Almost a year ago, the Second Circuit praised the clean, readable design of Uber’s app.   Because the reference to Uber’s terms of service was not cluttered and hyperlinked to the actual terms, the Second Circuit held Uber could enforce its arbitration agreement and the class action waiver within it.  But, just last week, the First Circuit disagreed.  In Cullinane v. Uber Technologies, Inc., 2018 WL 3099388 (1st Cir. June 25, 2018), it refused to enforce an arbitration clause in Uber’s terms of service and allowed a putative class action to proceed.  The First Circuit found customers were not reasonably notified of Uber’s terms and conditions, because the hyperlink to those terms was not conspicuous.

The Cullinane opinion was applying Massachusetts law on contract formation.  Massachusetts has not specifically addressed online agreements (or smart phone apps), but in analogous contexts has held that forum selection clauses should be enforced if they are “reasonably communicated and accepted.”  In particular, there must be “reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent.”  The Meyer opinion was applying California law on contract formation.  But the test was identical, because both states had borrowed it from a Second Circuit decision about Netscape.  So, the state law at issue does not explain the different outcome.

The one thing that might explain the different outcome is that the two federal appellate courts appear to have analyzed slightly different versions of Uber’s app.  In Cullinane, the lead plaintiffs had signed up between Dec. 31, 2012 and January 10, 2014.  (The court reproduced the actual screen shots early in its opinion.)  In Meyer, the lead plaintiff had signed up in October, 2014, and Uber had altered the design of its sign-up screens.  (There, the screen shot is an addendum to its opinion.)  For example, the background was now white in late 2014, instead of black, and the “Terms of Service & Privacy Policy” were in teal, instead of white text.

And, those are some of the aspects of the design that the First Circuit pointed to as critical.  It noted that hyperlinked terms are usually in blue text and underlined, but that the Cullinane plaintiffs’ were faced with hyperlinked “Terms of Service” that were not blue or underlined.  Instead, they were in white text in a gray box, no different than other non-hyperlinked text like “scan your card” on the same screen.   In addition, the First Circuit found the text stating “by creating an Uber account you agree to the [Terms]” was insufficiently conspicuous for similar reasons.  For those reasons, the Cullinane opinion found “the Plaintiffs were not reasonably notified of the terms of the Agreement, they did not provide their unambiguous assent to those terms.”

This is another example of how unsettled some aspects of arbitration law are (and maybe consumer contracting in general).  In Meyer, the district court had denied Uber’s motion to compel arbitration, and the appellate court reversed, granting the motion to compel arbitration.  And in Cullinane, the district court had granted Uber’s motion to compel arbitration, and the appellate court reversed, denying the motion to compel arbitration.  Those four courts were applying the exact same legal standard of conspicuousness, and reached opposite conclusions in the span of less than a year.

The lesson here is two-fold.  First, there is no clear standard for when terms on a website (or on a receipt, or in a box) are sufficiently conspicuous, so judges are left to their own devices (pun intended) to answer that question.  Second, unless an on-line provider wants judges — who are likely untrained in the psychology of consumer design related to five inch screens (and may not even have any apps) — to keep on getting to whatever result they please, the only solution is to require a consumer to actually click “I agree” after viewing a screen of the terms and conditions.  Unless, of course, SCOTUS grants certiorari of this new “circuit split” and issues guidance…

 

I have been making my way through the rest of the May arbitration cases (the photo shows how high my stack got), and one thing that stands out is this: I was right.  Delegation clauses remain a hot topic in arbitration law.

Three recent cases demonstrate the power of having a delegation clause in an arbitration agreement.

The Fifth Circuit enforced a delegation clause in Edwards v. DoorDash, 2018 WL 1954090 (5th Cir. Apr. 25, 2018), a case involving a putative FLSA class action brought by “Dashers.”  Not to be confused with reindeers who pull Santa’s sleigh, these Dashers  deliver restaurant food to people’s homes.  And they all signed an Independent Contractor Agreement with an arbitration agreement.  That agreement called for AAA rules and waived class and collective actions.  In response to the filing of the class action, DoorDash successfully moved to compel individual arbitration. On appeal, the class representative argued the arbitration agreement was unconscionable.  But once the Fifth Circuit was satisfied that the independent contractor agreement was validly formed, it found the incorporation of AAA rules was a valid delegation clause that the plaintiffs had failed to challenge.  The case was sent to arbitration.

