Posts belonging to Category Arbitration

Uber Drivers Seek En Banc Review of 9th Cir.’s Arbitration Ruling

Uber drivers suing the ride-hailing company have urged an en banc review of the Ninth Circuit panel’s recent decision that drivers must arbitrate their claims, including any challenges to that they might have to the arbitration agreements themselves. Plaintiffs-Appellees’ Petition for Rehearing En Banc, Mohamed v. Uber Technologies, Inc., et al., 15-16178, Gillette v. Uber Technologies, Inc., 15-16181, and Mohamed v. Hirease, LLC, 15-16250 (9th Cir. Sept. 7, 2016) (available here). The request to re-examine the decision stems from appeals by Uber in three proposed class actions in which drivers alleged that Uber misclassified them as independent contractors, rather than as employees, and violated the Fair Credit Reporting Act and analogous state statutes by running criminal background and credit checks on drivers without proper authorization and then improperly utilizing their consumer credit reports. The at-issue arbitration agreements were contained in two driver agreements, a 2013 agreement and a 2014 agreement, both of which contained opt-out clauses that none of the plaintiffs had utilized.

On September 7, 2016, a three-judge panel partly reversed U.S. District Judge Edward M. Chen’s June 2015 ruling that Uber’s arbitration agreements were unenforceable, and clarified that the 2013 and 2014 contracts clearly delegated the question of arbitrability to the arbitrator. Mohamed, at 6-7 (slip op. available here). The panel found that “[t]he 2013 agreement clearly and unmistakably delegated the question of arbitrability to the arbitrator except as pertained to the arbitrability of class action, collective action, and representative claims.” Id. at 14. Furthermore, “the 2014 agreement clearly and unmistakably delegated the question of arbitrability to the arbitrator under all circumstances.” Id. at 11. The panel also held that neither delegation provision was unconscionable, because the ability to opt-out of both agreements within 30 days essentially rendered both agreements procedurally conscionable, per se. Id. at 18. Indeed, although the panel acknowledged that it was likely more burdensome to opt out of the arbitration provision by overnight delivery service or in person (as required by the 2013 agreement) than it would have been by email (as allowed by the 2014 agreement), “there were some drivers who did opt out and whose opt-outs Uber recognized. Thus, the promise was not illusory.” Id. at 17. Accordingly, the court rejected Judge Chen’s finding that Uber’s arbitration provision was procedurally and substantively unconscionable on these grounds. Id. at 17-18.

In their petition for rehearing, the drivers first argue the panel’s ruling unlawfully permits otherwise unconscionable arbitration agreements to be upheld, so long as the agreement contains a “meaningful” opt-out clause, even where the terms of the clause are difficult to comply with or are purposely buried in the fine print to prevent an individual from opting out. Petition for Rehearing, at 4-7 (internal citations omitted). Second, they contend that the panel’s finding that questions of arbitrability be decided by an arbitrator conflicts with the U.S. Supreme Court’s requirement that valid delegations of arbitrability be “clear and unmistakable,” insofar as the at-issue delegation provisions contained exceptions, conflicted with other arbitration terms, and were generally ambiguous. Id. at 7-10 (internal citations omitted). Third, the drivers argue that the panel’s holding that the presence of opt-out clauses renders the agreements’ class action waivers lawful under federal labor laws is incorrect and conflicts with contrary holdings of the Seventh Circuit. Id. at 10-12. Specifically, in Morris v. Ernst & Young, No. 13-16599, 2016 WL 4433080 (9th Cir. Aug. 22, 2016), the Ninth Circuit recently held that class action waivers violate employees’ right to engage in “concerted action” under the National Labor Relations Act (NLRA). However, this panel (in Mohamed) held that the availability of limited and burdensome opt-out provisions rendered the class action waivers non-mandatory, and thus lawful. Mohamed, slip op. at 18 n.6. The plaintiffs point out that this conclusion conflicts with the Seventh Circuit’s ruling in Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1155 (7th Cir. 2016), where the court held that an employee cannot prospectively waive the right to engage in protected concerted action under the NLRA, notwithstanding an opt-out provision. Finally, the drivers argue that the panel’s determination that a cost-sharing provision that would require drivers to pay substantial fees was negated by Uber’s mid-litigation offer to pay such costs, runs contrary to Sixth Circuit precedent which held such a provision unenforceable if it “deter[s] potential litigants, regardless of whether . . . the employer agrees to pay a particular litigant’s share of the fees and costs to avoid such a holding.” Petition for Rehearing, at 12-15 (citing Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 676-77 (6th Cir. 2003) (en banc)).

