Contract Formation

Sixth Circuit Holds That District Court Erred by Not Analyzing Whether Non-Signatory Consented to Arbitration

September 22, 2022 by Brendan Gooley

The Sixth Circuit Court of Appeals recently vacated and remanded an order concluding that a party was not bound by an arbitration award after concluding that the district court failed to consider whether that party may have consented to arbitration through its actions even though it was not a signatory to the collective bargaining agreement that contained the arbitration clause.

Greenhouse Holdings LLC did business as Clearview Glass and Glazing in Kentucky. Greenhouse also owned 90% of Clearview Glass and Glazing Contractors of Tennessee LLC. The International Union of Painters and Allied Trades District Council 91 filed a grievance against “Clearview Glass” alleging that it violated a collective bargaining agreement the union had. It was unclear whether “Clearview Glass” meant Greenhouse (based on its trade name Clearview Kentucky), Clearview Tennessee, or both. The union argued that Greenhouse was bound by the collective bargaining agreement and an arbitration clause therein. Greenhouse disputed that. The arbitrator apparently sided with the union and issued an order that affected Clearview Kentucky (i.e., Greenhouse). Greenhouse challenged that award.

The district court vacated the arbitrator’s award “to the extent it applies to Greenhouse.” The district court “held that Greenhouse wasn’t a party to the [collective bargaining agreement] and thus the arbitrator acted outside his authority to the extent the award applied to Greenhouse.”

The Third Circuit vacated the district court’s decision. It held that the district court “didn’t address this threshold question” of whether Greenhouse had consented to arbitration even though it did not sign the collective bargaining agreement that contained the arbitration clause. The Third Circuit explained that “an agreement to arbitrate need not be in writing” and that courts “may infer agreement when a party willingly participates in [an] arbitration without objecting to the arbitrator’s jurisdiction.”

The Third Circuit further explained that whether a party has consented to arbitration it otherwise may not have agreed to is a fact-intensive inquiry, and it remanded the case to the district court to analyze that question under the facts of the case.

Greenhouse Holdings, LLC v. International Union of Painters & Allied Trades District Council 91, No. 21-6164 (6th Cir. Aug. 8, 2022).

Eleventh Circuit Enforces Employee Arbitration Agreement, Concluding That Agreement Was Not Unconscionable

August 24, 2022 by Kenneth Cesta

In Lambert v. Signature Healthcare LLC, the Eleventh Circuit Court of Appeals reversed the district court’s denial of the defendants-appellants’ motion to dismiss and to compel arbitration under the FAA, holding that the arbitration agreement signed by the plaintiff-appellee was not “procedurally unconscionable” and was enforceable.

After a six-month job search, Claire Lambert accepted a position at Signature Healthcare. As a condition of employment, Lambert was required to sign Signature’s arbitration agreement and handbook acknowledgment. The arbitration agreement provided that it covered claims relating to “recruitment, employment, or termination of employment,” claims under the Americans with Disabilities Act and the Fair Labor Standards Act, and “any and all claims under federal, state, and local laws and common law.” Lambert was ultimately fired and brought claims against Signature in Florida state court under the FMLA, the FLSA, and state law. Signature removed the case to federal court and moved to dismiss and compel arbitration under the FAA. The district court denied the motion, concluding that the arbitration agreement was unconscionable, both procedurally and substantively, and thus unenforceable. The district court found the arbitration agreement was procedurally unconscionable because it was a “contract of adhesion” and presented on a “take it or leave it” basis. The court also found the arbitration agreement was substantively unconscionable because the handbook reserved Signature’s right to modify the terms of the arbitration agreement unilaterally.

The Eleventh Circuit reversed the order denying Signature’s motion to dismiss and to compel arbitration, concluding that the arbitration agreement was not procedurally unconscionable. After addressing the FAA and Florida law, the court found that the district court “misapprehended procedural unconscionability under Florida law” when it determined that Lambert lacked a “meaningful choice” when she signed the arbitration agreement and noted that the fact that an arbitration agreement is presented on a take-it-or-leave-it basis “is not dispositive.” The court noted that even when an arbitration agreement is a condition of employment, the circumstances surrounding the execution of the agreement should be explored by the court before concluding it is procedurally unconscionable. The court engaged in an “independent review of the record” and found they could not identify “any additional factors that weigh in favor of procedural unconscionability.” The court concluded Lambert had not shown the arbitration agreement was procedurally unconscionable and, as a result, the court need not consider whether the agreement was substantively unconscionable.

Lambert v. Signature Healthcare, LLC, No. 19-11900 (11th Cir. July 8, 2022).