In another Fifth Circuit case, Arnold v. HomeAway, Inc., 2018 WL 2222661 (5th Cir. May 15, 2018), incorporation of AAA rules also served as the parties’ delegation clause.  In that case, consumers filed putative class action complaints against a company that facilitates short-term vacation rentals.  HomeAway argued that its 2016 terms and conditions applied, which contained an arbitration clause providing that arbitration would be governed by AAA rules and that awards would be “on an individual basis.”  The consumers argued that the 2015 terms and conditions applied, which lacked an arbitration agreement (and that any subsequent modification was invalid).  The district court denied the motion to compel arbitration, finding the arbitration agreement illusory.

On appeal, the Fifth Circuit faulted the district court for ignoring the delegation clause in the terms and conditions.  It found the incorporation of AAA rules was a clear and unmistakable delegation of questions relating to the validity of the arbitration agreement to an arbitrator.  Because the plaintiffs’ challenge to the arbitration agreement was not specific to the delegation clause, arbitration must be compelled.

Not far away, in the Supreme Court of Alabama, another delegation clause was enforced.  Eickhoff Corp. v. Warrior Met Coal, LLC, 2018 WL 2075985 (Alabama May 4, 2018), did not involve a putative class action, but something just as sexy: five agreements between the parties, only two of which had arbitration clauses (both calling for AAA rules).  When one party filed in court, the other moved to compel arbitration.  The party opposing arbitration claimed that its court claims were based on the three contracts without arbitration clauses and the trial court agreed.  The Supreme Court reversed, finding that the incorporation of AAA Rules was an enforceable delegation clause, delegating questions of scope to an arbitrator, and it should have resulted in an order compelling arbitration.

SCOTUS finally delivered its decision today in Epic Systems Corp. v. Lewis, the consolidated case that addresses whether employers can require employees to give up their right to class or consolidated litigation as part of an arbitration agreement.  In a 5-4 decision authored by Justice Gorsuch, the Court found that class action waivers are enforceable under the FAA, and nothing in the labor laws preclude that conclusion.

As usual, how the Court frames the question gives away its answer.  Justice Gorsuch began the majority opinion by asking: “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?”* In contrast, Justice Ginsburg’s dissent frames the issue as “Does the [FAA] permit employers to insist that their employees, whenever seeking redress for commonly experienced wage loss, go it alone, never mind the right secured to employees by the National Labor Relations Act . . . ‘to engage in . . . concerted activities’ for their ‘mutual aid or protection'”?

The majority opinion started by painting the NLRB’s opposition to class action waivers as a sudden shift after 77 years of peaceful coexistence with the FAA.  It then finds that the NLRA cannot be applied via the savings clause of Section 2 of the FAA because it interferes with one of arbitration’s fundamental attributes — individual resolution — and therefore is not the type of defense that applies to any contract. (It cites Concepcion for the proposition that individual resolution is fundamental to arbitration.)

After finding nothing in the FAA itself that would prevent enforcement of the class action waivers at issue, the majority opinion looks to see if the NLRA clearly and manifestly indicates that Congress intended to override the FAA.  It finds no statutory or contextual evidence of that clear intent.  It also made short work of the employees’ argument for Chevron deference to the NLRB.  [One of the best lines from the opinion is in that section.  Noting that Chevron was based, in part, on the idea that policy choices should be left to the executive branch which voters can hold accountable, the majority writes: “whatever argument might be mustered for deferring to the Executive on grounds of political accountability, surely it becomes a garble when the Executive speaks from both sides of its mouth, articulating no single position on which it might be held accountable.”]

Interestingly, the majority decision acknowledges that there is a vigorous policy debate over the merits of class action waivers in arbitration.  At multiple points during the opinion Justice Gorsuch bows to the possibility that the FAA could be flawed: “You might wonder if the balance Congress struck in 1925 between arbitration and litigation should be revisited in light of more contemporary developments.”  And later “This Court is not free to substitute its preferred economic policies for those chosen by the people’s representatives.”  But each time he returns to the idea that the Court is bound by the law to rigidly enforce arbitration agreements.  In her dissent, Justice Ginsburg agrees that Congress is now the right branch of government to act.  The dissent states: “Congressional correction of the Court’s elevation of the FAA over workers’ rights to act in concert is urgently in order.”

