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Arbitration / Court Decisions

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

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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).

Fifth Circuit Dismisses Appeal of Order Denying Motion to Reopen Case, Sever Cost-Splitting Provision, and Impose Costs of Arbitration on Appellee

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The underlying dispute related to a property manager’s limitation of the appellant, Jane Doe, to one pet in her apartment. Doe sued the manager for declaratory relief, injunctive relief, monetary damages, and punitive damages under the Fair Housing Act and the Louisiana Equal Housing Opportunity Act. Doe moved for a preliminary injunction, and the property manager moved to compel arbitration and stay the case pursuant to the lease’s arbitration clause. Doe responded, in relevant part, by arguing that the court should sever the arbitration clause’s cost-splitting provision and require the property manager to pay Doe’s share of the arbitration costs.

The district court granted the motion to compel arbitration, holding that Doe was bound by the arbitration clause. It also declined to rule on Doe’s motion for a preliminary injunction and denied Doe’s request to sever the cost-splitting provision of the arbitration clause and her request that the property manager pay her share of the arbitration costs. The court stayed the case and retained jurisdiction to reopen the case on appropriate written motion. The parties subsequently could not agree on the costs of arbitration, and Doe filed a motion to reopen the case and, again, to sever the cost-splitting provision of the arbitration clause. The district court denied Doe’s motion, holding that, pursuant to the agreement’s delegation clause, disputes regarding the parties’ respective responsibilities for arbitration costs should be addressed by the arbitrator.

On appeal to the Fifth Circuit, the court agreed with the property manager’s arguments that the court lacked jurisdiction. The court held that the district court’s order compelling arbitration and staying and administratively closing the case pending arbitration was interlocutory and unappealable within the meaning of section 16 of the FAA. The court held that Doe’s motion to reopen the case and sever was, in effect, nothing more than a motion to reconsider the merits of part of the district court’s order compelling arbitration. A denial of a motion to reconsider an order compelling arbitration does not possess any more finality than the order compelling arbitration itself. The Fifth Circuit also ruled that the collateral order doctrine did not apply given section 16 of the FAA’s “specific framework for determining whether and when an appeal is proper” and that exercising mandamus jurisdiction, a drastic remedy reserved only for truly extraordinary situations, would be inappropriate.

Doe v. Tonti Management Co., No. 21-30295 (5th Cir. Feb. 1, 2022).

First Circuit Clarifies Standard of Review and Evidentiary Proof Applicable to Motion to Compel Arbitration

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Air-Con Inc. is a Puerto Rico corporation that specializes in the sale and distribution of air conditioners in Puerto Rico and the Caribbean. A dispute arose between Air-Con and its supplier, Daikin Applied Latin America LLC. Daikin moved to compel arbitration after Air-Con filed suit in a Puerto Rican court. The district court of Puerto Rico granted Daikin’s request, finding that Air-Con and Daikin had operated pursuant to the terms of an agreement between Air-Con and Daikin’s parent company since the inception of their distribution relationship and the arbitration provision of the agreement between Air-Con and Daikin’s parent applied to the dispute. In addition, the district court read certain allegations from Air-Con’s complaint as admitting that its written agreement with Daikin’s parent applied to the dispute.

The First Circuit reversed. Initially, the court determined that, in light of section 4 of the FAA’s direction that the court “hear the parties” with regard to a motion to compel, the summary judgment standard should apply. The court reasoned that section 4’s command appears to contemplate the submission and consideration of evidentiary materials in support of and opposition to the motion. Given that a court should evaluate a motion to compel arbitration against the summary judgment standard, the court determined that it should review the court’s order de novo.

Applying Puerto Rican law, the court determined that the district court erred in applying the arbitration clause contained in Air-Con’s contract with Daikin’s parent to Air-Con’s dispute with Daikin. The court noted that the parent company is “an entity separate and distinct” from its subsidiary. In concluding that the contract should apply, the district court impermissibly put the burden of disproving the existence of a valid arbitration agreement on Air-Con, the non-moving party. The district court’s decision noted that Air-Con “failed to show” that the agreement between Air-Con and the parent company did not apply, but the focus should instead have been on whether Daikin affirmatively demonstrated the existence of a binding agreement to arbitrate.

In addition, the district court erred by construing allegations in Air-Con’s initial complaint as an admission that the arbitration provision of Air-Con’s agreement with the parent company applied. Daikin did not offer any evidence in support of its motion to compel arbitration but rather relied solely on the uncontroverted allegations from the complaint. In such a case, the court should review the motion like a motion to dismiss and therefore should draw all reasonable inferences in favor of the non-moving party (i.e., Air-Con). The district court erred by improperly construing the allegations of the complaint against Air-Con.

Without the district court’s misallocation of the burden of proof and improper construal of the complaint’s allegations against Air-Con, the First Circuit was left with the language of the agreement, which named Air-Con and Daikin’s parent company as the parties to the contract and further contained a non-assignability clause. That clause provided that the rights and obligations of the parties could not be assigned or otherwise transferred without the written consent of the other party. No such consent was entered into evidence. As the parent company was a separate entity from Daikin, and no written consent to an assignment was in the record, the district court erred by compelling Air-Con to arbitrate its dispute with Daikin.

