatory – using the term “shall” – while the forum selection provision for public court litigation was permissive – using the term “may.”

I’m not sure I buy that argument.  First the “may” is paired with “be filed only,” which seems to convert it into a mandatory requirement.  Second, it seems pretty clear that under the first agreement the employer could seek judicial enforcement of certain contract terms in Montgomery County.  But such enforcement would certainly constitute “any lawsuit related to” the employment, which under the terms of the second agreement “may be filed only” in Howard County.  In short, at least with respect to litigation by the employer against the employee, it’s very unclear how these forum selection clauses lined up.

But that’s, as we say in the law prof biz, a red herring.  The question the court was faced with wasn’t confusion over where the employer could file a lawsuit. Instead, the issue was whether the employee could file a lawsuit at all.  The Sixth Circuit says there’s no confusion about that.  The employee promised to arbitrate, plain and simple.  To the extent that the employee might have to seek court support for the arbitration, either by compelling arbitration or in enforcing (or reviewing) an arbitration award, he would have to do so in Howard County.  Whatever confusion there might be in some hypothetical case where the employer was suing the employee doesn’t undercut assent by the employee to arbitration.

Two posts on arbitration law in one day!  What?!? Is it your birthday?

No, no.  (Well, maybe.  And if so, happy birthday!)  It’s just that I finished reading what I think are the three most significant and fascinating arbitration cases to be decided so far this year.  I’m so excited that I had to write a second post today!

All three cases address whether a rule articulated by the California Supreme Court in McGill v. Citibank, N.A., 2 Cal.5th 945, 216 Cal. Rptr. 3d 627, 393 P.3d 85 (2017), is preempted by the FAA.  Spoiler alert: the Ninth Circuit says the McGill rule isn’t preempted.  That’s sure to raise some eyebrows, including by SCOTUS justices.

Deep breath!  Let’s wade into this.

In McGill, the California Supreme Court held that an agreement waving the right to seek public injunctive relief violates California Civil Code § 3513, which provides that “a law established for a public reason cannot be contravened by a private agreement.”  (Liz wrote about McGill here.)  To understand what this means, it helps to see the distinction between what California considers private injunctive relief and public injunctive relief.

Public injunctive relief has “the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public.”  In contrast, private injunctive relief “resolve[s] a private dispute” between the parties and “rectif[ies] individual wrongs,” though such injunctions may benefit the general public incidentally.  In a nutshell, the difference hinges on who primarily benefits from the relief, the public at large or only an individual.  A number of California consumer protection statutes provide for public injunctive relief.

The contract at issue in McGill was an arbitration agreement waiving the plaintiff’s right to seek public injunctive relief in arbitration and requiring arbitration of all claims. Because this waiver prevented the plaintiff from seeking a public injunction in any forum, it was unenforceable.

I don’t want to get too lost in the weeds, but the issue of the arbitrability of public injunctive relief isn’t new in California.  A prior set of cases, Broughton v. Cigna Healthplans of California, 549 Cal. 4th 1066, 90 Cal.Rptr.2d 334, 988 P.2d 67 (1999) and Cruz v. Pacificare Health Systems, Inc., 30 Cal. 4th 1157 (2003) (collectively referred to as Brougthton-Cruz) created a rule establishing that public injunctive relief in California was not arbitrable at all.  The Ninth Circuit found that the Broughton-Cruzrule was preempted in the wake of AT&T v. ConcepcionSee Ferguson v. Corinthian Colls., 733 F.3d 928 (9th Cir. 2013).  So, anyone watching California law had to wonder about the fate of McGill.

The difference between Broughton-Cruz and McGill, however, is that the latter case doesn’t purport to prevent the arbitrability of public injunctive relief. It says, instead, that parties cannot waive the recourse to public injunctive relief in any forum.  (If you think that sounds ominously similar to the Discover rule preempted by  AT&T v. Concepcion – which said that parties couldn’t waive the right to class actions in any forum – you’re not wrong.)