The dissent would hold that Section 7 of the NLRA does guarantee the right to pursue collective litigation and trumps the FAA.  The dissent reviews the text and legislative history of the NLRA to support its conclusion and addresses the majority’s arguments.  What I found most interesting in the dissent, however, was its review of the legislative history behind Section 1 of the FAA.  Apparently, organized labor was concerned about the FAA’s impact, and Herbert Hoover amended the legislation to specifically exclude workers’ contracts.  Congress passed the amended version and labor withdrew its opposition.  [Justice Ginsburg’s research on that topic may come in handy next term when the Court addresses the New Prime case.]

This is the result that everyone expected based on oral argument and the current politics of the court.  But still, when I read the “Justice Gorsuch delivered the opinion of the Court,” I can’t help feeling like it should say “Justice Gorsuch delivered on President Trump’s promises of a conservative court.”  Would it have been better to just let the new appointments to the NLRB reverse the Board’s course of action, much like the reversals of other agencies, and save the Court from this particular insertion into politics?

*  (Do you hear that growly “one on one” from this song when you read that?   Maybe it’s just me.)

 

Today the Supreme Court of the United States granted certiorari in another case involving the Federal Arbitration Act.  The case, Lamps Plus, Inc. v. Varela, comes from the Ninth Circuit and raises a variation of the question from Sutter: how clear does an arbitration agreement need to be to show the parties authorized class arbitration?

My initial summary of the Ninth Circuit opinion is here.  It didn’t even merit an entire post of its own, but shared time with another circuit court opinion.  In my view, the issue of class arbitration has largely been hammered out.  SCOTUS ruled in Stolt-Nielsen that class arbitration is only allowed if the parties’ arbitration agreement authorizes it.  More recently, courts have generally concluded that courts, not arbitrators, should decide whether the parties’ arbitration agreement allows for class arbitration.  Finally, state law governs the question of how to interpret whether the parties’ arbitration agreement authorizes class arbitration.  Yet, now we will have a new decision on whether an interpretation of state law (interpreting ambiguity against a drafter to find class arbitration is authorized) should be preempted by the federal policy favoring arbitration (and particularly, favoring non-class arbitration).

In fact, the other two arbitration cases on SCOTUS’s docket also relate to class actions.  The NLRB case (whether forcing employees to waive their right to class actions in arbitration agreements is a violation of labor statutes) is still under consideration (it was argued last October).  And another upcoming case, New Prime, Inc. v. Oliveira, stems from a putative class action brought by independent contractors, even though the narrow issue before SCOTUS is whether an arbitrator or court should determine the applicability of the FAA.

If any Supreme Court clerk or justice had called me and asked “what are some of the really hot arbitration questions that this Court should resolve in order to ensure consistent decision-making around the country?,” class arbitration would not have been on my list.  I read every arbitration opinion that issues from the federal circuit courts and state high courts, and the issues I see courts struggling with most often include delegation clauses and issues relating to non-signatories.  Maybe I am not giving enough credit to the few class action opinions that come out (despite the fact that they impact many people), or alternatively maybe the Court’s emphasis on class arbitration highlights a political aspect of the cert process, or a particular interest of a majority of justices, or just the persuasiveness of this team.

 

A new Seventh Circuit case answers the age-old question: if a fourteen-year-old swipes her mom’s credit card to complete a smoothie purchase at the mall, is she bound to the credit card agreement?

The case, A.D. v. Credit One Bank, N.A., __ F.3d __, 2018 WL 1414907 (Mar. 22. 2018), addressed whether the lead plaintiff in a putative TCPA class action was bound to an arbitration agreement.  The lead plaintiff was a teenager when the case was filed, and she alleged that the defendant bank called her cell phone multiple times to collect on her mother’s credit card debt.  (A practice which is precluded by the Telephone Consumer Protection Act (TCPA).)  During the course of discovery, the defendant bank realized that it had linked the teenager’s cell phone number to the mother’s credit card account when the mother used the teen’s cell phone to call the defendant.   It also discovered that the teenager had completed a few smoothie purchases at the mall using her mother’s credit card.  The defendant bank then made a motion to compel arbitration  (and to deny class certification) based on the arbitration agreement in the mother’s cardholder agreement.  The district court granted the motion, but the Seventh Circuit reversed.

