Contract Interpretation

Arbitration Provision Treated as Standalone Contract for Purposes of Determining Parties Capable of Compelling Arbitration

February 2, 2023 by Benjamin Stearns

The Ninth Circuit Court of Appeals reversed a district court decision and compelled arbitration based on its determination that one of the litigants, Experian, was a party to the arbitration provision, despite the fact that Experian was not a party to the wider agreement that contained the arbitration provision.

Elettra Meeks filed a putative class action against Experian under the Fair Credit Reporting Act. Ms. Meeks entered into a contract for credit monitoring services provided by Experian Consumer Services, an affiliate of Experian. The contract between ECS and Meeks contained an arbitration provision that defined ECS to include affiliates, such as Experian. However, the definition of ECS for purposes of the wider contract, separate and apart from the arbitration provision, did not include affiliates, such as Experian.

The district court found that Experian did not have a right to compel arbitration because it was not a party to the agreement. The Ninth Circuit reversed, relying on U.S. Supreme Court precedent that holds arbitration provisions to be “severable” from the larger contracts that contain them. Based on the precedent, the Ninth Circuit analyzed the parties to the arbitration provision as though it was a standalone contract, even though it was contained within a wider “Terms of Use Agreement.” Because the definition of ECS for purposes of the arbitration provision included its affiliates, Experian was considered a party to the arbitration agreement, irrespective of whether it was a party to the wider contract. Therefore, Experian had the power to compel arbitration.

Meeks v. Experian Information Services, Inc., Nos. 21-17023, 22-15028 (9th Cir. Dec. 27, 2022).

Sixth Circuit Affirms Judgment Compelling Arbitration in Kroger/Union Dispute

January 25, 2023 by Brendan Gooley

The Sixth Circuit recently rejected a challenge to a Rule 12(c) judgment compelling arbitration in a dispute between a Kroger subsidiary and a union that represented its employees.

Kroger Limited Partnership I (KLPI), which is part of The Kroger Company, had a collective bargaining agreement (CBA) with United Food & Commercial Workers, Local 1995. The union represented employees in KLPI’s stores in the greater Nashville, Tennessee area. In 2020, a different division of Kroger opened a warehouse in the area (Knoxville Local Fulfillment Center). The union claimed it represented employees at the new facility and Kroger and KLPI disagreed. The union sought to initiate arbitration and, when KLPI refused, filed a motion to compel arbitration. The union then moved for judgment on the pleadings pursuant to Rule 12(c). The district court granted the union’s motion as to KLPI — but not Kroger on the basis that Kroger was not a party to the arbitration clause in the CBA — KLPI appealed.

The Sixth Circuit affirmed and held that the union’s grievance fell within the scope of the arbitration agreement because the union argued that the Knoxville Local Fulfillment Center was a “store” as defined in the CBA within the geographic area covered by the CBA. The Sixth Circuit therefore applied a presumption of arbitrability that KLPI could only overcome by citing an “express provision excluding” the dispute from the scope of the arbitration clause or “forceful evidence of a purpose to exclude the claim from arbitration.” The court rejected KLPI’s claim that such evidence existed because the CBA’s definitions only applied to grocery stores, not the Knoxville Local Fulfillment Center. Although that may have been a plausible reading of the CBA, the provisions at issue did not “clearly and unambiguously” exclude the union’s claim, and the relevant clauses were susceptible to multiple interpretations. The court also rejected a claim by KLPI about what discovery would have shown as beyond the scope of its answer and thus, something that it could not consider in the scope of a Rule 12(c) motion. Consequently, the Sixth Circuit rejected the argument on the grounds that it went to the merits of the dispute, not the scope of the CBA’s arbitration agreement. The Sixth Circuit also rejected KLPI’s argument that the courts lacked jurisdiction over the union’s claim because the National Labor Relations Board had exclusive jurisdiction over the subject matter of the dispute.

United Food & Commercial Workers, Local 1995 v. Kroger Co., No. 22-5085 (6th Cir. Oct. 14, 2022).

