In May, the United States Supreme Court in EPIC SYSTEMS CORP. v. LEWIS, (available at:
https://www.supremecourt.gov/opinions/17pdf/16-285_q8l1.pdf.) upheld contractual provisions that prevented individuals from pursuing class arbitrations. The Court also ruled that:
1. There exists “a liberal federal policy favoring arbitration agreements.” The Federal Arbitration Act (FAA) “requires courts “rigorously” to “enforce arbitration agreements according to their terms”. The FAA reflects an “unmistakably clear congressional purpose that the arbitration procedure, when selected by the parties to a contract, be speedy and not subject to delay and obstruction in the courts.”
2. Contracting parties may craft and structure their arbitration agreement to suit their needs. Courts will give general deference to the enforceability of arbitration agreements.
3. Where contractual arbitration clauses are silent as to class action, the court will not infer that the parties agreed to engage in class actions where it is not expressly so provided.
4. Where contractual arbitration clauses are silent or expressly waive participation in class actions, such agreement does not violate an employee’s right to engage in collective or concerted actions under the National Labor Relations Act (NLRA).
This decision reflects judicial support favoring enforceability of arbitration agreements. The decision portends the following:
1. Arbitration agreements will likely become more prevalent in the private (non-collective bargaining) sector.
2. Class-action waivers will become more common not only in employment contracts but also in franchise, consumer, residential subdivision development and condominium contracts.
3. For parties in collective bargaining relationships, some CBAs by express provisions or past practice permit class-action proceedings. Many CBA’s however are silent on this matter. Collective bargaining parties will need to expressly negotiate and address their agreement with regard to the availability of class actions and the scope of claims (contractual and statutory) that will be subject to class-action treatment.
4. The court speaks approvingly of contractual defenses to the enforceability of arbitration agreements based upon state law principles of unconscionability and illegality. We can expect more challenges by dissatisfied parties of arbitration decisions based upon these grounds and efforts to craft additional novel grounds for vacature of arbitration decisions as was reported in the May 2018 edition of this newsletter.
The U. S. Supreme Court accepts two more cases dealing with arbitration issues.
(As reported in a blog article from Bradley Arant Boult Cummings LLP:)
In Lamps Plus Inc. v. Varela, the Supreme Court will decide “whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.” Recall that in Stolt-Nielsen, S.A. v. Animal Feeds International Corp., SCOTUS held in 2010 that a court could not order class arbitration unless there was a “contractual basis” for concluding that the parties have “agreed to” class arbitration, and that courts may not “presume” such consent from “mere silence on the issue of class arbitration” or “from the fact of the parties’ agreement to arbitrate” (Id. at 685, 687). Or as the Supreme Court stated in the 2013 decision in Oxford Health Plans LLC v. Sutter, “Class arbitration is a matter of consent: An arbitrator may employ class procedures only if the parties have authorized them.”…
In the latest installment in the long series of guerilla warfare over the Federal Arbitration Act holdings of the U.S. Supreme Court, the Ninth Circuit inferred consent to arbitration from a clause that did not mention class arbitration at all. To get there, the Ninth Circuit construed phrases like “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings” and language granting the arbitrator the power to award “any remedy allowed by applicable law” to be contractual consent to class arbitration. And in remarkable contrast to the teachings of Stolt-Nielsen, the Ninth Circuit actually found support for its conclusion from the absence of any reference to class actions in the arbitration agreement…. [U]nless and until Congress decides to change the FAA, and we predict the Supreme Court will not allow interpretive creativity to substitute for clear express consent to class arbitration as a prerequisite to compelling it.
In Frank v. Paloma Gaos, the Supreme Court will decide whether a class action settlement can provide a $5 million donation to charity and $2+ million to plaintiffs’ class action lawyers but no relief to class members. The issue, in legal jargon, refers to cy pres class action settlements. Five years ago, Chief Justice John Roberts wondered whether such charitable settlements could ever be fair and consistent with Due Process. This case will answer that question, one on which the federal rules committee responsible for amendments to Rule 23 was unable to reach consensus last year…. The precise issue the Supreme Court will decide is when, if ever, a court can approve a class action settlement that gives money to charity in lieu of providing relief to actual class members. The lower courts in the Google case decided that it was not feasible to divide $5 million among the 129 million members of the class, which was defined as consumers who used the Google search engine between 2006 and 2014, and that cy pres distribution was therefore preferable. The objector, Mr. Frank, is pitted as Daniel against a two-headed adversary representing the interests of corporate America and the plaintiffs’ class action bar. It will be interesting to see how the Supreme Court resolves the case and what limits it places on cy pres in such a matchup.
Circuit Court reviews enforceability of internet based “click to accept” type of arbitration provision.
In Cullinane et; al. v. Uber Technologies Inc.;, No. 16-2023 (June 25, 2018) the U.S. First Circuit Court rejected enforceability of Uber’s internet “click to accept” arbitration agreement and denied Uber’s motion to compel arbitration.
Uber requires its customers to download an app to one’s mobile device in order to be able to use its ride hailing services. As part of Uber’s internet app registration process, Uber has an arbitration agreement as part of a ten-page terms and conditions of service document which states that the customer and Uber:
[A]gree that any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof or the use of the Service or Application (collectively, “Disputes”) will be settled by binding arbitration . . . . You acknowledge and agree that you and [Uber] are each waiving the right to a trial by jury or to participate as a plaintiff or class User in any purported class action or representative proceeding.
The panel of Circuit Court judges made a detailed review of Uber’s internet based app download process to evaluate whether the arbitration agreement provision was sufficiently disclosed to customers of Uber. Although Uber had an internet page which had a “clickable” section that would direct the customer via hyperlink to its ten-page statement of terms and conditions of service and its arbitration agreement provision, the internet process did not require the customer to click the terms and conditions section in order to complete the download and registration process. Thus, a customer could complete the download and registration process without being directed to the arbitration provision and other terms and conditions.
The Court applied precedents that held that internet based contracts should be held to the same standards of interpretation and enforceability as other contracts. However, such contracts must be “reasonably communicated and accepted”. The Court ruled that Uber’s arbitration agreement was not enforceable because the internet app and registration process failed to conspicuously disclose its arbitration agreement provision in a manner that was “so written, displayed or presented that a reasonable person against which it is to operate ought to have noticed it”. The Court noted that:
…Uber chose not to use a common method of conspicuously informing users of the existence and location of terms and conditions: requiring users to click a box stating that they agree to a set of terms, often provided by hyperlink, before continuing to the next screen. Instead, Uber chose to rely on simply displaying a notice of deemed acquiescence and a link to the terms.
Note to Practitioners: The Uber case is a good reminder of the considerations that arbitration agreements, whether in written form or communicated via the internet must be clear, conspicuous and reasonably communicated to parties. Arbitration provisions should be prominent in position, size, shape, color and font with a clear acceptance mechanism that is not buried in fine print. Drafters of arbitration agreements should also consider the following elements:
• Language that is clear and comprehensible to the average consumer
• Clear description of scope and explanation of what subject matters, contractual and statutory, are covered by the agreement
• Clear waiver of having a judge or jury resolve the claim or controversy
• Mutuality of application of the agreement
• Reasonable mutual party choice in the selection of the arbiter or administrator
• Fairness in cost allocation • Fairness in venue selection
• Clearly articulated rules of law, evidence, process and procedure
• A tightly constructed class action waiver (if chosen)
• Clear and considered adoption of specified agency rules of arbitration and federal or state arbitration statutes
• Clear invocation of federal or state jurisdiction