The Ninth Circuit, however, bought the distinction.  In Blair v. Rent-A-Center, Inc., WL 2701333 (9th Cir. June 28, 2019), the court concluded that McGill is not preempted by the FAA.  That conclusion was reiterated in two concurrently released decisions: McArdle v. AT&T Mobility LLC(No. 17-17221) and Tillage v. Comcast Corp., 2019 WL 2713292 (9th Cir. June 28, 2019).  Blair lays out the key logic of the Ninth Circuit, so I’ll focus on that decision here.  According to the Ninth Circuit, the McGill rule does not run afoul of the FAA for essentially four reasons.

First, the McGill rule does not prevent the arbitrability of public injunctive relief, either expressly or covertly.  So, it’s not openly hostile to arbitration.  Instead, the McGill rule merely prevents waiver of the right to pursue public injunctive relief, regardless of forum.

Second, and critically, the court says that the arbitration of public injunctive relief doesn’t require the sort of formalities inconsistent with bilateral arbitration that class arbitration does.  In this regard, the court explains how SCOTUS’s objection to class arbitration in AT&T v. Concepcion seems to rest on the notion that class actions require far more complex procedural processes, many of which are aimed at protecting the due process rights of absent class members.  These complicated processes just don’t square with the hallmark informality of bilateral arbitration.  In contrast, the arbitration of public injunctive relief does not require any sort of complicated process because the real party in interest is the state, not absent parties.  So, nothing about the arbitrability of public injunctive relief, according to the Ninth Circuit, interferes with a fundamental attribute of arbitration.

Third, and relatedly, the fact that things could substantively get more complicated when litigating about public injunctive relief doesn’t matter.  The Ninth Circuit draws a distinction between procedural complexity, which was the animating concern in AT&T v. Concepcion, and substantive complexity, which SCOTUS has said isn’t relevant when thinking about arbitration. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 633 (1985) (considering the tangle of factual and legal issues associated with antitrust claims and stating that “potential complexity should not suffice to ward off arbitration”).

Finally, the Ninth Circuit wishes away, without a lot of analysis, two related concerns about injunctive relief generally.  It dismisses a concern that “multiple injunctions [could be issued] against the same defendant imposing conflicting obligations” as “conjectural and unpersuasive.” It dismisses the concern that “[o]ngoing injunctions sometimes need monitoring or modification” as insignificant because “[a]rbitrators have long had the authority and ability to address requests for injunctive relief within bilateral arbitration.”

The consequences of Blair are momentous.  Plaintiffs who are not able to band together to pursue class-wide relief in arbitration can still pursue injunctive relief on behalf of all harmed consumers, at least in California and at least for the moment.  So, for instance, in Blair, the plaintiffs sought a public injunction against Rent-A-Center enjoining future violations of law, requiring an accounting of monies illegally obtained from California consumers, and requiring that Rent-A-Center provided individualized notice to those consumers of their statutory rights.  While this isn’t quite the same as a class action, of course, the requested relief certainly constitutes an end-run around the class action waiver in the arbitration agreement.

It’s also worth noting, however, a strange consequence of the Blair holding.  In Blair, the court concluded that the request for public injunctive relief was not arbitrable because of a severability clause in the arbitration agreement.  That clause provided that “[i]f there is a final judicial determination that applicable law precludes enforcement of this Paragraph’s limitations as to a particular claim for relief, then that claim (and only that claim) must be severed from the arbitration and may be brought in court.”  In the other two concurrently released cases, the court relied on severability clauses to conclude that the entire arbitration agreements were voided. See McArdle v. AT&T Mobility LLC (“If this specific provision is found to be unenforceable, then the entirety of this arbitration provision shall be null and void.”); Tillage v. Comcast Corp. (“THIS WAIVER OF CLASS ACTIONS AND COLLECTIVE RELIEF IS AN ESSENTIAL PART OF THIS ARBITRATION PROVISION AND CANNOT BE SEVERED FROM IT.”).

In combination, these cases raise some important and fascinating issues.  If you have consumer, patient, or employment arbitration agreements in California, these decisions have immediate and significant relevance.

In fact, I go on record now: this issue’s going to SCOTUS!  These particular cases might not tee up things cleanly enough, but SCOTUS’s abiding interest in class action waivers virtually guarantees that this matter has to be reviewed.