Ninth Circuit Affirms District Court’s Order Denying Online Cryptocurrency Exchange’s Motion to Compel Arbitration of Users’ Claims

January 20, 2023 by Kenneth Cesta

In David Suski v. Coinbase, Inc., et al., the Ninth Circuit affirmed a district court order denying defendant Coinbase, Inc.’s motion to compel arbitration, concluding that issues surrounding a forum selection clause were not delegated to the arbitrator and were for the court to decide. The court further found that the forum selection clause in Coinbase’s official rules superseded the user agreement’s arbitration clause.

The case involved claims brought by the plaintiff and other users of Coinbase’s online cryptocurrency exchange who opted into Coinbase’s “Dogecoin Sweepstakes” in June 2021. When opening their accounts, the plaintiffs agreed to a Coinbase user agreement which included an arbitration provision. The plaintiffs later opted into the sweepstakes’ official rules, which included a forum selection clause providing that “California courts have exclusive jurisdiction over any controversies regarding the sweepstakes.” The plaintiffs later brought claims under California’s False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act against Coinbase and another defendant hired by Coinbase to market and run the sweepstakes. Coinbase filed a motion to compel arbitration of the plaintiffs’ claims. The district court denied the motion, concluding that the “delegation clause” in the user agreement “did not delegate to the arbitrator the issue of which contract [the User Agreement or Official Rules] governed the dispute.” Applying state law principles of contract interpretation, the district court then ruled that the official rules superseded the user agreement, and that the arbitration clause contained in the user agreement did not apply to the plaintiffs’ claims.

The Ninth Circuit affirmed the district court’s order and addressed Coinbase’s argument that the district court erred when it concluded that the user agreement did not delegate to the arbitrator the issue of whether the forum selection clause in the official rules superseded the arbitration clause in the user agreement. The court noted its decision in Oracle Am. Inc. v. Myriad Grp. A.G., (9th Cir. 2013) that “[w]hether the court or the arbitrator decides arbitrability is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.” The court then found that the district court correctly ruled that in this case, the issue of whether the forum selection clause in the official rules superseded the arbitration clause in the user agreement “was not delegated to the arbitrator, but rather was for the court to decide.”

The court then addressed Coinbase’s argument that the district court erred when it concluded that the forum selection clause in the official rules superseded the arbitration clause contained in the user agreement. The court noted that state law principles of contract formation and interpretation apply “when determining whether parties have agreed to submit to arbitration” and when there are two contracts dealing with the same subject matter without addressing whether the second contract is a substitute for the first, “the two contracts must be interpreted together and the latter contract prevails to the extent they are inconsistent.” The court agreed with the district court that given the conflict between the official rules and the user agreement, “the Official Rules’ forum selection clause supersedes the User Agreement’s arbitration clause” since the official rules came after the user agreement.

David Suski, et al. v. Coinbase, Inc., et al., No. 22-15209 (9th Cir. Dec. 16, 2022)

Seventh Circuit Affirms District Court Decision Refusing To Refer Putative Class Action Under the Illinois Biometric Information Privacy Act to Arbitration

January 18, 2023 by Kenneth Cesta

In Joshua Johnson v. Mitek Systems, Inc., the Seventh Circuit affirmed a district court order denying defendant Mitek Systems, Inc.’s motion to compel arbitration of the plaintiff’s claims brought under the Illinois Biometric Information Privacy Act. The case before the district court involved a putative class action brought on behalf of Joshua Johnson, and all others similarly situated, in Illinois state court. Mitek removed the matter to the U.S. District Court for the Northern District of Illinois pursuant to the Class Action Fairness Act. A company referred to in the decision as HyreCar “is an intermediary between people who own vehicles and other people who would like to drive for services such as Uber and GrubHub.” HyreCar verifies an applicant’s background and in so doing, sends certain personal information about the applicant to Mitek, which “provides identity-verification services.” Johnson alleges that Mitek used his information without the consent required by section 15 of BIPA.

Johnson’s contract with HyreCar included an arbitration clause which obligated Johnson to arbitrate any claims “with a long list of entities” including “all authorized or unauthorized users or beneficiaries of services or goods provided under the Agreement.” After removing the case to the district court, Mitek filed a motion to compel arbitration which was denied. Mitek then filed an immediate appeal to the Seventh Circuit pursuant to 9 U.S.C. §16(a)(1), contending that it is “a beneficiary of services or goods provided under the Agreement,” thereby requiring that the plaintiff arbitrate his claims against Mitek pursuant to the arbitration clause in the agreement he signed with HyreCar.

