Arbitrability, Delegation, Enforceability, Jurisdiction, Unconscionability: A Trifecta of Ninth Circuit Published Opinions
August 12, 2021 Was A Day Rich In 9th Circuit Arbitration Decisions.
Santiago Lim v. TForce Logistics, LLC, No. 20-55564 (9th Cir. 8/12/21) (Smith, Owens, Robreno).
This case is about the gateway decision of arbitrability, delegation of that decision, and unconscionability. The panel holds that the delegation and arbitration clauses are procedurally and substantively unconscionable. Because the delegation clause is unconscionable, the court, not the arbitrator, gets to decide whether the arbitration clause is enforceable, and agrees that that too is unconscionable. The provisions are "take it or leave it", require costs splitting between the employer and the purported "independent contractors", call for fee-splitting, and have a Texas venue provision.
CLMS Management Services LP v Amwins Brokerage of Georgia, 20-35428 (9th Cir. 8/12/21) (Christen, Hawkins, McKeown).
This case presents an international law question: does the doctrine of reverse-preemption apply to a clause in an insurance contract, such that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a multilateral treaty, is preempted by a Washington State rule that arbitration clauses in insurance contracts are not enforceable? Ordinarily, state law applies to insurance contracts, and in fact the McCarran-Ferguson Act can operate to reverse-preempt laws that contradict state law. However, in the case of treaties, a rule applies that treaties that are "self-enforcing" are not preempted by state law. What does that mean?
A treaty is "self-enforcing" if it can be directly enforced in court without the need for implementing legislation. The panel holds that the Convention the the Recognition and Enforcement of Foreign is self-enforcing. And therefore, reverse preemption does not apply. And because Washington State law cannot be applied to invalidate the arbitration provision, it is enforceable.
Al-Qarqani v. Chevron, No. 19-17074 (9th Cir. 8/12/21) (Thomas, Kelly, Miller).
No small potatoes here, as the panel affirms the district court's refusal to allow enforcement of an $18,000,000,000 Egyptian arbitration award against Chevron. The core ruling is about jurisdiction.
The heirs of an official who entered into a land concession agreement with Chevron in 1949 claimed entitlement to rent, and evidently the Egyptian arbitrators agreed. But when it came time to petition to enforce the arbitral award under an arbitration agreement entered into earlier in 1933, the district court held that the parties never agreed to arbitrate, and therefore it denied enforcement on the merits.
The Court of Appeals held that the heirs had failed to make a non-frivolous argument for jurisdiction as to Chevron USA, which was not named in the Egyptian award, and because no non-frivolous argument for jurisdiction had been made, the Court could affirm the dismissal for lack of subject-matter jurisdiction. (If the heirs had made a non-frivolous argument in favor of jurisdiction, then the Court would have assumed subject-matter jurisdiction).
As to Chevron Corporation, the facts were a little different. The 1949 agreement failed to incorporate the 1933 arbitration agreement. As for the 1933 agreement with the arbitration clause, it had been signed by Saudi Arabia, not the heirs, and Chevron Corporation's rights and obligations under that earlier agreement had expired. The absence of an agreement to arbitrate was a reason to dismiss the petition to enforce the award on the merits rather than for a lack of jurisdiction
Arbitration, FAA, Employment: Ninth Circuit Agrees Uber Workers Are Subject To Mandatory Arbitration
Uber Workers Are Not Engaged In Interstate Commerce Says The Court.
Can Uber compel mandatory arbitration of disputes with its drivers? To answer this question, the Ninth Circuit in Capriole v. Uber Technologies, No. 20-16030 (9th Cir. 8/2/21) (Wardlaw, Nguyen, Eaton) had to confront whether Uber drivers are exempt from Federal Arbitration Act requirements by virtue of the so-called residual clause or transportation worker exemption in the Federal Arbitration Act. Section 1 of the FAA provides that it does not apply "to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." The emphasized part of the statutory text has been interpreted to apply to transportation workers "engaged in" interstate commerce, truckers being a good example. But Uber drivers are not the same as long-haul truckers.
The Ninth Circuit panel agreed with the district court that Uber workers primarily drive intrastate, not interstate, and therefore do not fall under the exemption to coverage by the FAA. Therefore, pursuant to their arbitration agreement with Uber, the drivers could be compelled to arbitrate pursuant to the FAA requirement that arbitration agreements be enforced.
The panel also agreed, "Plaintiffs' requested injunctive relief — reclassification as employees — does not constitute 'public injunctive relief.'" And so the emergency equitable relief requested, which was not public injunctive relief, could not be shoehorned into a California exception to mandatory arbitration.
