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9th Cir., Ga. court reject forced arbitration in two cases

Kate Halloran June 10, 2021

The Ninth Circuit and a Georgia appellate court rejected motions to compel arbitration in two cases last month, delving into different issues of contract formation and the scope of the Federal Arbitration Act (FAA). (Walsh v. Arizona Logistics, Inc., 2021 WL 1972613 (9th Cir. May 18, 2021); Thornton v. Uber Techs., Inc., 2021 WL 1960199 (Ga. Ct. App. May 17, 2021).)

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The Ninth Circuit case involved a Fair Labor Standards Act (FLSA) enforcement action brought by the U.S. Department of Labor secretary against a logistics company on behalf of delivery drivers who worked for the defendant. The action alleged that the defendant misclassified the drivers as independent contractors and therefore violated requirements for minimum wage, overtime pay, recordkeeping, and anti-retaliation under the FLSA. The defendant moved to compel the enforcement action into arbitration based on a forced arbitration agreement between it and the drivers. The lower court denied the motion because the U.S. Supreme Court ruled in EEOC v. Waffle House, Inc. (534 U.S. 279 (2002)) that arbitration agreements apply only to the parties who entered into those agreements.

The Ninth Circuit affirmed, holding that while the FAA generally favors arbitration agreements, the FLSA expressly authorizes the secretary’s ability to seek a monetary recovery on behalf of another party and that nothing in the arbitration agreement altered that enforcement authority. Further, the FAA does not include anything about arbitration agreements being enforceable against nonparties to those agreements—and it is silent on the enforceability of a private arbitration agreement on a government party that initiates an action on behalf of someone bound by the arbitration agreement.

However, the Ninth Circuit explained, the Supreme Court addressed this question in Waffle House, which involved the EEOC bringing an antidiscrimination enforcement action against the company after it fired an employee who suffered a seizure at work. The Court noted that even though the enforcement action included a claim for monetary relief for the employee, he had no control over the litigation and that under the FAA, the government agency did not consent to the arbitration agreement and could not be bound by its terms.

The same reasoning applies here—the statute at issue authorized the secretary to seek monetary relief for the drivers and prescribed how such an action should proceed, the secretary had not consented to the arbitration agreement, and the drivers would have no control over the litigation. The court rejected the defendant’s argument that by seeking relief on behalf of the drivers, the secretary was in privity with them and therefore invoked res judicata by pursuing claims that the drivers were bringing elsewhere. The enforcement action included a claim for injunctive relief “to ‘vindicate broader governmental interests’” rather than simply recouping an employee’s individual economic loss. But the court found that under Waffle House the secretary can pursue these parallel claims. “Simply put, recovering monies owed to aggrieved individuals does not necessarily indicate that the Secretary is operating solely for the benefit of those individuals,” the court stated.

In the Georgia case, the appellate court ruled that a mother whose son was killed by an Uber driver could not be compelled to arbitrate her wrongful death and negligence claims against the tech company. The plaintiff argued that the forced arbitration agreement that Uber includes in its terms and conditions when a user registers an account on its app was not valid because the design prevented the user from seeing the text and hyperlink containing those terms and conditions. When users register with an Android smartphone, like the plaintiff’s son did, and land at the screen to enter their payment information, the keyboard that pops up on the screen blocks the terms and conditions.

The appellate court found that while the evidence did not support a finding that as a matter of law a user could not reasonably assent to the terms and conditions, there was a genuine question of fact as to whether the keyboard blocked the text and hyperlink on the smartphone screen. The screen had language notifying users that they assent to the terms and conditions if they register in small, dark gray font on a white background—and including a clearly visible blue underline on the terms and conditions indicating a hyperlink. The court noted that this design could be sufficient for agreeing to the contract, so long as the user saw this content.

But if the user did not have an opportunity to see it, under Georgia’s “objective theory of intent” for contract formation, the user could not have consented. The court concluded that the app’s design “raises questions of whether the on-screen keyboard concealed the text so that the terms and conditions were either never displayed or displayed for an unreasonably short amount of time such that [the plaintiff’s son] would not have seen them.” The court also held that there is a question of fact as to whether the plaintiff’s son ever saw updated terms and conditions that were emailed to users. It rejected the defendant’s argument that continued use of the app alone constituted consent to the terms and conditions.

Atlanta attorney Max Thelen, who represents the plaintiff, said, “There must be proof of the assent ordinarily required to form a binding contract. The holding will have a lot of practical importance for cases against companies whose primary interactions with their customers are through an application, like Uber. And keeping the case in court rather than arbitration where a large corporation can have an outsized influence on the outcome is important.”