Eighth Circuit Finds Contract Formation Challenges to Be Decided by the Court, Affirms Order Denying Motion to Compel Arbitration

July 10, 2022 by Alex Silverman

Defendant Litong Capital LLC appealed from an order of the U.S. District Court for the Western District of Missouri. The district court denied Litong’s motion to compel arbitration of claims asserted by GP3 II LLC, having determined there was never a valid contract between them. The Eighth Circuit affirmed.

Litong argued initially that disputes involving the entirety of a contract containing an arbitration clause are to be decided by the arbitrator, not the court, in the first instance, citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006). As the Eighth Circuit explained, however, the Supreme Court in Buckeye distinguished “validity of the contract as a whole” disputes from those involving contract formation. In Buckeye, the Supreme Court noted that its ruling “does not speak to the issue … [of] whether the signor lacked authority to commit the alleged principal.” In a later decision, the Supreme Court reaffirmed that disputes involving contract formation, such as the GP3/Litong dispute, are “generally for courts to decide.”

The Eighth Circuit also agreed with the district court that Litong failed to establish, under Missouri law, that the person who purportedly signed the contract for GP3 had apparent authority to do so. Because Litong already conceded that the purported signor did not have actual authority to bind GP3, the court affirmed the district court order denying Litong’s motion to compel.

GP3 II, LLC v. Litong Capital, LLC, No. 21-1443 (8th Cir. June 3, 2022).

Texas Supreme Court Finds Erotic Dancer and Club Had “Meeting of the Minds” to Enforce Arbitration Agreement

April 7, 2022 by Alex Silverman

Stephanie Sotero Hernandez was killed in a car accident after leaving work at Baby Dolls Topless Saloons Inc. Hernandez’s estate filed a wrongful death suit against the club alleging it continued serving alcohol to Hernandez’s co-worker, the driver of the car, after knowing she was intoxicated. The club moved to compel arbitration based on the arbitration clause in its contract with Hernandez. A Texas court of appeals affirmed a trial court order denying the club’s motion, finding the terminology in the contract was “uncertain” and lacked “definiteness,” thus invalidating any agreement to arbitrate. The Texas Supreme Court reversed.

Hernandez’s estate argued the motion should be denied because there was never a “meeting of the minds” between Hernandez and the club. The court disagreed, finding that to conclude otherwise, as did the court of appeals, ignores that Hernandez and the club operated under the contract on a weekly basis for nearly two years before her untimely death. The court therefore rejected the notion that the parties never entered a valid contract. Hernandez’s estate also argued that the arbitration clause itself was limited in scope and inapplicable, but the court again disagreed, emphasizing the bolded and capitalized clause in the contract explicitly delegating gateway arbitrability issues of this sort to the arbitrator. The court thus reversed and remanded with instruction to grant the club’s motion to compel arbitration.

Baby Dolls Topless Saloons, Inc. v. Sotero, No. 20-0782 (Tex. Mar. 18, 2022).

Maine Supreme Court Holds Uber Cannot Enforce Arbitration Clause in Its User Terms and Conditions, Agrees User Was Not Provided Reasonable Notice

March 8, 2022 by Alex Silverman

The Supreme Court of Maine has affirmed an order denying Uber’s motion to compel arbitration of claims that it and its subsidiary violated the Maine Human Rights Act. The action was filed after an Uber driver refused to drive plaintiff Patricia Sarchi, who is blind, because of her guide dog. Uber moved to compel arbitration pursuant to the terms and conditions of its user agreement. The plaintiffs (Sarchi and the Maine Human Rights Commission) argued that the manner in which the terms were presented rendered them, and the arbitration agreement, unenforceable.

Given the prevalence of online contracts, the court explained that “reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility.” Ultimately, the question is “what level of notice and assent is required in order for a court to enforce an online adhesion contract?” Looking to other jurisdictions for guidance, the court identified a two-step inquiry. The first step looks at whether the user had reasonable notice of the contract terms from the standpoint of a reasonably prudent user of online technology. Assuming reasonable notice was provided, the second step is whether the user manifested assent to the terms. Here, the court found Uber’s terms did not make it beyond step one, likening this case to others in which Uber’s terms were deemed insufficient to provide reasonable notice. As in those other cases, the court explained that the user interface here — the appearance of the hyperlink to the relevant terms, the use of muted coloring, the font size, the emphasis on payment information, among other things — rendered the terms “inconspicuous.” While that alone warranted denial of Uber’s motion to compel arbitration, the court also found Sarchi could not have manifested assent to the terms given their presentation. The court expressly rejected the notion that Sarchi became bound by the arbitration clause by clicking on a “done” button after entering her payment information.

Sarchi v. Uber Technologies, Inc., No. 2022 ME 8 (Me. Jan. 27, 2022).