Nothing particularly big in the last two days. Another judge addresses the contract formation issues raised in a browsewrap case and a decision discusses two narrow, rarely confronted issues – the enforcement of a class arbitration waiver under state law, rather than the FAA, and whether the consideration for an arbitration agreement is too illusory to support a contract. While you are unlikely to face either of these final two questions, the decisions provide good material to stick in your arbitration notebook – or reptilian brain – so you remember the defenses should they become available to you.
Browsewrap is back
Illusory Agreements, State Arb Acts, and Dismissal v. Stay
Reno v. Western Cab Co. 2020 U.S. Dist. LEXIS 171842 (Sept. 18, 2020) is a little case that flags issues you may never face, but which are worth remembering. The dispute was simple – cab drivers for Western alleged that their employer failed to pay the minimum wage, as it required drivers to use their tips to pay for gas. Western sought to compel arbitration.
As a threshold state law argument, the drivers contended that the consideration for their agreement with Western was merely illusory and, therefore, the agreement, including arbitration, was unenforceable. In the agreement, Western reserved an unlimited, unilateral right to amend the contract. Under Nevada law, an unlimited right to amend invalidates an agreement for lack of mutuality, In re: Zappos.com, Inc. Customer Data Sec. Breach Lit. 893 F. Supp.2d 1058 (D. Nev. 2012). However, the Reno agreement provided that, even if Western exercised its right to amend terms, the change was prospective only and, therefore, did not affect the drivers’ unasserted claims. Accordingly, the court found mutuality, adopted the classic “continued employment” rationale and held a contract existed.
A second issue – whether a waiver of class arbitration was unenforceable as a matter of public policy – arose because the parties’ presumed inapplicability of the FAA turned them to state law. AT&T Mobility LLC v. Conception, 563 U.S. 333 (2011) makes clear that, in a case governed by the Federal Arbitration Act, the FAA’s enforcement of an agreement’s waiver of the right to class arbitration preempts any state law which would render such an agreement void. Here, however, the parties agreed that the drivers were “transportation workers in interstate commerce” and, therefore, under the “residual exception” to the FAA, the Act did apply. As a result, the court looked to Nevada law to determine the viability of a class waiver in the face of a public policy challenge. (The Ninth Circuit held three weeks ago, Grice v. U.S. District Court, 2020 U.S. App. LEXIS 28207 (9th Cir.) (Sept. 4, 2020), after the parties briefed Reno, that their conclusion that the drivers were in interstate commerce because they delivered interstate travelers to the airport was wrong. However, as Judge Gordon reached the same conclusion under state law as he would have under the FAA, he found their error to be irrelevant). Although Nevada’s highest court has not decided whether a class action waiver in a wage case violates public policy, Judge Gordon, based on authority holding that, despite a prohibition against the waiving of the right to minimum wages, the employer and employee may enter into an agreement determining the venue and procedure for litigating the issue, predicted that the state’s highest court would find such a class action waiver enforceable.
Finally, there is an interesting twist to the court’s remedy. Having held that the claims of contracting drivers were arbitrable, the court dismissed the action, noting that the Plaintiffs had not requested a stay as an alternative remedy. A lesson – if you are opposing a motion to dismiss arising from an alleged agreement to arbitrate, think through the advantages of seeking a stay (an analysis that the plaintiffs may well have made in Reno), rather than presenting the court with no option but to dismiss the case. The retention of jurisdiction makes a later confirmation action easier and keeps the court available should you need to call on it during the arbitral process.
Like I said – this a thin day. Hopefully, there is some meat on the judicial grill for Friday. See you then.