On appeal, the Seventh Circuit tried to clear up any ambiguity in its previous treatment of cases regarding non-signatories.  It established two analytical steps needed to resolve the arbitrability question: whether the daughter is directly bound by the arbitration agreement; and if not, whether any of the arguments for binding non-signatories apply.

With respect to whether the daughter was bound by the plain language of the arbitration agreement, the Court had no trouble concluding she was not.   The arbitration agreement specifically applied to claims made by authorized users of the account.  The district court had relied on one sentence in the paragraph defining “Authorized Users” of the card: “If you allow someone to use your Account, that person will be an Authorized User.”  That, plus the fact that the mother had ordered smoothies, but then sent her daughter up to the counter to swipe the credit card when the smoothies were ready, led the district court to conclude the daughter was an “authorized user” bound by the cardholder agreement.  The appellate court, however, noted that the full definition of Authorized User required multiple steps for someone to qualify, none of which had been completed for the teenage plaintiff.  Furthermore, the cardholder agreement limited authorized users to people over fifteen, and the relevant state law also did not allow fourteen-year-olds to enter into binding contracts.    Therefore, the Seventh Circuit found the “terms of the cardholder agreement do not bind” the teenage plaintiff.

With respect to the second analytical step, the Court found the principles of equitable estoppel (which can bind non-signatories to arbitration agreement) did not bind the daughter to the cardholder agreement.  Critically, equitable estoppel requires the bank to prove that the teenage daughter received a “direct benefit” from the cardholder agreement.  In this case, the bank’s whole argument hinged on the smoothie.  [I wonder if there was testimony about how much it cost, and how delicious it was!  Did it have vitamin boosters?!]  And the Court was not impressed.  It reasoned:

“any ‘benefit’ that [daughter] received with respect to the credit card was limited to following her mother’s directions to pick up the smoothies that her mother had ordered previously. . . Her mother, [] benefited from the agreement, which allowed her, not [the daughter] to buy the smoothies.”

The Court also concluded that the class action claims did not seek benefits under the cardholder agreement, which would have been a separate basis for estoppel.

As a result, the Seventh Circuit reversed the decision to grant the motion to compel arbitration and directed the district court to reconsider its denial of the class certification as well.

 

Pencils down.  (Is the modern equivalent “cursors down”?)  All the attorneys who were drafting new form consumer agreements to comply with the CFPB rule prohibiting class action waivers can now trash those documents.  Pursuant to the Congressional Review Act, the Senate voted 51-50 last night (with the VP as tie-breaker) to nullify the CFPB’s rule.  (The House of Representatives had cast a similar vote earlier this summer.)  And President Trump has signaled he will sign the bill.  But you already know all that.  The news came out last night.

So, what’s next?

After deleting all the new draft agreement, of course.  And I’m not being facetious about that.  The rule required that new agreements be in effect by March 2018 and it takes large companies significant time to approve and roll out new consumer agreements, so many were already in the works.  Especially since the Senate waited until almost the end of its 60 session day deadline to act.  But, most large institutions would rather eat those attorneys’ fees than be the subject of new class action lawsuits, so they won’t complain.

There are many constituencies that are very unhappy with the U.S. Supreme Court’s interpretations of the Federal Arbitration Act.  They are not going to give up just because 50 Senators disagree.  Those constituencies had been largely unsuccessful in the federal courts in the last dozen years, but more successful in federal agencies in the last few years. Under the Obama administration, multiple agencies had issued rules limiting the use of arbitration with consumers and employers.  All of those have been reversed in the first ten months of the Trump administration.  Which leaves those who are still concerned about arbitration with a dilemma — how can they make change?  Do they push for smaller legislative victories, adding riders to federal statutes so that claims brought under them must be heard in a court of law?  That’s not a terrible idea, since the slimmest majority voided the CFPB rule.  Or do they develop new, creative legal theories in state and federal courts?  Theories like “wholly groundless” and that the FAA does not apply to motions to vacate in state court that nip at the edges of FAA jurisprudence?  I think that is the most likely result.

