The “Summer of Arbitration” draws to a close tomorrow, if you can believe it. (On the first day of fall, it is supposed to be 91 degrees in Minnesota. Yikes.) But before I close that chapter, let’s take a look at a theme that emerged in these last weeks: non-signatories losing their attempts to compel arbitration (see last post).
In one case, Google’s self-driving car project, Waymo, sued Uber (and others) for misappropriating trade secrets. Waymo LLC v. Uber Technologies, Inc., 2017 WL 4018404 (Fed. Cir. Sept. 13, 2017). Although no defendant had an arbitration agreement with Waymo, they moved to compel arbitration based on an arbitration agreement between Waymo and its former employee. (The employee allegedly brought the secrets to Uber after downloading 14,000 Waymo files. That is a lot of thumb drives.) Defendants argued that equitable estoppel applied to compel arbitration, because the source of the claims was the employee’s breach of his employment agreement. However, the district court and appellate court found the complaint did not allege any breach of the employment agreement, and did not rely on or use the terms of the employment agreement as the foundation of its claims. Therefore, Waymo did not have to abide by the terms of the arbitration clause in the employment agreement.
Non-signatories got the same result in White v. Sunoco, Inc., 2017 WL 3864616 (3d Cir. Sept. 5, 2017). In that case, a putative class of plaintiffs sued Sunoco, alleging fraud and misrepresentations induced them to get a Sunoco Rewards Card from Citibank. The plaintiffs alleged they were promised rewards like a five cent/gallon discount on gas purchases, but they did not receive the rewards. Sunoco moved to compel arbitration based on the credit card agreement between the plaintiffs and Citibank. The district court denied the motion and the Third Circuit affirmed. Critically, it found that neither of the situations were present that support applying equitable estoppel: concerted conduct between the Sunoco and Citibank; or plaintiff’s reliance on the credit card agreement. However, the dissenting judge found that the promotional materials should be considered an integrated agreement with the credit card, such that Sunoco was a party to the deal.
Again in In Re Henson, 2017 WL 3862458 (9th Cir. Sept. 5, 2017), the non-signatory was unable to compel arbitration. Verizon customers brought a claim against a “middle man” for internet advertisements; that middle man had contracted with Verizon to collect data from users’ mobile devices and then deliver targeted advertisements to them. The middle man moved to compel arbitration based on the customers’ arbitration agreement with Verizon. The district court granted the motion based on equitable estoppel, and the plaintiff asked the court of appeals for a writ of mandamus to vacate the order. The Ninth Circuit found the relevant factors weighed “heavily in favor” of granting the writ. The key factors in favor of vacating the order compelling arbitration were: the fact that the plaintiff could not arbitrate in a representative or class capacity; the district court erred in finding equitable estoppel because the claims against the middle man did not rely on terms from Verizon’s customer agreement, and there were no allegations of collusion.
So, is equitable estoppel losing favor with the courts, or are defendants just trying to use it in situations where it doesn’t belong?