Air-Con, Inc. v. Daikin Applied Latin America, LLC, No. 19-2248 (1st Cir. Dec. 20, 2021).

Second Circuit Dismisses Appeal of Order Compelling Arbitration in Labor Dispute, Extends Prior Holding in Cheeks v. Freeport Pancake House Inc.

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The Second Circuit Court of Appeals recently dismissed a plaintiff’s appeal of the trial court’s order compelling arbitration on the grounds that the order was a non-appealable interlocutory order under 9 U.S.C. § 16(b). In dismissing the appeal, the court also extended the reach of its earlier decision in Cheeks v. Freeport Pancake House Inc., 796 F.3d 199 (2d Cir. 2015), with respect to voluntary dismissals in disputes governed by the Fair Labor Standards Act (FLSA).

The relevant facts of Samake v. Thunder Lube Inc. are procedural in nature. In Samake, plaintiff Sekouba Samake filed suit in federal court against his former employer alleging violations of the FLSA and other laws. The employer moved to compel arbitration, and Samake promptly filed a notice of unilateral voluntary dismissal without prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i). The district court entered an order retaining jurisdiction over the case pursuant to Cheeks, in which the Second Circuit held that any FLSA settlement must be reviewed by the district court before the parties may dismiss a case by joint stipulation pursuant to Rule 41(a)(1)(A)(ii). Samake then filed a letter with the trial court indicating that the parties had not settled, and sought to withdraw his notice of voluntary dismissal. The court entered an order effecting Samake’s withdrawal of his notice of voluntary dismissal. Thereafter, the parties briefed the employer’s motion to compel arbitration, and the court ultimately granted the motion. Samake timely filed an appeal of the order compelling arbitration.

On appeal, Samake argued primarily that the trial court did not have jurisdiction to continue the proceedings — and enter an order compelling arbitration — because its jurisdiction was automatically revoked as a result of Samake’s notice of voluntary dismissal pursuant to Rule 41(a)(1)(A)(i). By implication, Samake took the position that the Second Circuit’s holding in Cheeks should be restricted to its facts, such that a trial court retains jurisdiction to review FLSA settlements after the parties filed a joint stipulation of dismissal pursuant to Rule 41(a)(1)(A)(ii) (as the Cheeks court held), but loses jurisdiction if the plaintiff files a unilateral notice of dismissal under Rule 41(a)(1)(A)(i).

In rejecting Samake’s argument, the Second Circuit held that Rule 41(a)(1)(A)(i) and (ii) both provide that voluntary dismissal is automatic “subject to any applicable federal statute,” including the FLSA:

We hold that the same result is warranted when the dismissal is effected unilaterally under Rule 41(a)(1)(A)(i) as when dismissal is effected by stipulation of all parties under (A)(ii). As a matter of grammar and structure, the exception to automatic dismissal for “any applicable federal statute” in subsection (A) applies equally to both subsections (A)(i) and (A)(ii); and Cheeks held that the FLSA is such an “applicable federal statute.” The plain text (set out in the margin) thus extends Cheeks to all dismissals under Rule 41(a)(1)(A).

Thus, the court concluded that the trial court below properly retained jurisdiction over the action under Cheeks, notwithstanding Samake’s prior voluntary dismissal. Based on this, the court further concluded that the trial court had jurisdiction to both effectuate Samake’s withdrawal of his voluntary dismissal and to consider the employer’s motion to compel arbitration. As the resulting order compelling arbitration was itself non-appealable under 9 U.S.C. § 16(b), the court dismissed Samake’s appeal of that order for lack of appellate jurisdiction.

Samake v. Thunder Lube, Inc., No. 21-102 (2d Cir. Jan. 27, 2022).

Ninth Circuit Concludes Domino’s Drivers Are Exempt From FAA

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The Ninth Circuit Court of Appeals recently concluded that the Federal Arbitration Act’s exemption for “workers engaged in foreign or interstate commerce” applied to drivers and precluded their employer from compelling arbitration because, even though the drivers only drove within a single state, they were “the last leg” of a chain of interstate commerce.

Third parties ship supplies for pizzas, including supplies from outside California, to Domino’s Southern California supply chain center. At the supply center, Domino’s employees prepare the supplies for distribution to Domino’s franchisees in Southern California, and “D&S drivers,” who are Domino’s employees, then deliver the supplies.

Three D&S drivers sued Domino’s alleging violations of California labor laws on behalf of a putative class. Domino’s moved to compel arbitration pursuant to an arbitration clause that provided that “any claim, dispute, and/or controversy” between Domino’s and the D&S drivers would “be submitted to and determined exclusively by binding arbitration under the” FAA.

The district court declined to compel arbitration, concluding that the D&S drivers fell within the FAA’s exemption for “workers engaged in foreign or interstate commerce.”

The Ninth Circuit affirmed. It rejected Domino’s arguments that the D&S drivers were not engaged in interstate commerce and instead held that the D&S drivers were part of “the last leg” of a chain of interstate commerce that moved supplies from out of state to franchisees. The fact that the D&S drivers only delivered products within California did not matter.

Carmona v. Domino’s Pizza, LLC, No. 21-55009 (9th Cir. Dec. 23, 2021).