What about those who are happy with this outcome, what’s next for them?  I predict more companies will make use of class action waivers.  In the last few years, with the proposed (and then actual) rule-making by various agencies, any move to add a class action waiver carried with it some risk that it would be soon made ineffective.  But now, the Supreme Court and its conservative majority are firmly in favor of enforcing those class action waivers.  And the federal agencies are also supportive of class action waivers.  So, some of those companies who were kept on the fence by administrative action are likely to jump off and land on the side of adding class action waivers to their arbitration agreements.

I’d love to hear what you think may happen in arbitration law as a result of the Senate vote to trump the CFPB.  Send me a line.

 

 

Last Thursday, the Second Circuit found that the arbitration agreement in Uber’s Terms of Service was conspicuous enough to be binding and enforceable.  As a result, the claims of a putative class of consumers will be dismissed unless they can show that Uber waived its right to arbitrate their claims.  Meyer v. Uber Technologies, Inc., 2017 WL 3526682 (2d Cir. Aug. 17, 2017).  [This proves my point from last week, that formation is one of the big issues this year in arbitration law.]

For those of you who still take yellow taxis, Uber is a “ride-hailing service,” where customers use an “app” on their smart phones to alert a nearby Uber driver that the customer wants a ride to a specific location. Critically to this case, when customers open an account with Uber, they see black text at the bottom of the registration screen advising that “by creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.”  The phrase “terms of service” is in blue font and hyperlinked to a page where the customer can read those terms.  The terms include an arbitration agreement that waives the right to any class or consolidated action.

A potential class of Uber customers started a lawsuit in New York alleging that Uber allows illegal price fixing.  In response, Uber first moved to dismiss for failure to state a claim.  Upon losing that motion, Uber moved to compel arbitration and the federal district court denied that motion also, finding that the parties never formed an arbitration agreement because the consumers did not meaningfully consent.

On appeal, the Second Circuit vacated and remanded.  It applied California contract law in its de novo review, and applied California’s rule that a customer who lacks actual notice of the terms of an agreement can be bound if a “reasonably prudent user would be on inquiry notice of the terms.”  In its analysis, the court noted that Uber did not use a “clickwrap” agreement, which involves consumers having to click “I agree” after being presented with a list of terms and conditions, and which is “routinely uph[e]ld” by courts.  Even so, the court concluded that the design of the registration screens were clear enough to put the plaintiff on inquiry notice of the arbitration provision.  What were those design features?

  • Hyperlinked text to terms and conditions appears right below the registration button;
  • The entire screen is visible at once (no scrolling required);
  • The screen is “uncluttered”; and
  • Although font is “small,” dark print contrasts with white background.

Therefore, the Second Circuit concluded that the named plaintiff “agreed to arbitrate his claims with Uber.”  However, the Court threw the class a bone by remanding on the question of whether Uber waived its right to arbitrate by bringing the motion to dismiss on the merits.

What’s fascinating about this opinion is not just that Uber is a famous company that is facing intriguing antitrust allegation.  No, what’s fascinating from the arbitration angle is that the Second Circuit came out on the opposite side of this same issue almost exactly one year ago in Nicosia v. Amazon.com, Inc., 2016 WL 4473225 (Aug. 25, 2016).  The same judge wrote both opinions.

In Nicosia, the named class representative had placed an order on Amazon in 2012.  Instead of a true “clickwrap” agreement, there was simply language on the Order Page stating that “by placing your order, you agree to Amazon.com’s privacy notice and conditions of use.” The conditions of use were hyperlinked to the relevant terms.  Sounds pretty much the same as Uber’s setup, right?  Well, applying Washington law, the Second Circuit found that reasonable minds could differ about whether that notice was sufficiently conspicuous to be binding.  It complained that the critical sentence was in a “smaller font,” that there were too many other distracting things taking place on the order page (summary of purchase and delivery information, suggestions to try Amazon Locker, opportunity to enter gift cards and have a free trial of Amazon Prime, for example.)  There were other links on the page, in different colors and fonts.  Critically, it found “[n]othing about the’Place your order’ button alone suggests that additional terms apply, and the presentation of terms is not directly adjacent to the ‘Place your Order” button…”  Therefore, the Second Circuit reversed the district court’s dismissal based on the arbitration provision.

