An employment agreement contained an arbitration clause, and the employees signed it. But the court sided with the employees’ argument, at least at the pleading stage, that they may not have agreed to arbitrate their claims, because their signatures were directly under a bolded sentence that read, “I certify, by my signature below, that I have received a copy of the Mortgage Sales Commission Plan, which has been provided to me.” The employees argued that their signatures simply acknowledged receipt of the Mortgage Sales Commission Plan, not their intent to be bound by the terms of the arbitration clause contained in the document. The court concluded that because the contract is susceptible to two logical constructions, the court could not find at the motion to dismiss stage that the employees had agreed to arbitration. The court noted that because the employer had provided the employees with the agreement, any ambiguous language would be construed against the employer as the drafter of the contract. Ranieri v. Banco Santander, No. 15-3740 (D. N.J. April 4, 2016).
A district court in the Northern District of California rejected a claim by a putative class of wireless users that the First Amendment bars enforcement of their arbitration clause with their wireless provider. Roberts v. AT&T Mobility LLC, No. 15-cv-03418-EMC (N.D. Cal. Feb. 29, 2016). Plaintiffs did not dispute that their wireless service contracts contained an arbitration provision, but argued that the provision was unconstitutional on the theory that if the court were to compel arbitration, that would be state action violating their First Amendment rights to petition a court for redress of grievances. The court found no merit to plaintiffs’ assertion that the mere fact of judicial enforcement automatically establishes state action. In the decision on defendant’s motion to compel arbitration, District Judge Edward M. Chen noted that in many private contracts there are provisions that arguably affect access to the courts, such as choice of venue, choice of law, statutes of limitations, and limitations on damages provisions; although these provisions may be subject to restrictions imposed by statutory and/or common law, courts have not held that judicial enforcement of these provisions, particularly as found in contracts between private parties, amounts to state action or raises constitutional claims.
Surprise! An undisclosed third party may be able to compel arbitration if the issues in dispute are intertwined with the arbitration agreement.
A California federal district court recently granted defendant Turn, Inc.’s motion to compel arbitration of a dispute with a putative class of New York Verizon subscribers. Henson, et al. v. Turn, Inc., No. C 15-01497 JSW (N.D. Cal. Mar. 14, 2016). Turn, an online marketing platform, partners with Verizon to utilize subscriber information to connect advertisers with their target audience. Verizon subscribers sued Turn to prevent the company from allegedly surreptitiously monitoring their web browsing activities. Turn moved to dismiss or stay the action on the basis of an arbitration clause contained in the service agreements between the subscriber plaintiffs and Verizon. Turn was not a signatory to the service agreements.
The court held that under both New York and California law, a non-signatory to an arbitration agreement may compel arbitration when the claims at issues are “intertwined with the agreement.” In this case, because the parties’ dispute hinged on a provision in the plaintiffs’ subscriber agreements with Verizon, and because the defense of the lawsuit would necessarily require introduction of those agreements, the issues were found to be “intertwined with the agreement” such that Turn could invoke the arbitration provision contained therein.
A district court granted defendant’s motion to compel arbitration even though the arbitration forum specified in the parties’ arbitration agreement does not exist. PR Group, LLC Windmill International LTD., No. 14-0401-CV-W-BP (W.D. Mo. Feb. 1, 2016). The court concluded that the failure to properly specify an arbitration forum does not render the agreement to arbitrate ineffective. Section 5 of the Federal Arbitration Act, which permits the court to designate an arbitrator when there is a lapse in the parties’ agreement for naming an arbitrator, applies when the arbitration forum ceases to exist as well as when one has not been designated. Accordingly, the court exercised its power to direct that arbitration be conducted by the American Arbitration Association.
Issued on December 14, 2015, DirectTV v. Imburgia represents the newest in a line of Supreme Court decisions applying the Federal Arbitration Act (FAA) to enforce contractual arbitration provisions. Here, a service agreement between DirectTV and its customers requires arbitration of any future disputes and expressly waives either party’s right to initiate arbitration on a class-wide basis, with the exception that, if the “law of your state” prohibits the waiver of class arbitration, then the arbitration provision as a whole “is unenforceable.” Two customers sued DirectTV, seeking to proceed in court rather than arbitration on the theory that the “law of” their “state,” California, does indeed prohibit class-action waivers in arbitration. It was this theory—requiring application of the term “law of your state” to California—that divided lower courts and attracted Supreme Court review.
A contract provision stating that the parties expressly agreed not to challenge the validity of their arbitration or an arbitration award was held to be contrary to public policy and void and unenforceable. Atlanta Flooring Design Centers, Inc. v. R.G. Williams Construction, Inc., A15A0664 (Ga. Ct. App., 2d Div., July 16, 2015). The contract stated: “The award rendered by the arbitrator(s) shall be final and binding on the parties and judgment upon the award may be entered in any court of competent jurisdiction. Contractor and Subcontractor hereby expressly agree not to challenge the validity of the arbitration or the award.” Applying Georgia law, and relying on cases decided under the Federal Arbitration Act, the court concluded that the statutory grounds for vacating an arbitration award may not be waived or eliminated by contract. The court reasoned that the statutory grounds for a court to review and vacate an award demonstrate Congressional intent to provide a minimum level of due process for parties to an arbitration.
A California federal district court denied Uber’s motion to compel arbitration of its driver’s disputes concerning background checks, holding that the arbitration provisions in the drivers’ contracts were procedurally and substantively unconscionable. Mohamed v. Uber Technologies, No. C-14-5200 EMC (N.D. Cal. June 9, 2015). As an initial matter, the court found that delegation clauses contained in the drivers’ contracts, which purported to reserve the adjudication of the validity and enforceability of the contracts’ arbitration provisions to an arbitrator, were unenforceable because they were not clear and unmistakable and conflicted with other language in the contracts. The court also found that the delegation clauses were unconscionable, as they were buried in the lengthy contract, had an onerous opt-out provision, and imposed substantial arbitration costs and fees on the driver. The court then concluded, on similar grounds, that the arbitration provisions in the Uber contracts were procedurally and substantively unconscionable and therefore unenforceable under California law. The court further found that contractual provisions purporting to waive private attorney general claims were void as a matter of California law.