It remains to be seen whether the Ninth Circuit will accept this petition for rehearing en banc.

Authored by:
Natalie Torbati, Associate

Martin v. Milan Institute: 9th Cir. Affirms Trial Court’s Finding of Arbitration Waiver

In Martin, et al. v. Yasuda, et al., No. 15-55696 (9th Cir. July 21, 2016) (slip op. available here), the Ninth Circuit Court of Appeals reaffirmed its holding that a court—not the arbitrator—determines whether arbitration has been waived, unless the arbitration agreement specifically reserves that task for the arbitrator, and found that the defendants’ litigation conduct over a seventeen-month period resulted in a waiver of the defendants’ right to arbitrate. This important ruling rejects the defendants’ attempt to manipulate the judicial and arbitral systems to gain an unfair advantage due to their litigation conduct. Slip op. at 21.

In Martin, students of the Milan Institute of Cosmetology (“Milan”) sued the school in federal court alleging that Milan was, in fact, their “employer” because they were required to perform unpaid work to graduate from Milan’s cosmetology program, including cleaning, sweeping, selling retail products, and promoting Milan’s services. Slip op. at 4. The students’ Enrollment Agreement contained an arbitration agreement that stated, “[a]ll determinations as to the scope, enforceability and effect of this arbitration agreement shall be decided by the arbitrator and not by a court.” Id. The plaintiffs filed their complaint on October 28, 2013, and the following events transpired during litigation: (1) the parties filed a Joint Stipulation to extend the time to file a motion for conditional and class certification, noting the considerable time and effort spent by the parties to conduct discovery to focus on the issue of whether Milan employed the students; (2) the court denied in part and granted in part the defendants’ motion to dismiss the plaintiffs’ First Amended Complaint, holding the plaintiffs could assert California state law claims; (3) the defendants answered a Second Amended Complaint and asserted arbitration as an affirmative defense; (4) the parties submitted a Joint Rule 26(f) Report detailing an eight-month period of discovery related to the “employee” issue and, at the scheduling conference, the court warned defense counsel about possibly waiving their right to arbitrate; (5) written discovery occurred and the deposition of Milan’s CEO was taken; and (6) seventeen months after the start of the case, the defendant moved to compel arbitration. Id. 5-9. The district court denied the defendant’s motion to compel arbitration, finding that the defendant had waived its right to arbitrate. The defendants then appealed.

The Ninth Circuit first held that there is a presumption that that the court, and not the arbitrator, should decide the waiver issue. Citing the Ninth Circuit’s decision in Cox v. Ocean View Hotel Corp., 533 F. 3d 1114, 1120-21 (9th Cir. 2008), the panel stated that waiver by litigation conduct is a gateway issue to be decided by the court, not the arbitrator, under the Supreme Court’s decision in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). Slip op. at 10-11. The broad language in Milan’s arbitration agreement assigning duties to the arbitrator does not overcome the presumption because the clause did not contain “clear and unmistakable language” that the arbitrator may decide the waiver issue. Id. at 12-13. Presumably, the arbitration agreement must clearly and specifically provide that only the arbitrator can determine whether litigation conduct waives the right to arbitrate. But, the court reasoned, such a provision would place this decision in the hands of the arbitrator, who is less familiar with the litigation than the court and with someone who has a financial interest in finding no waiver so that the arbitrator may keep the case. See id. at 12 n3.