Wrap agreements continue to present challenges.  I don’t often write about district court decisions, and particularly not unpublished ones, but a recent case out of Illinois warrants an exception.  (See earlier considerations of wrap arbitration agreements on this blog hereand here.)

Just as a quick refresher about wrap agreements, courts have refocused the notion of mutual assent on whether a reasonable person in the position of the recipient of boilerplate should have seen the terms and conditions of the proposed deal. If so, the recipient will be bound by those terms, regardless of whether she ever actually read or understood them. Constructive awareness coupled with an individual purchasing something from a commercial party amounts to assent. The trouble has been determining when an individual is made “constructively aware” of terms.

(I shouldn’t be too cavalier.  The trouble may also be that boilerplate contracting shouldn’t count as contracting at all.  In fact, the debates about the propriety of boilerplate have been raging for years. For instance, right now there’s a hot battle taking place over the proposed Restatement of Consumer Contracts.  I won’t recap all of the vociferous debates, but if you’re interested, you can find a point of entry here (discussing the objections of 23 state attorneys general to the draft Restatement).)

In Anand v. Heath, et al., 2019 WL 2716213 (N.D. Ill. June 28, 2019), the court jumps into the fray by considering what it described as a “hybridwrap” arbitration agreement.  According to the court, “[h]ybridwrap agreements typically prompt the user to manifest assent after ‘merely present[ing] the user with a hyperlink to the terms and conditions, rather than displaying the terms themselves.’”  This typology situates “hybridwrap” agreements somewhere between clickwrap agreements, which present users with terms and conditions and then requires them to click that they agree to be bound by these terms, and browsewrap agreements, which merely provide a link to terms and conditions of use at the bottom of a page and assume that continued use of the site constitutes assent.

The court goes on to refuse to enforce the hybridwrap arbitration agreement before it.  The rationale underlying the decision seems to be that the button manifesting assent to the terms and conditions wasn’t clearly connected to the actual terms and conditions.   The problem wasn’t just that the hyperlink to the terms and conditions was distant from the “Continue” button; it was also that there was no indication that clicking the “Continue” button was signifying agreement to the hyperlinked terms and conditions.

What’s interesting to me about the typology and rationale discussed by the Anand court is that it seems to bear at least a family resemblance to the “coupling” principle discussed in Starke v. SquareTrade, Inc.No. 17-2474, 2019 WL 149628 (2d Cir. Jan. 10, 2019).  (I wrote about Starke here.)  Basically, in Starke, the Second Circuit refused to enforce an arbitration agreement in part because the relevant hyperlink was “neither spatially nor temporally coupled with the transaction.”

I’m not sure that I would say that there’s a trend developing here, but I appreciate that the courts in both Starke and Anandare trying to render the concept conspicuousness more concrete.  The closer the temporal and spatial relationship between the mechanism signifying assent – an “I agree” button, for instance – and the terms, the more likely a court seems to be to enforce the terms.

The moral of the story: if you are writing boilerplate arbitration contracts in a wrap environment, I’d be reevaluating the degree of linkage between terms and conditions and the mechanisms for signaling assent.

Happy summer!  It’s been far too long since my last update, but rest assured I have been thinking a lot about arbitration.  In fact, I’m currently teaching a summer course at Queen Mary University of London’s International School of Arbitration, which is a ton of fun.

My teaching, in fact, partly inspired this post.  Teaching arbitration in an international context reminds me of the fact that the United State’s permissive “everything can be arbitrated” approach isn’t universal or inevitable.  Plus, the Sixth Circuit recently issued a deceptively simple decision, in Arabian Motors Group v. Ford Motor Co., 2019 WL 2305313 (May 30, 2019), which raises some significant arbitration policy issues, particularly with respect to subject matter arbitrability and delegation.

A quick clarification of terminology first.  Though courts tend not to be clear about various branches of arbitrability, it’s useful to distinguish between them.  By “subject matter arbitrability,” I mean the power of an arbitrator to hear certain categories of disputes as a matter of public policy.  In the United States, there are virtually no subject matter constraints on arbitration.  But there are a handful, and Arabian Motors implicates one of them: 15 U.S.C. § 1226.

