Arbitration, Landlord/Tenant, Waiver, Public Policy: Under California Law, Arbitration Clause In Residential Lease Is Void
Case Was Governed By State Law Rather Than The Federal Arbitration Act.
The defendant landlord in Keisa Williams et al. v. 3620 W. 102nd Street, Inc., et al., B297824 (2/8 8/24/20) (Wiley, Grimes Stratton), did not discharge the burden of establishing that the residential lease at issue involved interstate commerce, and hence California state law, rather than the FAA, was applied here. And under California law, an arbitration clause in a residential lease is void. Cal. Civ. Code section 1153(a)(4); Jaramillo v. JH Real Estate Partners, Inc., 111 Cal.App.4th 394 (2003).
COMMENT: We note that in this age of legal specialization, the plaintiffs' attorneys have found a niche practice. Their business name is MYBEDBUGLAWYER. Their trademarked war cry is, "When bed bugs start biting . . . We start fighting! "Wikipedia has an interesting article on bed bugs, with some photos of nasty looking bed bugs, and the cute 19th century advertisement for cockroach and bed bug exterminators reproduced below.
Arbitration, Standard Of Review: 1st District Div. 5 Independently Reviews Arbitrator’s Questions Of Law Under Cable Connection, Inc.
An Arbitrator's Decision Is Not Ordinarily Reviewable For Error . . . Unless The Parties Agree That It Is In California State Courts.
In Oakland-Alameda County Coliseum Authority v. Golden State Warriors, LLC, A157688 (1/5 8/18/20) (Jones, Simons, Needham), high stakes depended on whether a contract between the Oakland-Alameda County Coliseum Authority and Golden State Warriors terminated by nonrenewal or terminated by expiration. The arbitrator ruled that the contract could terminate by nonrenewal. The Golden State Warriors failed to renew the contract, the arbitrator ruled it terminated, and the dire consequence was that Golden State Warriors had to continue servicing debt incurred to renovate the arena till 2027.
Given the rule that an arbitrator's mistake of law or fact is ordinarily no basis to review or overturn it, my first question was why the Court of Appeal was reviewing whether the arbitration award had properly been confirmed by the Superior Court. The simple answer is that the parties had agreed that "either party may file an application to correct or vacate the arbitration award or an application for de novo review on all questions of law based on the arbitrator's finding[s] of fact (which are deemed for such purpose to be stipulated by the parties) . . ." The parties can "agree that legal errors are an excess of arbitral authority that is reviewable by the courts." Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal. 4th 1334, 1347, 1361 (2008).
And so the Court of Appeal independently reviewed questions of law decided by the arbitrator. However, the review did not change the outcome, as the judgment was affirmed.
Arbitration, Equitable Estoppel: 9th Circuit Holds Equitable Estoppel Could Not Be Used To Compel Nonsignatories To Arbitrate, Because The Nonsignatories Did Not Allege Claims Under A Contract, But Rather Under the ADA
Plaintiffs Sued Uber Technologies Under The ADA Because It Did Not Provide Accessible Ride Sharing In New Orleans.
The interesting set of facts in Namisnak v. Uber Technologies et al., No. 18-15860 (9th Cir. 8/24/20) (Nelson, J.), is that the disabled plaintiffs who sued Uber under the ADA because Uber failed to provide an accessible ride sharing program (uberWAV) in New Orleans, failed to make use of the Uber app. And it is using the Uber app that binds the user to an arbitration agreement. By stating claims against Uber, yet not making use of the Uber app, could the plaintiffs nevertheless be bound to arbitrate by the doctrine of equitable estoppel, because it would be unfair for the nonsignatory to rely "on an agreement for one purpose while disavowing the arbitration clause of the agreement."
Here, the plaintiffs did not rely on an agreement with Uber to state their claims. Instead, they relied solely on the Americans with Disabilities Act, and thus equitable estoppel did not apply. Hence, they could not be required to arbitrate.
COMMENT: The court states that "the dispositive distinction in this case", which distinguishes it from similar cases, is that Uber does not offer the uberWAV at all in New Orleans. If Uber did, it would the make sense "that a plaintiff would be required to download the Uber App so that a proper comparison of available services may be made in support of an alleged ADA claim." Under those circumstances, the plaintiff who downloaded the App would be treated as a signatory, and presumably the plaintiff who skipped the reasonable step of downloading the App would be equitably estopped from avoiding arbitration.
Arbitration, FAA: Why Does The Federal Arbitration Act Exempt Transportation Workers From Arbitration?
Rules Of Statutory Interpretation Rather Than History Of The Statute Offer The Best Explanation.