Thus, the putative class of Uber drivers who sued in Massachusetts to obtain a preliminary injunction prohibiting Uber from classifying drivers in Massachusetts as independent contractors found their lawsuit transferred to the USDC, Northern District of California, pursuant to a forum selection clause. In sum, the Ninth Circuit has affirmed that the drivers do not fall under the FAA exemption, that the preliminary injunction was properly denied, and that arbitration is required.
COMMENT: Judge Wardlaw wrote that the new gig economy has "led to a Dickensian tale of two workforces." On the one side, there are the persons with technical skills able to design and operate the internet platform and who are deemed to be employees with concomitant benefits. "On the other side is a much larger bloc consisting of those who frequently directly transport goods or passengers, the so-called 'gig-economy workers,' most if not all of whom are classified as 'independent contractors,' a status conferring flexibility but little security."
On May 26, 2021, the Guardian newspaper reported, "Uber is to recognise the GMB trade union in the UK for its private hire drivers, marking the first deal between a union and a gig economy ride-hailing service." But this is in the United Kingdom, not the United States. And according to the Wikipedia article on the GMB trade union, "On 28 October 2016, in a landmark ruling if not overturned on appeal, the Central London Employment Tribunal ruled that Uber drivers are 'workers' entitled to the minimum wage, paid holiday, sick leave and other normal worker entitlements, rather than self-employed." In 2021, the ruling that Uber workers are employees was upheld on appeal.
In the United States the courts are deciding whether Uber workers must arbitrate their claims to achieve employment status in the gig economy. And in California, where legal precedent has created an expansive definition of employment, voters approved Proposition 22 to exempt companies such as Uber from having to classify their drivers as employees.
Arbitration, Deadline, Vacatur: Second District, Div. 2 Holds Missed Deadline Means Arbitration Award Can’t Be Vacated
Deadline To Move To Vacate Arbitration Award Is Jurisdictional.
Cover, First Edition of Charles Dickens' Bleak House. 1852-53.
Locked in sororicidal probate litigation over the disposition of mom and dad's estate, Sarah Plott Key prevailed at first, entitling her to one-third of her parents' estate which, at the time "was equivalent to about $20 million." To get to that result, Key borrowed $2.4M from Law Finance Group to pay for the probate action. Key paid back the principal, but refused to pay back the interest, claiming terms of the note violated the California Financing Law.
The loan agreement with LFG required binding arbitration. A panel of three arbitrators awarded LFG $778,351 interest plus $838,864 attorney fees and costs to LFG.
In superior court, Key filed a petition to vacate the award, arguing the arbitrators exceeded their power because they found the loan to be a consumer loan and should have voided the loan in violation of the California Financing Law. For good measure, Key also filed a response to LFG's petition to confirm the award, raising the same arguments as in her petition to vacate. And the superior court agreed with Key, vacating the award. LFG appealed. Law Finance Group, LLC v. Sarah Plott Key, B305790 (2/2 7/30/21) (Lui, Ashmann-Gerst, Hoffstadt).
With a nod to the recently departed Ron Popeil: "But wait, there's more!" The Court of Appeal never reached the substantive issue because it held Key did not timely request the arbitration award be vacated. Here's the timeline:
9/18/19 — panel of 3 arbitrators issued modified award
10/1/19 — LFG files petition to confirm award in superior court
1/27/20 — Key files petition to vacate award in superior court
2/5/20 — Key files response to LFG's petition to confirm, including her arguments from motion to vacate
The Court of Appeal held Key is SOL because her petition to vacate was filed 130 days after the modified award was issued, missing the 100 day deadline for filing the petition to vacate. Key argued she had ten days to respond to LFG's motion to confirm the award, which was true, and she included her objections to confirming the award in her timely response to the petition, which was also true. But that did not help her in the Court of Appeal, which concluded the dispositive statutory provision was the one governing time to file the petition to vacate the award (100 days), rather than the statutory provision giving her 10 days to respond to the petition to confirm the award. By the time Key filed her petition to confirm, and by the time she filed her response to LFG's petition to confirm, she was beyond the 100-day deadline to petition to vacate.
COMMENT: "Litigation among the sisters continues. . . . " (footnote 1 to the opinion). There is an anti-SLAPP motion filed in a probate proceeding to enforce a no contest clause in the parents' trust, and another currently pending appeal arising from a petition by Key alleging her sister breached fiduciary duties as trustee. It's a shame this roiling family dispute among sisters could not have been successfully mediated.
Arbitration, Unconscionability: First District, Div. 1 Affirms Order Denying MoneyGram’s Petition To Compel Arbitration
Inconspicuous Arbitration Provision In Consumer Adhesion Contract Is Unconscionable.