In relevant part, § 1226 says that “whenever a motor vehicle franchise contract provides for the use of arbitration to resolve a controversy arising out of or relating to such contract, arbitration may be used to settle such controversy only if after such controversy arises all parties to such controversy consent in writing to use arbitration to settle such controversy.”

The dispute in Arabian Motors centered on Ford’s termination of a franchise with a Kuwaiti company selling cars in the Middle East.  Briefly, the Kuwaiti company argued that § 1226 prevented enforcement of the pre-dispute arbitration clause in its contract with Ford.  It went further and argued that a court – not the arbitrator – needed to decide the applicability of § 1226.

The district court disagreed.  While compelling the parties to go to arbitration, the district court concluded that the arbitrator, not the court, should decide whether § 1226 undermined the arbitrator’s ability to hear the dispute.  The arbitrator considered the statute and decided that it didn’t apply extraterritorially.  Then, on the merits, the arbitrator ruled in favor of Ford. The Kuwaiti company sought to vacate the award, and the district confirmed it.

An appeal followed.  Perhaps because the Kuwaiti company had framed up its complaint as being about manifest disregard, the Sixth Circuit merely focused on whether the arbitrator had made a decision that flew “in the face of clearly established legal precedent.”  Because the issue was one of first impression in the United States, the court reasoned that “the arbitrator, at most, could have made an ‘error in interpretation or application of the law’ and that is ‘insufficient’ to constitute a manifest disregard for the law.”  The court never really engaged with the “who decides” question.  Accordingly, the Sixth Circuit affirmed the lower court.

The case is simple on the surface, but it raises some significant issues and it conflicts, I think, with the logic of SCOTUS in New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019).

Although there are currently precious few subject matter limits on arbitration in the U.S., there are constant calls for arbitration reform at the federal level.  As the drama surrounding the CFPB’s short-lived 2017 arbitration rule indicated, those efforts are fraught, but they are also always bouncing around the margins of arbitration practice.  To the extent that congress might and could create additional limits on arbitration, a case like Arabian Motors takes on tremendous importance. Who decides whether a statutory subject matter limitation on arbitration applies, a court or an arbitrator?

New Prime suggests strongly, I think, that it must be a court.  Remember, in New Prime, SCOTUS was considering whether the employment exemption in § 1 of the FAA applied to independent contractors.  In its analysis, the majority (which included everyone except Justice Kavanaugh) says that the Court has “long stressed the significance of the [FAA’s] sequencing.”  Although “a court’s authority under the Arbitration Act to compel arbitration may be considerable, it isn’t unconditional.”  Instead, the FAA’s authority “doesn’t extend to all private contracts, no matter how emphatically they may express a preference for arbitration.”  This lead to the conclusion that a court must decide whether § 1’s exclusion applies before ordering arbitration, even if the arbitration agreement contains a delegation clause.  It seems to me that the same logic should apply to any other congressional act that regulates the recourse to arbitration.

The point, I think, that is that New Prime suggests that there’s a difference between contractual arbitrability – issues about flaws in the arbitration agreement, scope of the arbitration agreement, or procedural preconditions that need to be satisfied before the recourse to arbitration is appropriate – and subject matter limits on what can be arbitrated.  Parties are free to assign the former questions to an arbitrator through a delegation clause. But because certain subjects are – or could be – excluded from the federal policy favoring arbitration – like disputes arising out of a motor vehicle franchise agreement – parties cannot assign an arbitrator to arbitrate about whether the exclusion applies.

The interplay of the separability doctrine and delegation clauses can create a bullseye that only Hawkeye, the OG Avenger with a bow, might have a prayer of hitting.  The Missouri Supreme Court provided a nice reminder about this problem in a recent case, State Ex Rel. Newberry v. Jackson, 2019 WL 2181859 (May 21, 2019).

The underlying facts of the case are simple enough: employees filed timely charges of sex, age, and disability discrimination with the Missouri Human Rights Commission. They received notices of a right to sue their employer.  The employer, in turn, filed motions to compel arbitration.  The employees attacked the arbitration clause as unenforceable because it lacked consideration.

