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Contract Formation

Seventh Circuit Affirms Order Compelling Arbitration, Holds Arbitration Agreement Applies to Title VII Claim

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In Retzios v. Epic Systems Corp., the Seventh Circuit Court of Appeals considered an appeal brought by the plaintiff, a former employee of Epic, who was fired after she refused to be vaccinated against COVID-19. The plaintiff’s employment agreement included an agreement to arbitrate “any statutory or common law legal claims … that relate to or arise out of my employment or the termination of my employment.” After she was terminated for refusing the COVID-19 vaccination, she brought an action under Title VII in the district court alleging that Epic was required to accommodate her religious objection to the vaccine. Epic filed a motion to dismiss the action and to compel arbitration based on the mandatory arbitration agreement, which was granted by the district court.

In affirming the order, the Seventh Circuit first noted that the district court should not have dismissed the action but rather should have stayed the matter pursuant to the Federal Arbitration Act, which “calls for a suit referred to arbitration to be stayed rather than dismissed, when a party requests a stay (as Epic did).” The court then rejected each of the arguments raised by the plaintiff on appeal. The court held that the plaintiff’s Title VII claims were subject to the language of the mandatory arbitration clause of the employment agreement, noting that the plaintiff’s “objection to vaccination as a condition of employment relates to that employment, and her objection to being fired arises out of that employment’s termination.”

The court also rejected the plaintiff’s contention that the employment agreement was illusory, noting that the plaintiff received “at least two kinds of compensation in exchange for the promise to arbitrate: the [award of] stock and her ongoing salary.” The court also rejected the plaintiff’s promissory estoppel claim, finding that the plaintiff had not shown any promise made by Epic on which the plaintiff detrimentally relied. The court likewise rejected the plaintiff’s contention that Epic waived its right to arbitrate when it did not request the Equal Employment Opportunity Commission or state unemployment office to dismiss their proceedings, noting that waiver addresses “conduct in litigation” and that there was no evidence of facts that would support a waiver in this action. Finally, the court granted Epic’s motion for sanctions on appeal, noting that requiring Epic to bear legal costs on the appeal would be inappropriate.

Retzios v. Epic Systems Corp., No. 24-1701 (7th Cir. Jan. 24, 2025).

New York Court of Appeals Upholds Web-Based “Clickwrap” Agreement to Affirm Order Compelling Arbitration, Including Threshold Questions of Arbitrability

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In January 2021, Uber emailed millions of its users informing them that they would be prompted to agree to updated terms of use (available by hyperlinks) in order to continue using the ride-sharing service. The plaintiff, a rideshare passenger who had filed a personal injury lawsuit against Uber in 2020, opened the email on January 15, 2021. When she then logged into the Uber app, she was presented with a pop-up screen including a hyperlink to the terms, a checkbox, bold text confirming that the user reviewed and agreed to the terms, and a “Confirm” button. The plaintiff checked the box and clicked “Confirm.”

Uber’s updated terms of use provided that, by accessing or using Uber’s services, the user confirmed the agreement, and that if the user did not agree, the user could not use the services. The terms also included a prominent warning that the agreement contained an arbitration agreement and that the user acknowledged that he or she read and understood the agreement. The arbitration agreement encompassed “any” personal injury “claim” that accrued prior to acceptance of the updated terms, without exception for claims already pending in court. The agreement also delegated the exclusive authority to the arbitrator to resolve threshold disputes concerning the interpretation or enforceability of the arbitration agreement.

After the plaintiff filed her lawsuit in 2020, Uber did not respond to the complaint. On March 3, 2021, the plaintiff moved for a default judgment. Uber then filed an answer, including an affirmative defense that the plaintiff had agreed to arbitration, and shortly thereafter, Uber sent a notice of intent to arbitrate. The plaintiff opposed arbitration, arguing that the January 2021 arbitration agreement was procedurally and substantively unconscionable, adhesive, and contrary to New York public policy. The plaintiff argued that she never validly agreed to the updated terms and that Uber’s communications with her during the lawsuit about the updated terms violated ethical rules. Uber cross-moved to compel arbitration and to stay the litigation, arguing that its email and pop-up screen put the plaintiff on inquiry notice of the arbitration agreement and that her challenges to the enforceability of the agreement were matters for the arbitrator. The trial and intermediate appellate courts, respectively, granted and affirmed Uber’s cross-motion to compel arbitration and stay the case.