The Seventh Circuit rejected Mitek’s claims that the plaintiff is required to arbitrate his claims, finding that “‘the services or goods provided under the Agreement’ are vehicles, plus some ancillary aid that HyreCar furnishes to drivers.” The court further found that Mitek “does not receive ‘services or goods … under the Agreement’ between Johnson and HyreCar” and that Mitek cannot be classified as a “user” of HyreCar’s services or goods. The court noted that while courts “cannot disfavor arbitration, compared with other agreements” they may not “jigger the rules to promote arbitration” … and that “it would stretch contractual language past the breaking point” to conclude that Johnson or any of the other drivers agreed to arbitrate with Mitek. The court also rejected Mitek’s claim that the plaintiff should be equitably estopped from litigating the lawsuit, finding that the plaintiff “has not done anything that would estop himself from litigating this suit.” The court affirmed the district court’s decision refusing to refer the matter to arbitration, and remanded the case for a determination of whether the action may proceed as a class action “except for the claim under §15(c) of BIPA” which the court held must be remanded to state court.

Joshua Johnson v. Mitek Systems, Inc., No. 22-1830 (7th Cir. Dec. 21, 2022)

Supreme Court of Idaho Finds That District Court Had Jurisdiction to Determine Enforceablity of Non-Compete Provision in Employment Agreement, Which Included a Mandatory Arbitration Provision

December 14, 2022 by Kenneth Cesta

In Blaskiewicz v. Spine Institute of Idaho, P.A., after being terminated with less than one year of employment, Donald Blaskiewicz, “a highly-trained neurosurgeon” filed a complaint for declaratory judgment in the state district court of Idaho to determine the enforceability of a Professional Services Agreement with his former employer, the Spine Institute of Idaho. The PSA contained a noncompete clause that “contractually proscribed Blaskiewicz from practicing medicine within fifty miles of the Spine Institute’s office (with an explicit exception for Caldwell) for a period of eighteen months, should his employment with the Spine Institute be terminated for any reason.” The PSA also included an arbitration clause, which required that “‘any dispute arising out of or related to [the PSA] be settled by arbitration in Ada County, Idaho.’”

The Spine Institute moved to dismiss, or in the alternative, to stay the proceedings, arguing that “the sole way … to challenge the noncompete provision was through arbitration and, as such, the district court was without jurisdiction to consider Blaskiewicz’s complaint.” Significantly, the Spine Institute “did not seek an order compelling arbitration, apparently because Blaskiewicz had not breached the PSA.” The district court denied the Spine Institute’s motion, concluding that it had jurisdiction over the matter. Thereafter, the district court granted Blaskiewicz’s motion for summary judgment, finding that the noncompete provision in the PSA was void as against public policy, and awarded attorney’s fees in favor of Blaskiewicz.

The Supreme Court of Idaho vacated the district court’s grant of summary judgment and remanded the case for further proceedings. First, the court addressed whether the appeal was moot, since the 18-month noncompete period had expired and Blaskiewicz did not accept employment during that time. The court concluded that the appeal was not moot since the district court had awarded attorney’s fees to Blaskiewicz, and “if we were to conclude the district court erred in granting summary judgment (as we do below) … this case presents a real and substantial controversy.” Second, the court held that “the district court had jurisdiction to determine whether the noncompete provision was enforceable,” and that while the Spine Institute moved to dismiss the case or stay the proceedings, they did not file a demand for arbitration and “cannot now complain that this controversy should have been arbitrated.” Third, the court found that the district court erred in granting summary judgment in favor of Blaskiewicz, concluding that “there are genuine issues of material fact such that summary judgment was inappropriate as to whether the noncompete provision was void as a matter of public policy or otherwise enforceable.” Finally, the court vacated the district court’s award of attorney’s fees since Blaskiewicz was no longer the prevailing party, and remanded the case for further proceedings.

Blaskiewicz v. Spine Institute of Idaho, P.A., Docket No. 48785 (Supreme Court of Idaho, Oct. 31, 2022)