As the fundamental context of on-line purchases has not changed in the last year, and the Second Circuit’s recitation of California and Washington law appears pretty similar, one has to conclude that the difference between these two cases is the graphic design of the key pages.  In particular, the level of “clutter” on Amazon’s page is the primary difference-maker between these two cases.  I imagine many internet retailers will reconsider the number of fonts, colors, and promotions on their final “order” pages this next week…

 

Class action arbitration continues to be a hot topic among the federal appellate courts this summer.

The 8th Circuit followed the lead of other circuit courts, finding that courts, not arbitrators, presumptively decide whether the parties’ arbitration agreement allows for class arbitration. Catamaran Corporation v. Towncrest Pharmacy, 2017 WL 3197622 (July 28, 2017).   In support of its decision, the court raised concerns about class arbitration, including loss of confidentiality, due process concerns for absent parties, and a concern about the lack of appellate review.  [Interesting that it didn’t cite any of CFPB’s report on this, but just cited other case law… ] Therefore, unless the parties have “clearly and unmistakably delegated” the class arbitration issue to the arbitrator, a court will decide the issue.  Furthermore, the court said that incorporating the AAA rules is not a clear and unmistakable delegation of the class arbitration decision, even though citing the AAA rules is sufficiently clear in analogous issues in regular “bilateral arbitration.”  The court remanded to the district court to determine whether there was a contractual basis for class arbitration.

Halfway across the country, the 9th Circuit held that employees could bring their claims related to a data breach as a class action in arbitration.  Varela v. Lamps Plus, Inc., 2017 WL 3309944 (Aug. 3, 2017).  The employees had first brought their class claims to federal court, and the employer moved to compel individual arbitration.  The district court found the arbitration agreement was valid, but ambiguous about whether class actions were waived.  Construing that ambiguity against the employer who drafted the agreement, the district court ordered class arbitration.  On appeal, the 9th Circuit affirmed the finding of ambiguity, sending the class to arbitration as a group.  One judge issued a two sentence dissent, noting “we should not allow Varela to enlist us in this palpable evasion of Stolt-Nielsen

In National Labor Relations Board v. Alternative Entertainment, Inc., No. 16-1385, 2017 WL 2297620 (6th Cir. May 26, 2017), the Sixth Circuit joined the Seventh and Ninth Circuits in upholding the NLRB’s decision that barring an employee from pursuing class action or collective claims violates the NLRA. Already lined up on the other side of a growing Circuit split are the Second, Fifth, and Eighth Circuits.

In Alternative Entertainment, Inc., the NLRB claimed that language in both the employment contract and the employee handbook used by Alternative Entertainment, Inc. (“AEI”) “violated the NLRA by barring employees from pursuing class-action litigation or collective arbitration of work-related claims.” Alternative Entertainment, Inc., 2017 WL 2297620 at *1.

Joining the Seventh Circuit’s critique of the Fifth Circuit’s logic in D. R. Horton, the Sixth expressly takes on the Fifth stating “the Fifth Circuit started with the wrong question.” When the Sixth asks the question it believes is the right one–if the NLRA is compatible with the FAA–the Court finds them in “harmony” and holds the employer’s ban on concerted action violates the NLRA. As a result, the court found the ban is also unenforceable under the FAA’s saving clause. According to the Sixth, the NLRA bans contracts that interfere with “employees’ right to engage in concerted activity, not because they mandate arbitration.” Any contract provision that interfered in this way would be illegal, which is in full accord with the FAA’s rejection of any contract that “undermine[s] employees’ right to engage in concerted legal activity.”

The Sixth’s second disagreement with the Fifth Circuit is expressed by the Sixth’s use of Chevron deference (arguing in the alternative, after stating there is no statutory ambiguity). The Sixth accepts the NLRB’s permissible construction of the NLRA’s right to concerted activity as a substantive, not procedural right.

