Not much volume today, but some interesting action from SCOTUS on a cert. grant.

SCOTUS and the “Transportation Worker” Exception to the FAA

In Monday’s  orders, SCOTUS vacated the 9th Circuit’s judgment in Domino’s Pizza, LLC v. Carmona, 21 F. 4th 627 (9th Cir. 2021), cert. denied ___ U.S. ____ , Dkt. No 21-572 (October 17, 2022), and remanded the case for consideration in light of last Term’s decision in Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022).  Saxon was an employee of a transportation company, while the plaintiff in Carmona drove for a food service company. The case would have given SCOTUS a chance to define whether, in determining the FAA’s Section 1 exception, a court looks to the worker’s job or to the “employer’s” industry – a question that divides the courts below and even split a Second Circuit panel, see Bissonnette v. LePage Bakeries Park St., LLC , 2022 U.S. App. LEXIS 27628 (2nd Cir. September 26, 2022). It looks like SCOTUS is going to let the Circuits shake things out for a while; we can wait.  (There was a longer discussion of Domino’s Pizza in the October 10^th edition of Highlights and of Bissonnette on October 7^th. You can find these – and other – back editions of this newsletter at the “News and Blog” tab of reifadr.com).

Severability; Litigation Waiver

Smith v. Ironworks Development, LLC, 2022 U.S. Dist. LEXIS 188166 (W.D. Va. October 14, 2022)(Moon, J.), is a routine severability and litigation waiver case, with one interesting aspect; in discussing litigation waiver the court references the “prejudice standard” that SCOTUS rejected in Morgan v. Sundance, Inc., 142 S. Ct. 1708 (2022).  In doing so, the opinion relies on several Fourth Circuit cases that predate Morgan, demonstrating the inevitable delay in implementing changes in long-held doctrines.  District Courts are bound to follow the holdings of the Courts of Appeals. Until those appellate decisions change, District Judges are loathe to effectively overrule them.

Turnipseed v. APMT, LLC, 2022 U.S. Dist. LEXIS 187101 (E.D. La. October 13, 2022), gives support to those, hopefully, rare parties who delay commencing arbitration despite a court’s order to do so. In November 2018, the court granted defendant’s motion to compel arbitration.  As of October 2022, the plaintiff had not yet initiated proceedings.  APMT moved to dismiss for failure to prosecute.  The court, Barbier, J, opines that “lesser sanctions are available which could serve to remedy the issue before a final order to dismiss the case with prejudice becomes necessary.”  In so holding, he cites Fifth Circuit cases that held that alternatives to dismissal should be imposed where “a Plaintiff has failed to comply with a few court orders or rules.”  Accordingly, the court grants Plaintiff thirty days to commence arbitration.  If she fails to do so, the Defendant may renew a motion to dismiss with prejudice.

Equitable Estoppel and Tort Claims

The scope of an arbitration clause is one of most basic disputes in ADR jurisprudence.  It is black letter law that, since arbitration is a creature of contract, parties need only arbitrate those disputes which fall within the arbitration clause to which they agreed.   S.S.L. Investments, LLC v. Oroskar, 2022 U.S. Dist. LEXIS 186931 (C.D. Cal. October 11, 2022)(Lew, J.), provides a different twist on those considerations.

Plaintiff distributed a type of cannabis oil.  She contracted with Defendant to install and operate processing equipment. The contract contained an arbitration clause covering “any and all disputes arising out of or relating to this Agreement. . . .”  Alleging that the process “repeatedly failed to meet the promised production specifications,” that Defendant failed to deliver all the equipment, and that Defendant used the equipment for its own research, S.S.L. brought RICO, fraud, and unfair competition claims.  Judge Lew holds that the claims are arbitrable, as they “ultimately rely on obligations in the Agreement,” specifically specifications that Defendants “would provide effective proprietary technology and operate it in Plaintiff’s facility.” (Emphasis added). Each of the claims, the court holds, ties back to the agreement.  While the opinion itself seems to be a routine interpretation of the words “relating to” in the arbitration provision, it is interesting because Judge Lew opines in a footnote that he “grants Defendants’ Motion to Compel Arbitration on equitable estoppel grounds. . . .”  That principle is usually employed to bind to an arbitration clause any non-signatory whose claims depend upon the provisions of the agreement; in other words, it ordinarily relates to the parties who must arbitrate, not to what they arbitrate.  Its application here to the scope of the obligation to arbitrate opens interesting roads for counsel seeking to compel arbitration under a narrow dispute resolution provision.

Sign-in Wrap Arbitration Agreements

Keebaugh v. Warner Bros. Entertainment, Inc., 2022 U.S. Dist. LEXIS 187676 (C.D. Cal. October 13, 2022), relates to the mobile app Game of Thrones Conquest. Players could make in-app purchases for use in the game. Plaintiffs brought this class action alleging common law torts and the violation of various consumer protection statutes. Warner moved to compel arbitration under a portion of the linked terms and conditions.

Websites and other apps generally disclose terms and conditions of use via a link contained on their opening page.  In determining the binding effect of an arbitration clause within those terms and conditions, courts often consider whether the color of the link, its location, size, or other physical characteristics make it sufficiently prominent to impose a duty of inquiry on the site’s user.  In Keebaugh, Judge Frimpong takes a different approach. Rather than focusing on the characteristics of the link, she looks to the expectations of the user.  “The full context of any transaction is critical to determining whether any particular notice is sufficient to put a consumer on inquiry notice of contractual terms contained on a separate, hyperlinked page,” quoting Sellers v. JustAnswer LLC, 73 Cal. App. 5^th 444, 289 Cal. Rptr. 3d 1  (2021).  Here, she holds, Plaintiffs, when they purchased game pieces, were not looking to a “continuing relationship. . . that would require some terms and condition.”  As such, they are “not likely to be scrutinizing the page for small text outside the payment box or at the bottom of the screen linking them to [] pages of contractual terms,” citing to and quoting Sellers. Therefore, she holds that they are not bound by the hyperlinked terms and conditions, and she denies the motion to compel arbitration.

So, what are the practical effects of this approach?  Would it require an individual inquiry as to the degree of attention any user pays to the website and the reason for any inattention?  The court opines that “the consideration of subjective criteria, alone, has led to inconsistent decisions,” citing Sellers. Would the court’s consideration of individual expectations increase those disparate results? Or does avoiding an objective evaluation of website design recognize the reality that folks come to a site for different reasons? There will certainly be more to come.

This is the sports fan’s sweet spot – football, basketball, hockey, baseball all at once.  A serious hit on those evening billable hours.  See you later this week.

David A. Reif, FCIArb
Reif ADR
Dreif@reifadr.com
Reifadr.com