"We conclude the arbitration provision is unconscionable largely because it was hidden on the back side of a money transfer order form, in tiny 6-point print that we deem virtually illegible . . . . MoneyGram's Arbitration Provision shows every sign of having been designed to take unfair advantage of its customers." Fisher v. MoneyGram International Inc., A158168 (1/4 7/27/21) (Streeter, Tucher, Brown).
The plaintiff, Jonathan Fisher, is described as a 63-year-old Vietnam War-era veteran in 2016, with poor eyesight. Fisher alleged that MoneyGram was regularly used by scammers to transfer funds, that he had been scammed while using MoneyGram to transfer funds, and that MoneyGram was on notice, having been the subject of an earlier FTC permanent injunction requiring MoneyGram "to establish, implement, and maintain a comprehensive anti-fraud program to protect its consumers. . . But Fisher claims MoneyGram failed to abide by the injunction."
The opinion states that "[E]ven if he had tried to read the tiny print, he would not have been able to do so — even wearing his trifocal glasses — at least not without a magnifying glass." For the edification of our readers, we have reproduced 8-point print in the comment below. Our blogging platform does not allow us to go down any further to 6-point print.
COMMENT: According to my Typepad blog platform, this is 8 point type.
Arbitration, Celebrities, : Second Circuit Rejects Efforts By Trump Organization To Compel Arbitration
Effort To Compel Arbitration Failed Because Trump And Company Were Nonsignatories Who Distanced Themselves From Contract.
"A full-sized figure of then-President Donald Trump inside the doorway of an abandoned building in Marble Hill, the surviving name of what were the neighboring rural towns of Lutesville and Marble Hill in Bollinger County, Missouri." Carol Highsmith, photographer. 11/20/20. Library of Congress.
While we generally limit our posts to California, Ninth Circuit, and SCOTUS cases, we sometimes stray when a celebrity is involved. In Doe v. The Trump Corporation, Donald J. Trump, Donald J. Trump Jr., Eric Trump, Ivanka Trump, Docket Nos. 20-1228-cv/20-1278-cv (2d Cir. 7/28/21) (Sack, Chin, and Lohier), the celebrity was, well, you know.
In a Politico article, Josh Gerstein writes, "A federal appeals court has rejected an attempt by former President Donald Trump and three of his children to force arbitration in a class-action lawsuit accusing him of fraud during the decade he spent as a pitchman for ACN, a business services company featured on 'Celebrity Apprentice.'"
Plaintiffs alleged Trump and family members induced them with false information to enter into business relationships with non-party appellant, ACN, a "multi-level marketing" company that enlists individuals to work as "Independent Business Owners." While purportedly independent of ACN, Trump and family allegedly accepted large, secret payments to pitch ACN.
The effort to compel arbitration failed because defendants were not signatories to the arbitration agreement. Claiming they were independent of ACN, Trump and family were unable to benefit from ACN's arbitration clause.
Arbitration, Public Policy, PAGA: First District, Div. 3 Affirms Order Denying Motion To Compel Arbitration Of PAGA Claim
Once Again, A California Court Of Appeal Affirms That Iskanian Is Still Good Law.
In Winns et al. v. Postmates Inc., A155717 (1/3 7/20/21) (Petrou, Fujisaki, Jackson), Postmates argued its couriers had waived the right to bring representative PAGA claims, and that the California Supreme Court's Iskanian opinion holding such waivers to be invalid had been impliedly overruled by SCOTUS cases.
Justice Petrou explains California courts must follow the rulings of the California Supreme Court, and SCOTUS has not ruled on the issue presented by Iskanian, namely, whether a waiver of a representative action is enforceable. SCOTUS has ruled that a waiver of a class action is enforceable, but that is a different issue, because PAGA claims are in the nature of qui tam claims brought on behalf of California. The state is not a party to the arbitration agreement, and has not waived the right to litigate PAGA claims.
Postmates made another argument, namely, that the plaintiffs had been given the right to opt out of arbitration and had not done so. Therefore, they shouldn't object to arbitrating. The court rejected that argument, explaining that it was against California public policy to waive the right to litigate PAGA claims.
COMMENT: Iskanian was decided in 2014. The case was not taken up by SCOTUS. Employers seem to be flogging a dead horse in state court. Though the internal logic of Iskanian may make sense, the decision also presents a political issue, because employers generally want to avoid arbitration, and employees generally want to preserve the ability to litigate. And since 2014, the composition of SCOTUS has changed. So perhaps it is not a foregone conclusion how SCOTUS would rule if squarely confronted with the issue of whether the Federal Arbitration Act preempts the right to litigate representative actions.
Update: A More Recent Case Reaches The Same Conclusion.
The case is Christine Herrera et al. v. Doctors Medical Center of Modesto, Inc., F080963 (5th Dist. 8/5/21) (Franson, Pena, DeSantos).