Contract Interpretation

In 2017, the plaintiff’s father was admitted as a resident to an assisted living facility in Greenville, South Carolina. As part of the admissions process, the plaintiff, pursuant to a durable general power of attorney, signed the residence services agreement and the attached binding arbitration agreement. A few months later, an employee at the assisted living facility administered incorrect medication to the plaintiff’s father, which ultimately led to his death.

The plaintiff, on behalf of her father’s estate, filed wrongful death and survival actions against the assisted living facility and related entities in federal district court in South Carolina. The defendants moved to dismiss and compel arbitration under the arbitration agreement.

Finding the plaintiff’s claims concerning her father’s care at the assisted living facility fell within the scope of the arbitration agreement, the district court focused on the enforceability of such agreement. The plaintiff challenged the agreement’s enforceability, claiming that the residence services agreement and arbitration agreement should be merged, and since certain provisions of the residence services agreement were purportedly unconscionable, so too were the provisions of the arbitration agreement.

The district court noted that merger has no relevance on the unconscionability of the arbitration agreement because arbitration provisions are severable from the remainder of the contract. The district court therefore looked only to whether the specific provisions of the arbitration agreement were unconscionable and found that, contrary to the plaintiff’s arguments, they were not so oppressive that a fair and honest person would not accept them. The district court therefore granted the motion to dismiss and compel arbitration.

On appeal, the plaintiff argued that the mandatory arbitration agreement and the underlying residence services agreement should be considered as one merged contract, the terms of which were unconscionable under state law and therefore unenforceable.

The Fourth Circuit Court of Appeals affirmed the district court’s decision, finding the lower court properly limited its consideration to the terms of the arbitration agreement and that nothing in the record established that the terms of the arbitration agreement were unconscionable under South Carolina law.

Kelly v. Capital Senior Living Corp., No. 19-2263 (4th Cir. June 17, 2021).

The plaintiff filed suit for alleged civil rights violations arising from his former employment with the defendant. The defendant moved to dismiss and compel arbitration, citing an arbitration clause in the plaintiff’s employment agreement. A provision in the arbitration agreement placed a limit on the number of allowable depositions and special interrogatory requests but authorized the arbitrator to allow additional discovery he or she deemed appropriate. The plaintiff conceded that he signed the arbitration agreement but claimed the discovery limitations rendered it unconscionable and thus unenforceable, including because they were more restrictive than the Federal Rules of Civil Procedure. The court disagreed, noting that the U.S. Supreme Court considered and rejected an almost identical argument in Gilmer v. Interstate/Johnson Lane Corp. The plaintiff also cited no authority in which an arbitration clause was deemed unconscionable on the ground that its discovery restrictions were more onerous than the Federal Rules of Civil Procedure. The court therefore granted the defendant’s motion to compel arbitration but did not dismiss the action, choosing instead to stay the proceedings to preserve the plaintiff’s claims in the event they are not resolved by arbitration.

Pirzada v. AAA Texas, LLC, No. 4:21-cv-00664 (S.D. Tex. June 15, 2021).

The plaintiff sued his former employer, Charter Communications, asserting Kentucky state law claims arising out of his termination. After the case was removed to federal court in the Western District of Kentucky, Charter moved to compel arbitration and dismiss, or in the alternative, stay, the lawsuit.

Before the plaintiff’s termination, Charter had announced a dispute resolution program that would require all employees to arbitrate any employment dispute with Charter unless the employee opted out within 30 days. The plaintiff did not opt out, and as a result, the district court dismissed the plaintiff’s suit against Charter and compelled him to arbitrate his employment claims.

The plaintiff appealed to the Sixth Circuit Court of Appeals, arguing that the arbitration agreement did not cover his employment claims, that it was unconscionable, and that Charter failed to give adequate consideration in return for his agreement to arbitrate.

The Sixth Circuit affirmed the district court’s decision to compel arbitration, holding that the arbitration agreement expressly reserved these “gateway” questions concerning coverage and enforceability of the arbitration agreement for the arbitrator to resolve.

The court noted that the arbitration agreement unambiguously stated that “the arbitrator shall have the sole authority to determine whether a particular claim or controversy is arbitrable.” The court also reasoned that the plaintiff never challenged the district court’s holding delegating the enforceability question to the arbitrator and that the plaintiff’s unconscionability argument attacked the arbitration agreement as a whole, and not just the specific provisions delegating unconscionability claims to an arbitrator.

