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Arbitration / Court Decisions

Ninth Circuit Compels Investment Banker to Arbitrate Statutory Employment Discrimination and Civil Rights Claims Despite Assumption That “Knowing Waiver” Doctrine Applied to Claims

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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).

First Circuit Concludes App User Is Bound by Arbitration Clause in App’s Terms and Conditions

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The First Circuit Court of Appeals recently concluded that an app user had sufficient notice of and was bound by an arbitration clause in the app’s terms and conditions. The court rejected the user’s arguments that, among other things, she was not bound by the clause because she had to scroll down to see it. The court concluded that the user was bound by the arbitration clause.

Handy Technologies Inc. operates an application that enables users to retain house cleaners and other home services. Maisha Emmanuel, a nanny and housekeeper, signed up to offer her services through Handy’s app. As part of that process, Emmanuel submitted an application that required her to click a checkbox next to the statement: “I agree to Handy’s Terms of Use.” The phrase “terms of use” was a hyperlink that, if clicked, would have taken the user to Handy’s terms, which include a mandatory arbitration clause. Emmanuel, however, clicked the checkbox, submitting her application, without accessing or reviewing the terms of use. After an interview, background check, and orientation session, Emmanuel gained access to the Handy app, which contained a screen stating: “I understand that the Handy Service Professional Agreement has changed and that I need to carefully read the updated agreement on the following screen before agreeing to the new terms.” When Emmanuel clicked through to the next screen, she saw the initial portion of Handy’s independent contractor agreement. The visible portion noted that Emmanuel was agreeing to be bound by the agreement but did not display language regarding arbitration. Had Emmanuel scrolled down, she would have seen the mandatory arbitration clause. Emmanuel, however, did not scroll through the screens or terms when using the app.

Emmanuel subsequently filed a putative class action alleging that Handy had misclassified her and other similarly situated users as independent contractors when it should have classified them as employees and that Handy had therefore violated, inter alia, the FLSA by failing to pay her and similarly situated users minimum wage. Handy moved to compel arbitration.

The district court granted Handy’s motion, and Emmanuel appealed.

The First Circuit affirmed. The court applied Massachusetts law on notice to app users regarding arbitration agreements, concluding that Emmanuel had “reasonable notice of the term in the Agreement concerning arbitration” and that a valid contract to arbitrate therefore existed. Handy’s app was clear that Emmanuel was agreeing to a contract. Although the arbitration clause was not visible without scrolling, the app was clear that the entirety of the agreement could be viewed by scrolling down. Emmanuel’s onboarding process, which included an interview, orientation, and background check, also supported the conclusion that Emmanuel knew she was entering into a significant contractual relationship by signing up for Handy’s app.

The First Circuit also declined to consider Emmanuel’s contention that Handy’s agreement was unconscionable. Emmanuel’s argument regarding unconscionability, that Handy allegedly had a unilateral right to modify the agreement, was not directed to the agreement’s arbitration clause and was therefore for the arbitrator to address, not the court.

Emmanuel v. Handy Technologies, Inc., No. 20-1378 (1st Cir. Mar. 22, 2021).

Second Circuit Affirms Confirmation of ICC Decision Based on UAE Law

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The Second Circuit Court of Appeals recently affirmed a decision confirming a decision by the International Chamber of Commerce (ICC) that applied the law of the United Arab Emirates (UAE).

Cessna Finance Corp. leased several private jets to startup Prestige Jet Rental. Ghaith Al Ghaith, Prestige’s chairman, who was also the deputy chairman of Al Ghaith Holding Co. PJSC (AGHC), guaranteed the lease agreements in his capacity as deputy chairman of AGHC. When Prestige defaulted, Cessna initiated arbitration in the ICC pursuant to the lease agreements against AGHC. AGHC argued that Al Ghaith’s guarantee was invalid because its articles of association required the signatures of “two out of three” of its chairman, deputy chairman, and managing director to bind the company, and only Al Ghaith had signed the guarantee. The ICC rejected that claim, finding that “AGHC was bound by ‘good faith’ under … the UAE Civil Code.” Cessna moved to confirm the ICC’s award and AGHC cross-moved to vacate the award.