On appeal to the New York Court of Appeals, the state’s highest court, the court concluded that, under the Federal Arbitration Act and state law, Uber’s “clickwrap” process resulted in the formation of an agreement to arbitrate and that the agreement delegated to the arbitrator the exclusive authority to resolve all disputes as to the applicability and enforceability of the agreement. The court observed that it had “not, until now, had the opportunity to offer substantial guidance on the question” but that “state and federal courts across the country have routinely applied ‘traditional contract formation law’ to web-based contracts, and have further observed that such law ‘does not vary meaningfully from state to state.’”

The court agreed with the lower courts’ rulings that, under the objective standard that governs contractual intent, Uber’s communications put the plaintiff on inquiry notice of the arbitration agreement and that the plaintiff assented to that agreement through conduct which a reasonable person would understand to constitute assent. The court rejected the plaintiff’s argument that Uber was on notice that she would not consent to arbitration because she had already filed her claims in court and that Uber’s communications were misleading. The court ruled that these arguments addressed only the enforceability of specific terms of the arbitration agreement, not the agreement’s formation as a whole, and did not address the delegation provision. Accordingly, the issues were for the arbitrator to resolve.

Finally, the court held that the trial court did not abuse its discretion in declining to invalidate the delegation provision or the entire arbitration agreement as a sanction for ethical violations, finding that the record supported the court’s finding that Uber lacked actual knowledge of the pending litigation at the time it solicited the plaintiff’s assent to the updated terms of use.

Wu v. Uber Technologies, Inc., No. 90 (N.Y. Ct. App. Nov. 25, 2024).

Alabama Federal Court Seals and Approves FLSA Settlement Agreement, Addresses Confidentiality Provision

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The plaintiff was employed by defendant Pilot Catastrophe Services Inc. as an insurance claims adjuster, where she was responsible for inspecting property damage claims and providing damage estimates to insurance companies. The plaintiff brought a collective action under the Fair Labor Standards Act (FLSA) alleging that she and other claims adjusters were misclassified as salaried employees exempt from overtime requirements, and Pilot violated the FLSA by failing to pay overtime wages. Pilot filed a motion to compel arbitration pursuant to the arbitration provisions set forth in the plaintiff’s employment agreements and moved to dismiss the class and consolidated action claims. While the motions were pending, the parties filed a joint status report confirming that the plaintiff did not oppose Pilot’s motion to dismiss the class action and collective action claims. The parties also reported that after agreeing to arbitrate, they reached a settlement of the plaintiff’s FLSA claims and requested 60 days to finalize the settlement. After further revising the settlement agreement, the parties filed an amended joint motion to approve the settlement. Pilot filed a motion to seal the amended joint motion and settlement agreement.

First, addressing the motion to seal, the court cited prior district court decisions confirming that “when, as here, a settlement must be approved by a court, the settlement becomes part of the judicial record.” However, the court further noted that “confidentiality provisions have been approved in FLSA settlement where the provision is bargained for and the plaintiff receives separate consideration.” The court then found that the plaintiff in this matter “separately bargained for and received separate consideration for the confidentiality provision” reflected in her employment agreements and had jointly moved to approve the amended settlement agreement with Pilot. With this finding, the court concluded that “the public interest in assuring that employee wages are fair” was adequately protected in this case since the monetary terms of the plaintiff’s FLSA settlement were disclosed in the court’s order and contained in the record, and granted Pilot’s motion to seal. Second, the court addressed the amended joint motion to approve the settlement, noting that the Eleventh Circuit recognizes two methods for settlement of FLSA claims, including, as the court utilized in this case, a court determination that the settlement “is a fair and reasonable resolution of a bona fide dispute over FLSA provisions.” Applying this standard of review, the court approved the amended settlement agreement, noting that the plaintiff had a “significant risk of little to no recovery should this action proceed to trial or arbitration” and concluding that the settlement is a “fair and reasonable resolution of her FLSA claims.”

Pleasants v. Pilot Catastrophe Services, Inc., No. 1:23-cv-00132 (S.D. Ala. Apr. 30, 2024).

