Contract Interpretation

The plaintiffs filed a class action against Domino’s, alleging that the company’s franchise agreement violated federal antitrust law as well as state law. Domino’s moved to compel arbitration, and the plaintiffs opposed on the basis that Domino’s couldn’t enforce the arbitration agreements because Domino’s hadn’t signed the agreements; only their franchises had. However, incorporation of the AAA rules in the plaintiffs’ agreements provided “clear and unmistakable” evidence that the parties agreed to arbitrate “arbitrability.”

The plaintiff offered several arguments against such conclusion: (1) the arbitration agreement incorporates the AAA rules only as to claims that fall within the scope of the agreement; (2) the relevant AAA rule addresses only the “existence, scope, or validity” of his agreement, not whether non-signatories may enforce arbitration agreements under the FAA; (3) even if the relevant AAA rule gives arbitrators the power to decide the question of “arbitrability,” it does not give them the exclusive power to do so; (4) Sixth Circuit precedent has held, in certain instances, that incorporation of the AAA rules does not provide “clear and unmistakable” evidence that the parties agreed to arbitrate “arbitrability”; (5) the incorporation of the AAA rules is not “clear and unmistakable” evidence that the parties agreed to arbitrate “arbitrability”; and (6) a ruling for Domino’s would mean that anyone could force him to arbitrate “arbitrability” no matter how frivolous the argument for arbitration. The circuit court did not find these arguments availing and affirmed the Eastern District of Michigan’s ruling referring the matter to arbitration.

Blanton v. Domino’s Pizza Franchising LLC, No. 19-2388 (6th Cir. June 17, 2020).

The Fourth Circuit Court of Appeals recently declined to compel arbitration in a Fair Labor Standards Act (FLSA) class action with respect to more than 70 employees for whom the defendant employer could not produce signed arbitration agreements due to apparent poor record-keeping.

April Hill worked for Employee Resource Group LLC (collectively with other defendants “ERG”), which operated Applebee’s restaurants in several states. Hill filed a putative FLSA class action. In response, ERG moved to enforce arbitration agreements it purportedly had with all its employees. In support of that motion, ERG submitted agreements containing arbitration clauses for a number of employees. It also admitted, however, that it could not locate signed arbitration agreements for a number of plaintiffs, including Hill. It therefore submitted an affidavit from its director of human resources, David Bates. Bates averred that all ERG employees are required to sign agreements containing arbitration clauses when they are hired, described the training that managers received requiring them to have new employees sign such agreements, and explained that the fact that some agreements could not be found was the result of record-keeping errors.

The district court granted ERG’s motion to compel arbitration with respect to the employees for whom ERG had produced signed arbitration agreements, but denied it with respect to the more than 70 other employees for whom ERG could not produce such agreements.

The Fourth Circuit affirmed. Applying state law that required a heightened standard for establishing the existence and terms of a contract through parol evidence and the summary judgment standard, the court concluded that no reasonable trier could conclude that ERG had presented sufficient evidence with respect to the individuals for whom it could not produce signed arbitration agreements. Bates’ affidavit described ERG’s general human resources policies. It did not describe the actual hiring process experienced by the class members in question. Nor was there any other evidence describing the processes for those employees. The arbitration agreements ERG produced for some 780 other employees did not cure this deficiency. ERG argued that the large number of agreements confirmed Bates’ sworn statement that all employees signed arbitration agreements. There was no evidence, however, of how many employees ERG had during the relevant time period. It could have been 900 or 9,000, which doomed ERG’s argument.

Hill v. Employee Resource Group, LLC, No. 18-2009 (4th Cir. June 9, 2020).

“Although a predecessor collective bargaining agreement does not automatically bind a ‘perfectly clear’ successor, it may if the employer expresses an intent to be bound.” Here, Vectrus Systems Corp. entered into an agreement with Teamsters Local 631, wherein it promised to accept the terms and conditions of the preexisting collective bargaining agreement before staffing its operations. Thus, the fact that the staffing determination that gave rise to the dispute took place before the effective date of the collective bargaining agreement did not divest the arbitrator of the authority to arbitrate the dispute. The District of Nevada’s denial of Vectrus’ petition to vacate the arbitration award was affirmed.

Vectrus Systems Corp. v. Teamsters Local 631, No. 19-16640 (9th Cir. June 11, 2020).

The First Circuit Court of Appeals recently rejected a party’s argument that an arbitration agreement was unenforceable because the contract containing the arbitration clause had been allegedly terminated and superseded. The court explained that arbitration clauses are generally freestanding and survive the termination of a contract, and concluded that the narrow circumstances in which a later agreement might terminate an arbitration clause were not satisfied in this case.

Kara Biller and her mother Joan McKenna sued Brookdale Greenwich Bay, an assisted living facility, for a variety of tort claims related to allegedly inadequate medical treatment McKenna received while she was a resident at Brookdale.

Brookdale moved to compel arbitration under the terms of a “residency agreement” that Biller signed on McKenna’s behalf when McKenna moved into Brookdale.

In response, Biller and McKenna argued, among other things, that the residency agreement and its arbitration clause expired when McKenna was subsequently moved to a new unit within Brookdale and a new implied-in-fact contract was created that superseded the residency agreement.

The district court declined to compel arbitration. The First Circuit reversed.

As an initial matter, the court rejected Brookdale’s argument that the arbitrator should decide gateway issues of arbitrability rather than the court. The residency agreement’s arbitration clause did not establish that such issues were for the arbitrator in clear and unmistakable language.

The court therefore considered Biller and McKenna’s arguments, including their contention that the residency agreement and its arbitration clause were void because the agreement contained a clause allowing either party to terminate the agreement if McKenna had to “be relocated due to [her] health.” The court noted that it was up to the arbitrator, not the court, to interpret that clause to determine what “relocate” meant and whether McKenna’s move within Brookdale qualified as a relocation that triggered that clause.

That did not end the matter, however, because Biller and McKenna argued that no agreement to arbitrate existed because the agreement had terminated when McKenna “relocated.” The court rejected that agreement. It explained that unless an agreement provides otherwise, arbitration clauses are freestanding and severable and that an argument that an arbitration clause is invalid on a ground that affects the entire agreement is generally for the arbitrator to decide. The court also explained that there is a presumption that arbitration clauses survive the underlying contract. There was no evidence that the arbitration clause was not severable in this case.

The court then rejected Biller and McKenna’s other arguments that the relocation had created an entirely new agreement that superseded the residency agreement and its arbitration clause and that the arbitration clause was unconscionable. Although the court noted that parties could extinguish arbitration clauses, there was no evidence that the parties did so in this case by, for example, entering into a new contract that completely covered the same subject matter as the original contract and that was inconsistent with that agreement. Nor was the agreement unconscionable under Rhode Island law, which sets a “daunting” standard for unconscionability.

Biller v. S-H Opco Greenwich Bay Manor, LLC, No. 19-1865 (1st Cir. June 5, 2020).