When I posted on August 31, 2020 about Rittmann v. Amazon, the case holding that AmFlex workers who carry out the "last mile" of Amazon deliveries, are exempt from arbitration under the statutory exemption found in 9 U.S.C. section 1, I wondered how that statutory interpretation came to be, and why it is interpreted to exempt transportation workers from arbitration. After all, the key language in the statute makes no mention of transportation workers: " . . . but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." Read that again: there is no reference to transportation workers.
The best answer is to be found in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), a case in which Justice Kennedy delivered the opinion of the majority. The issue in Circuit City was whether 9 USC section 1 narrowly exempted contracts of employment of transportation workers, or whether it broadly exempted other employment contracts involving commerce, from the FAA's coverage. Justice Kennedy opted for the former, more restrictive interpretation of the statute: it exempts from arbitration transportation workers engaged in interstate commerce.
Commenting "that the legislative record on the § 1 exemption is quite sparse," Justice Kennedy arrived at this interpretation through statutory interpretation. He applied the rule of ejusdem generis to the specific reference to seamen and railroad employees, and concluded that the more general reference to "workers engaged in interstate commerce" must refer to the preceding like kind of persons, i.e., examples of transportation workers. He also explained that his reading of section 1 was consistent with case law concerning section 2, which provides for the validity, irrevocability, and enforceability of a "contract evidencing a transaction involving commerce to settle by arbitration a controversy . . ." Section 2, though it does not specifically mention employment contracts, had been interpreted expansively to include employment contracts, and the section 1 exemption for certain workers would be unnecessary and superfluous if section 2 had been interpreted narrowly to exclude employment contracts, and to only apply to commercial contracts.
So the court in Circuit City arrived at a narrow interpretation of the exemption in section 1, where transportation workers are not mentioned, so as to apply the exemption only to seamen, railroad employees, and transportation workers, and a broad interpretation of arbitration coverage in section 2, where employment is not mentioned, to include employment contracts. This is consistent with the trend in SCOTUS and other courts to support the validity and enforceability of arbitration agreements.
Justice Stevens filed a three part dissent, joined by Justices Ginsburg and Breyer, and in 2 of 3 parts, by Justice Souter. Justice Souter also filed a separate dissent. One must look to the discussion by the dissenting justices for a more extensive discussion of the legislative history of Section 1. The dissenters suggest that opposition to the drafting of the FAA came from organized labor groups concerned that an ability to compel arbitration would result in unfair bargaining situations between businesses and employees. For example, the International Seamen's Union of America raised objections. To meet the objections, the drafters carved out exceptions in an area in which the federal government had already passed a considerable amount of legislation and exercised its commerce powers. Secretary of Commerce Herbert Hoover, who supported the bill, "suggested that '[i]f objection appears to the inclusion of workers' contracts in the law's scheme, it might be well amended by stating "but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in interstate or foreign commerce."'. . . The legislation was reintroduced in the next session of Congress with Secretary Hoover's exclusionary language added to § 1, and the amendment eliminated organized labor's opposition to the proposed law."
Given that the purpose of the drafting changes may have been to meet objections of organized labor that workers engaged in interstate commerce would be compelled to arbitrate, it was perhaps not a foregone conclusion that 75 years later, Section 1 would be interpreted so as only to exempt transportation workers. However, legislative history is often discounted when judges believe they have a simpler path to a satisfactory conclusion via statutory construction. In any case, the Circuit City majority opinion and dissents shed light on how the arbitration exemption for seamen, railroad employees, and workers engaged in interstate came into being — and furthermore, how the catchall phrase came to be limited to "transportation workers."
Arbitration, FAA: Ninth Circuit Agrees That Delivery Workers In Amazon’s App-Based Delivery Program Amazon Flex Are Exempt From Arbitration
The FAA Exempts Transportation Workers Engaged In Interstate Commerce From Arbitration — What About The Amazon Delivery Person Who Brings The Package To Your Door?
Many of us trying to avoid shopping during the pandemic have become familiar with the delivery of an Amazon package to our door. The delivery workers often drive their own vans or bicycles, go to the Amazon warehouse, pick up items, and complete the "last mile" of delivery. The items that we purchase from Amazon often come from out of state. However, the delivery workers usually make their deliveries locally, working in our state. So: are those delivery workers exempt from the Federal Arbitration Act's "9 U.S.C. section 1, et seq., enforcement provisions because they are transportation workers engaged in interstate commerce." That's the primary issue in Rittmann v. Amazon, No. 19-35381 (9th Cir. 8/19/20). The majority, in an opinion authored by Judge Milan D. Smith, Jr., says yes, the exemption applies. Judge Daniel A. Bress dissenting, says no.