Ninth Circuit Holds That Arbitration Clause in “Sign-In Wrap Agreement” Is Enforceable

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The Ninth Circuit Court of Appeals recently reversed the denial of a motion to compel arbitration after concluding, contrary to the district court’s decision, that a “sign-in wrap agreement” provided conspicuous notice of terms and that an arbitration clause in the terms was therefore enforceable.

Warners Bros. Entertainment Inc. developed Game of Thrones: Conquest, a mobile game that users could download on their phones. To play the game, users had to press a button labeled “play.” That button was directly over a notice informing users that, by pressing “play,” they agreed to the game’s terms of use. The phrase “terms of use” was a hyperlink to the terms. The first paragraph of the terms advised users in all capitals that the terms required “the use of arbitration on an individual basis to resolve disputes” and involved “waiving your right to a jury trial and class action relief.” An arbitration clause was further down in the terms.

A group of plaintiffs sued Warners Bros. for false and misleading advertising. Warner Bros. moved to compel arbitration. The district court denied that request, concluding that the notice of the terms was “insufficiently conspicuous to bind users to them.”

Warner Bros. appealed and the Ninth Circuit reversed and remanded. The court concluded that the terms were “sufficiently conspicuous” under California law. The court found that the “context of the transaction” supported the enforceability of the terms because users downloaded the app to play the game rather than just accessing a website and thus knew that they would be playing the game for extended periods. The Ninth Circuit also concluded that the visual placement of the notice of the terms — immediately under the “play” button — was clear and conspicuous. The Ninth Circuit also rejected the argument that the terms were substantively unconscionable because the arbitration agreement purportedly banned injunctive relief.

Keebaugh v. Warner Bros. Entertainment Inc., No. 22-55982 (9th Cir. Apr. 26, 2024).

Third Circuit Reverses Order Denying Motion to Compel Arbitration, Holds Arbitration Clause in Consumer Financing Agreement Is Enforceable

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In Mancuso v. MDG USA Inc., the Third Circuit Court of Appeals considered defendant MDG’s appeal of an order denying its motion to compel arbitration of the plaintiff’s lawsuit alleging violations of state and federal fair credit laws. The plaintiff purchased a laptop computer from MDG and signed a financing agreement requiring monthly payments on his account. A dispute arose regarding the remaining balance on the account, and after the plaintiff directed his bank to stop payment on the monthly charges to the account, MDG reported the plaintiff to credit agencies.

The plaintiff then filed a state court action in Pennsylvania alleging violations of state and federal fair credit laws. MDG removed the case to federal court and filed a motion to compel arbitration pursuant to the arbitration clause included in the financing agreement, which covered “any past, present, or future claim, dispute, or controversy … relating to or arising out of” the agreement. The plaintiff admitted he signed the financing agreement and his claims arose from the agreement, but argued that the agreement was “unenforceable because of fraud and unconscionability.” The district court denied MDG’s motion to compel without prejudice. The court concluded that it was not apparent from the face of the complaint whether the plaintiff’s claims were subject to arbitration and ordered limited discovery related to that issue.

In reversing the district court’s decision, the Third Circuit first noted that because the plaintiff did not dispute he had a valid contract with MDG, the court’s review was limited to “whether the arbitration clause itself — not the rest of the contract — is enforceable.” The court then rejected the arguments raised by the plaintiff in challenging the enforceability of the arbitration clause. The court concluded that the arbitration clause was not “hidden and minimized” and further noted that the plaintiff did not contend he was unaware of the clause when he signed the financing agreement. Further, the court rejected the plaintiff’s contention that the arbitration clause was confusing because of a numbering error, noting that the error was in the arbitration clause itself, which means that for the plaintiff to have even noticed the error, he would have to have read the arbitration clause. The court also rejected the plaintiff’s argument that the financing agreement was unconscionable because he could not alter its terms, noting that the arbitration provision was not procedurally unconscionable because it allowed the plaintiff to send MDG an “arbitration opt out notice.” The court then held that the plaintiff did not raise “a colorable legal issue of fraud, unconscionability, or unenforceability of the arbitration clause” and his claims were subject to the arbitration provision. The court reversed the district court’s denial of MDG’s motion to compel arbitration and directed the court to enter an order compelling arbitration of the plaintiff’s claims.

Mancuso v. MDG USA, Inc., No. 23-1963 (3d Cir. Feb. 7, 2024).