Having determined that both parties gave adequate consideration by agreeing to arbitrate with each other, the court declined to decide whether the arbitrator could decide the gateway question regarding “formation.”

While the Sixth Circuit found that the district court properly compelled the plaintiff to arbitrate his claims, the court determined that the case should have been stayed, rather than dismissed, and therefore remanded the case with instructions to enter a stay pending arbitration.

Anderson v. Charter Communications, Inc., No. 20-5894 (6th Cir. June 11, 2021).

The Department of Labor brought an enforcement action against Arizona Logistics Inc. for alleged violations of the FLSA’s minimum wage, overtime, record-keeping, and anti-retaliation requirements resulting from the alleged misclassification of delivery drivers as independent contractors rather than employees. Arizona Logistics moved to compel arbitration under its agreements with the drivers, and the Arizona district court denied the motion on the authority of the Supreme Court’s decision in EEOC v. Waffle House Inc.

The Ninth Circuit Court of Appeals affirmed the denial, noting that the FAA does not provide that agreements to arbitrate are enforceable against nonparties, and the secretary of labor was not a party to the agreement. In addition, the court highlighted the fact that, under the statutory scheme enacted by Congress, the secretary is “master of [his] own case,” that the remedial statute at issue “unambiguously authorizes the Secretary to obtain monetary relief on behalf of specific aggrieved employees,” and that the enforcement action may be a vehicle to “vindicate broader governmental interests,” such as deterring other employers from violating the FLSA and protecting compliant employers from unfair wage competition. Moreover, the secretary not only controlled the case, but the employee did not even have a right to intervene in the secretary’s action once the secretary filed suit.

Quoting Waffle House, the Ninth Circuit concluded that a contrary holding “would undermine the detailed enforcement scheme created by Congress simply to give greater effect to an agreement between private parties that does not even contemplate the Secretary’s statutory function.”

Walsh v. Arizona Logistics, Inc., No. 20-15765 (9th Cir. May 18, 2021).

Shannon Zoller sued her former employer, GCA Advisors LLC, for violations of the Equal Pay Act, California’s Fair Pay Act, and the Civil Rights Act of 1871, among other alleged violations. GCA moved to compel arbitration pursuant to the arbitration agreements contained in various documents that Zoller signed when she began her employment, but the district court denied the motion, finding that the “knowing waiver” doctrine applied to Zoller’s statutory claims and that she had not knowingly waived her right to bring her claims in a judicial forum.

The “knowing waiver” doctrine is a “judicially created requirement that narrows the [Federal Arbitration Act’s] scope when other federal statutes explicitly limit the enforcement of arbitration agreements. The standard requires a party to an arbitration agreement to waive knowingly and explicitly their right to judicial determination of their Title VII claims.” The Supreme Court has held that, while not all statutory claims may be appropriate for arbitration, if a party agreed to arbitration, the party will be held to that agreement unless the party could prove a congressional intent to preclude a waiver of judicial remedies for the statutory rights at issue. Such an intent would be found in the statutory text, legislative history, or an “inherent conflict” between arbitration and the statutes’ underlying purposes.

Rather than engage in such an analysis, the district court analogized the claims brought by Zoller to other types of “civil rights claims” to which the knowing waiver doctrine had been held to apply. The Ninth Circuit noted that this analysis was incorrect but nevertheless assumed, without deciding, that the doctrine applied to Zoller’s claims. The court held that the arbitration agreement’s “clear language encompassing employment disputes” and additional evidence of Zoller’s knowing waiver were sufficient to meet the doctrine’s requirements. The contractual agreements “included explicit language regarding employment disputes so that Zoller’s statutory claims [were] clearly encompassed by the [arbitration] agreement.” In addition, Zoller, who was an attorney before becoming an investment banker, was given “full access” to the documents providing for arbitration and an opportunity to consult with legal counsel of her choice before signing. As such, the Ninth Circuit reversed the district court, finding that Zoller had knowingly waived her right to a judicial forum and compelled the parties to arbitrate all of her claims.

Zoller v. GCA Advisors, LLC, No. 20-15595 (9th Cir. Apr. 14, 2021).