The district court confirmed the award. The Second Circuit affirmed. The Second Circuit rejected AGHC’s argument that the ICC had “manifestly disregarded the law,” explaining that it had applied the law of the UAE in a way that “provided at least a barely colorable justification for its decision.” The court noted that a barely colorable justification was all that was needed for an award to be enforced against a challenge that an arbitrator manifestly disregarded the law.

Cesfin Ventures LLC v. Al Ghaith Holding Co. PJSC, No. 20-1106 (2d Cir. Apr. 22, 2021).

California Federal Court Rejects Unconscionability Claims, Enforces Delegation Clauses in Arbitration Agreements

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Two former Aon employees sued Aon, claiming restrictive covenants in agreements they entered into with the company were void, illegal, and unenforceable. Aon moved to compel arbitration per arbitration provisions in the relevant contracts. The plaintiffs argued that the arbitration provisions were both procedurally and substantively unconscionable, and thus unenforceable. In response, Aon pointed to “delegation clauses” in the provisions, pursuant to which disputes about gateway arbitrability issues are to be decided by an arbitrator. The plaintiffs claimed the delegation clauses were also unconscionable, but the U.S. District Court for the Northern District of California disagreed.

To successfully challenge a delegation clause, the court explained that a party cannot challenge the broader arbitration agreement in which the clause is contained; rather, it must be shown that the specific delegation language is itself invalid based on a general principle of contract law. Here, the court ruled initially that the delegation clauses at issue “clearly and unmistakably” delegated gateway questions to an arbitrator, rejecting the plaintiffs’ effort to argue otherwise. The plaintiffs also claimed the clauses were unconscionable, but the court disagreed. While finding the clauses “[were] — at most — minimally procedurally unconscionable” insofar as they were non-negotiable conditions of employment, the court found the clauses were in no way substantively unconscionable. Thus, applying the “sliding scale” approach, the court held that the clauses were valid, enforceable, and required granting Aon’s motion to compel arbitration.

Norris v. Aon PLC, No. 3:21-cv-00932 (N.D. Cal. Apr. 2, 2021)

New York Federal Court Declines to Modify Arbitration Award to Include Attorneys’ Fees and Costs

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The plaintiff filed suit in the U.S. District Court for the Eastern District of New York seeking to modify an arbitration award to include reasonable attorneys’ fees, costs, and expenses. The award had been issued to the plaintiff and another similarly situated claimant in connection with their labor law claims against the defendants. The award provided that administrative fees and the arbitrator’s compensation “shall be borne as incurred” but did not address attorneys’ fees or other costs. The plaintiff therefore requested that the court modify the award pursuant to section 11(a) of the FAA on the basis that the arbitrator made “an evident material mistake” in failing to include attorneys’ fees and costs in the award.

At the outset, the court explained that section 11 provides the exclusive grounds for modifying an arbitration award and that the grounds are “grudgingly narrow.” Although relevant labor laws mandated that prevailing claimants be awarded reasonable attorneys’ fees and costs, it remains the claimant’s burden to submit documentation supporting the reasonableness and necessity of the fees and costs incurred. Absent support, the fees and costs cannot be awarded. Here, claimants’ counsel was given an opportunity to submit post-hearing briefing to the arbitrator, at which time the court noted it would have been appropriate for counsel to request and provide support for his attorneys’ fees and costs. Given counsel’s inexplicable failure to do so, the court found the post hoc request for the court to modify the award to include such fees and costs was foreclosed by the FAA. As such, the request to modify the award was denied.

Chen v. Kyoto Sushi, Inc., No. 2:15-cv-07398 (E.D.N.Y. Apr. 1, 2021)