In a partial dissent, and referring to the “manifestation of hostility toward arbitration,” Justice Sutton references the history of judicial protection and support of arbitration agreements provided over time. Specifically, the dissent objects to the majority’s overreaching use of Chevron, and states the majority opinion ignores Concepcion’s rejection of similar arguments harmonizing the NLRA with the FAA. (The majority opinion, however, distinguishes the kind of arbitration provision used by AEI and the kind of arbitration provision used by the employer in Concepcion.)

One question here is why would the Sixth Circuit bother drafting and filing this opinion when SCOTUS has already accepted review of this issue? It is possible the Sixth decided to issue this opinion in an effort to intentionally level the sides of this split by adding its voice to the Seventh and Ninth Circuits. It is also possible that since arguments had been heard in November 2016, opinions had already been formed by the time SCOTUS granted cert. on the question in January 2017. Either way, SCOTUS is expected to opine later this year on cases consolidated as National Labor Relations Board v. Murphy Oil USA, Inc., which will resolve the growing divide among the circuits. In granting cert., SCOTUS acknowledged the extent of the Circuit split as it existed in January—and footnoted this Sixth circuit case along with four other potential cases from the Third, Fourth, Eleventh and the D.C. Circuits. SCOTUS saw this one coming their way. I look forward to reading the resolution of this split.

ArbitrationNation thanks Jaclyn Schroeder, a law student at Mitchell Hamline School of Law, for researching and drafting this post.

The Federal Arbitration Act has been in effect for nearly 100 years (92, to be precise).  Nevertheless, the First Circuit found two issues of first impression to address this month.  In Oliveira v. New Prime, Inc., 2017 WL 1963461 (1st Cir. May 12, 2017), the court refused to compel arbitration of a class action complaint, because it interpreted Section One of the FAA to exempt contracts for independent transportation contractors.

Mr. Oliveira brought a putative class action suit against the interstate trucking company for which he worked–Prime–for violating the Fair Labor Standards Act, Missouri minimum wage statute, and other labor laws.  Prime moved to compel arbitration under the FAA.  In response, Plaintiffs argued that the FAA had no application to their contracts because they are transportation workers. Prime argued that that issue–the applicability of the FAA–should be decided by an arbitrator.  Furthermore, it argued that the FAA does not exempt independent contractors and these workers had been classified as independent contractors.  The district court agreed it must decide the threshold question, but then ordered discovery on the question of whether the named plaintiff was an independent contractor.

On appeal, the First Circuit decided to tackle both the tough legal issues head on, and not wait to see if discovery mooted either of them.

First, it analyzed whether an arbitrator or a court should decide whether the FAA applies to a plaintiff’s contract.  It noted that the 8th Circuit had concluded an arbitrator should decide, while the 9th Circuit had concluded a court should decide.  Finding the 9th Circuit’s analysis more persuasive, it held that “the question of whether the [Section] 1 exemption applies is an antecedent determination that must be made by the district court before arbitration can be compelled under the FAA.”

Second, it interpreted the language in Section 1 in order to answer the question of whether the exemption “extends to transportation-worker agreements that establish or purport to establish independent-contractor relationships.”  (Recall that the truckers were arguing they were exempt from the FAA, whether they were independent contractors or not.)  The FAA says it does not apply to “contracts of …any other class of workers engaged in foreign or interstate commerce,” and the Supreme Court interpreted that language in 2001 to mean that “contracts of employment of transportation workers” are exempted from the FAA.  After noting that multiple courts have found the exemption does not extend to independent contractor relationships, the First Circuit brushed that aside with this gem: “Interpreting a federal statute is not simply a numbers game.”

Instead of playing a numbers game, the First Circuit played a “pull out the antique dictionary” game.  It looked at definitions of contracts of employment from 1925, when the FAA was enacted, and concluded the phrase means any agreement to perform work, and is broad enough to include independent contracting.  Therefore, because Prime had conceded Mr. Oliveira was a transportation worker, “the contract in this case is excluded from the FAA’s reach.”

However, the court inserted a footnote allowing that a state arbitration act may provide a basis to compel arbitration in a future scenario like this one. . . which raises interesting preemption issues.