The Court of Appeals, applying its arbitration waiver test announced in Fisher v. A.G. Becker Paribas, Inc., 791 F.2d. 691, 694 (9th Cir. 1986), then found that the defendants waived the right to arbitrate because they had engaged in conduct inconsistent with the right to arbitrate that prejudiced the plaintiffs. In so doing, the appeals court held that a statement by a party that is has the right to arbitration in the pleadings or motions is not enough to defeat a claim of waiver. Further, the court found it particularly key that the defendants had structured discovery, including a deposition, so that the trial court could rule on the defendants’ motion to dismiss on a key merits issue: whether the Cosmetology Act legally precluded the students from being classified as employees. Because the court found for the plaintiffs on the issue, the plaintiffs would be prejudiced by the delay in moving to arbitrate because they would be forced to re-litigate an issue on the merits on which they had already prevailed in court. Slip op. at 17. Finally, spending a lengthy amount of time litigating in the more complex federal court system inevitably causes the parties to spend more time, money, and effort than had they proceeded to arbitration. Id. at 18.

In affirming the district court’s decision, the Ninth Circuit agreed that the defendants couldn’t have their cake and eat it too: a party that signed a binding arbitration agreement and then is sued “can either seek to compel arbitration or agree to litigate in court. It cannot choose both.” Slip op. at 21 (emphasis added).

Authored By:
Robert Drexler, Senior Counsel

Long v. Provide Commerce: Arbitration Clause in Browsewrap Agreement Held Unenforceable

A California Court of Appeal affirmed an order issued by Judge Jane Johnson denying a motion to compel arbitration where the arbitration agreement was contained in an online “browsewrap” agreement. Long v. Provide Commerce, Inc., No. B257910, 2016 WL 1056555 (March 17, 2016) (slip op. available here). The plaintiff had purchased flowers through, a website operated by the defendant. In his putative consumer class action lawsuit, the plaintiff alleged that, despite being advertised as a completed, assembled product, the flowers were delivered in a “do-it yourself kit requiring assembly.” Slip op. at 3. The defendant moved to compel arbitration based on an arbitration clause in the website’s Terms of Use.

In Long, the Terms of Use were available via a hyperlink at the bottom of each page on the website—what is known in e-commerce as a browsewrap agreement. A browsewrap agreement does not require any express manifestation of agreement to the Terms of Use; rather, the user agrees to the Terms simply by using the website. Slip op. at 7. This is in contrast to a “clickwrap” agreement, where the consumer must click on a checkbox indicating his assent to be bound by the Terms of Use in order to continue using the website. Id. As there was no dispute that the plaintiff had no “actual knowledge” of the Terms of Use when he made his online purchase, the court analyzed the design and placement of both the hyperlink and the website to determine whether they were “sufficient to put a reasonably prudent Internet consumer on inquiry notice of the browsewrap agreement’s existence and contents.” Id. at 8.

The question of “what sort of website design elements would be necessary or sufficient to deem a browsewrap agreement valid in the absence of actual notice” was an issue of first impression in California. Slip op. at 9. While the hyperlink to the Terms of Use appeared on every page of the website and was visible without scrolling down, the hyperlink was nonetheless deemed too inconspicuous to provide the plaintiff with inquiry notice. Id. at 12-13. First, the hyperlink was light green-colored on a lime green background, and thus could blend in. Id. at 13. Additionally, there was nothing on the website to notify the consumer that, in using the website to buy flowers, “he should also be on the lookout for a reference to ‘Terms of Use’ [elsewhere] on the website[].” Id. at 12. Also, when a consumer selected his purchase and proceeded to checkout, the hyperlinks were not, contrary to the defendant’s characterization, “located next to” the form fields that a consumer would fill out to complete his order. Rather, there were several layers of other text and images that a consumer would need to look past to find the Terms. Furthermore, the inclusion of the Terms of Use hyperlink in a confirmation email did not remedy the problem; in the email, the Terms of Use hyperlink appears in inconspicuous grey font on a white background and was “located on a submerged page,” forcing the recipient to scroll down past layers of information, advertisements, logos, and other hyperlinks. Id. at 13.

The opinion expressly focused on the “practical reality” of how a consumer would interact with the website and the confirmation email. Slip op. at 13. Although it did not need to decide this issue, the court opined that, even if the hyperlink had been displayed conspicuously on the website, “without notifying consumers that the linked page contains binding contractual terms, the phrase ‘terms of use’ may have no meaning or a different meaning to a large segment of the Internet-using public.” Id. The court thus “advised” online retailers to include a conspicuous textual notice rather than just a hyperlink. Id. at 12-13 (agreeing with Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2014)). Finally, the Court of Appeal also held that, as the plaintiff was not bound by the Terms of Use browsewrap agreement, the plaintiff also was not bound by the forum selection clause included therein. Id. at 14-15.