While Amazon has shipped products using FedEx and UPS, "[r]ecently it has supplemented those delivery services by contracting with local delivery providers through its AmFlex program, which is available in certain metropolitan areas in the United States." The AmFlex program is run by Amazon Logistics, Inc., an Amazon subsidiary. "AmFlex drivers' transportation of goods wholly within a state are still a part of a continuous interstate transportation," explains Judge Milan Smith, Jr., "and those drivers are engaged in interstate commerce for section 1's purposes."
Judge Bress disagrees, arguing that the driver who works completely in state is not engaged in interstate commerce. The majority counters that it does not write on a "blank slate", and that drivers who are part of "continuous interstate transportation" are involved in interstate commerce, even when travelling intrastate. Judge Bress also argues that the majority rule will be difficult to apply in other cases and lead to odd results: the driver who has a Doordash sticker on the car and delivers food, and is also part of the AmFlex program, will be classified differently depending on whether the driver is delivering food for Doordash or making deliveries for Amazon. It seems like that would be an expected result if the driver works for Doordash, and Doordash delivers intrastate, and the AmFlex worker works for the subsidiary of a national company, and participates in the flow of continuous interstate transportation. More work for judges and attorneys, perhaps, as evidence will need to be presented and judges will need to decide early on in a lawsuit if transportation workers are participating in continuous interstate transportation and therefore exempt from arbitration. C'est la vie — for a federal judge, at least?
COMMENT: For Amazon and the AmFlex workers, the stakes are high. The workers' underlying lawsuit contends that AmFlex misclassifies the workers as independent contractors rather than as employees. Presumably the plaintiffs' attorneys believe that a court will provide a convenient and viable forum for a class action (rather than divide-and-conquer one-on-one dispute resolution in arbitration) and a more sympathetic setting if the case goes to a jury.
Legal commentators have noted efforts, which they ascribe to conservatives, to limit access to the federal courthouse by the use of standing doctrine, and enforcement of arbitration agreements. See, e.g., Erwin Chemerinsky, Closing the Courthouse Door: How Your Constitutional Rights Became Unenforceable (2017). In the Rittmann case, however, all three judges were Republicans appointed by a Republican President — Judge Milan D. Smith, Jr., and Judge N. Randy Smith, appointed by George W. Bush, and Judge Daniel A. Bress appointed by Donald Trump. Though statutory rights may be slightly less of a battle ground than constitutional rights, worker rights in the courts are fought over in many pitched battles. Given the dissent by Judge Bress, one may wonder: what would SCOTUS do? We won't speculate.
UPDATE: For an explanation of why the 9 USC section 1 arbitration exemption exists for transportation employees, see my September 2, 2020 post.
Arbitration, Employment, Unconscionability: First Dist. Div. 3 Agrees Arbitration Agreement Is Unconscionable And Unenforceable
Limited Discovery And Lack Of Mutuality Were Important To Result.
The Court of Appeal affirmed orders denying motions to compel arbitration in Scott Davis v. Stefan Kozak et al. and Scott Davis v. Red Bull North America, Inc., A156234 & A156238 (1/3 8/19/20) (Fujisaki, Siggins, Jackson), a consolidated appeal arising from an employee's lawsuit against Red Bull executives for age and sex harassment and related tort claims. The Court agreed that the underlying arbitration agreement was adhesive, and that it was substantively unconscionable.
Substantive unconscionability was the result of overly restrictive discovery, limiting the fifteen-year employee plaintiff to two depositions, and to a "lack of mutuality." We'd guess it was the discussion of mutuality in connection with an exemption for arbitration involving "obligations under the Employee Confidentiality Agreement with Red Bull" that made the opinion publishable.
The Employee Confidentiality Agreement defined "Confidential Information" as information relating to the Company, and explained it did not apply to inventions of the employee developed entirely on the employee's own time without the Company's help. Therefore, the Court reasoned that the carve-out for "obligations under the Employee Confidentiality Agreement" only applied to the obligation of the employee to protect the Company's Confidential Information, not to inventions created by the employee on the employee's own time. Hence, the lack of mutuality.
This lack of mutuality was burdensome in two ways: first, theoretical claims of the employee to protect his intellectual property were not exempted from arbitration by the carve-out, second, the arbitration agreement exempted from arbitration the types of claims Red Bull was most likely to bring against an employee.
Comment: Because the discussion of unconscionability looks at the arbitration agreement at the time it was entered into, rather than at the time the employer seeks to enforce it, the discussion is theoretical, considering mutuality with respect to hypothetical claims that an employee might have brought, rather than actual claims that Davis did bring.