You probably recall that the doctrine of separability, which is a first principle of arbitration law, treats arbitration clauses as analytically independent of the container contracts in which they appear.  So, a general attack on the container contract does not necessarily render the arbitration clause ineffective.  Separability works to funnel disputes about the validity of container contracts to arbitrators.  But here, the employees specifically aimed their consideration argument at the arbitration clause.

According to SCOTUS, a court should decide whether a valid arbitration agreement exists unless there is “clear and unmistakable” evidence that the parties agreed to delegate this determination to the arbitrator.  First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995).  In this particular case, however, the employer had incorporated the AAA Rules, and the AAA Rules include a delegation provision, so it looked like the employees would have to arbitrate their lack of consideration argument.

But the employees didn’t give up.  Instead, they also took aim at the delegation clause.  So, for anyone wanting to count the concentric rings of the target, there was (1) the overall employment contract (container contract) that included (2) an arbitration clause, and the arbitration clause, in turn, contained (3) a delegation provision.  The employees zeroed in on the delegation clause, claiming that it was unconscionable and was not supported by consideration.

On first blush, this would seem to be the sort of pin-point shot needed to disable the delegation provision. As SCOTUS explained in Rent-A-Ctr. W., Inc. v. Jackson, 561 U.S. 63, 70-72 (2010), a delegation provision is severable from an arbitration agreement just as that arbitration agreement is severable from the broader employment contract.  But, if an employee specifically challenges the delegation provision, then we’re back to having to have a court determine whether the delegation was valid.

But the Missouri Supreme Court waived off the shot.  According to the Court, the employees’ “unspecified” unconscionability argument was too generic to render the delegation suspect, and the employees’ lack of consideration argument was aimed only at the arbitration clause as a whole, not at the delegation clause in particular.  The Court said, “Rent-A-Center teaches that a delegation clause must be treated as a separate contract within the larger arbitration contract and must be challenged on an additional ground or basis beyond the fact that it is contained in an arbitration contract that the party also contends is invalid.”

In short, as the Missouri Supreme Court reminds us, it’s almost impossible to imagine “an additional ground or basis” for invalidating a delegation clause.  The target that a party wanting to avoid a delegation clause must hit is so small that it’s virtually invisible.

If you’re in California or looking for a good reason to get to Malibu (like you need a good reason besides the fact that it’s Malibu), you should think about an upcoming dispute resolution conference on June 18-19 at the Straus Institute for Dispute Resolution at Pepperdine School of Law.

The conference, entitled Appreciating Our Legacy and Engaging the Future: An International Conference for Dispute ResolutionTeachers, Scholars, and Leaders, will bring together leading dispute resolution teachers, scholars, and leaders of educational programs to compare perspectives on four decades of change in managing and resolving conflict.   Interactive sessions will explore:

● Balancing skills, law, ethics, and policy in the classroom
● Integrating practitioners into our courses, research, and programs
● Mediation and dispute resolution clinics and public service
● Initiatives aimed at bridging the societal divide
● Globalization, culture, legal tradition, and ethics in the classroom and research
● How technology is changing what and how we teach
● Research and scholarship across borders
● Big Data’s revolutionary effect on research

The conference is co-sponsored by the Straus Institute for Dispute Resolution, ABA Section of Dispute Resolution, and Aggie Dispute Resolution Program, Texas A&M University School of Law, in cooperation with:

● Cardozo School of Law of Yeshiva University
● Marquette University Law School
● University of Missouri School of Law Center for the Study of Dispute Resolution
● The Dispute Resolution Institute at the Mitchell Hamline School of Law
● The Ohio State University Moritz College of Law
● Sandra Day O’Connor College of Law at Arizona State University
● UC Hastings Center for Negotiation and Dispute Resolution
● Center on Dispute Resolution at Quinnipiac
● Northwestern University Pritzker School of Law
● University of Nevada-Las Vegas Saltman Center for Conflict Resolution
● University of Oregon ADR Center

The registration fee is $285 but the first 100 people can register for $185.

Check out the website for more information and to register.