Authored By:
Katherine Kehr, Senior Counsel

NLRB Orders Cedars-Sinai to Rescind and Revise Its Mandatory Arbitration Pacts

Last month, a National Labor Relations Board (NLRB) judge in San Francisco ordered Los Angeles’s famed hospital, Cedars-Sinai Medical Center, to stop using its mandatory arbitration agreements to prohibit employees from bringing class action lawsuits. Administrative Law Judge Artiel Sotolongo also ruled that the hospital must fix the provisions of its agreements that could mislead employees to believe they cannot file unfair labor charges before the NLRB. Cedars-Sinai Med. Ctr. & Chandra Lips, 31-CA-143038, 2016 WL 1042504 (March 15, 2016) (slip op. available here).

In 2014, Chandra Lips, a medical staff assistant who worked for the hospital from July 2011 to May 2013, filed a complaint with the American Arbitration Association seeking class action status and an unfair labor practices charge with the NLRB. Thereafter, Cedars-Sinai moved to compel individual arbitration against her in February 2015 by filing a complaint for declaratory relief in a state action in Los Angeles Superior Court (BC571046).

Judge Sotolongo’s decision relied on the NLRB’s decisions in D. R. Horton, 357 NLRB 2277 (2012), enf. denied in relevant part 737 F.3d 344 (5th Cir. 3013), and Murphy Oil USA, Inc., 361 NLRB No. 72 (2014), enf. denied in part 808 F.3d 1013 (5th Cir. 2015), both of which held that enforcement of individual arbitration on employees seeking class labor law claims was illegal. See slip op. at 6-7. Unlike D.R. Horton and Murphy Oil, however, the mandatory arbitration agreement in Cedars-Sinai does not explicitly preclude employees from initiating or seeking class or collective action status in arbitration or in other forums; it is silent on the issue. Because of this, Judge Sotolongo held that the applicable standard here was an objective one—that is, whether employees could reasonably interpret the language of the agreement to act as a barrier to filing charges with the Board, among other criteria, such as whether the rule was issued in response to union activity (it was not). The court concluded that employees could reasonably interpret Cedars-Sinai’s agreement to bar class or collective actions. Slip op. at 6-8. Because of the sweeping language stating workers were required to submit to arbitration “all statutory, contractual and/or common law claims,” the judge gave little weight to the exceptions listed in the arbitration agreement, such as the exclusion of claims “preempted by federal labor laws,” finding it “too vague” for a worker with no legal training to understand its consequences. Id. at 6-7. However, D.R. Horton and Murphy Oil did apply where the hospital tried to enforce the arbitration agreement by filing the declaratory state court action to compel Lips into individually arbitrating her employment-related claims. This restricts employee rights under section 7 of the National Labor Relations Act to pursue concerted or collective action, and thus Cedars-Sinai was in violation.

Although the Fifth Circuit has rejected the NLRB’s views on both D. R. Horton and Murphy Oil, Judge Sotolongo wrote that he was “compelled to follow the Board’s decisions unless the Supreme Court overrules the Board.” Slip op. at 9. Thus, he ordered Cedars-Sinai to “rescind [or revise] the mandatory and binding arbitration agreements in all of its forms,” provide employees with notice of such changes, notify the state court of the revision and rescission of the arbitration agreement (upon which Cedars-Sinai had based its claim to compel individual arbitration), and to inform the state court that it no longer opposes the lawsuit on the basis of that arbitration agreement. Id. at 11. Any revision, the judge stated, should clarify that such an agreement does not restrict employees from pursuing wage-and-hour actions or other employment-related actions on a class or collective basis in any forum, and specifically does not prevent employees from filing charges with the NLRB. Id. at 10. Cedars-Sinai was also required to reimburse Lips for reasonable attorneys’ fees and expenses, with interest. Id. at 12. 

Authored by: 
Natalie Torbati, Associate