It’s been a month since the last posting. I’ve been busy with some longer arbitrations and, better yet, my wife and I made our annual trip to the First and Second Round of the Men’s Final Four. (This is around our twenty-first consecutive year not counting a COVID break).  But, it’s great to be back in the ADR world.

SCOTUS; Stays Pending Appeal of Denial of a Motion to Compel

The big news this week in the domestic arbitration field was the argument Tuesday in Coinbase, Inc. v. Bielski, Dkt. No. 22-105.  The case centers on the important issue of whether litigation in the District Court should continue during the pendency of an appeal from the denial of a motion to compel arbitration.  There is already some great coverage of the issue, so, rather than go into detail about the case, I’m going to refer you there.  CPR has written a long piece summarizing the oral argument and the Justices’ questions, Gopala-Foster and Bleemer, A Look at the 3/21 #SCOTUS Arguments: When Is an Arbitration Appeal Stay Really a Stay?, CPR Speaks, March 21, 2023, Today’s #SCOTUS Arguments: When Is an Arbitration Appeal Stay Really a Stay? – International Institute for Conflict Prevention & Resolution, Inc (cpradr.org).  If you want to dig deeper, you can find all the filings at the ever-useful SCOTUS blog, Coinbase, Inc. v. Bielski – SCOTUSblog and access the transcript and audio of the arguments at https://www.supremecourt.gov/oral_arguments/audio/2022/22-105.

Grubhub, Postmate, and UberEats Arbitration  Rejected

In Davitashvili v. Grubhub, Inc., 2023 U.S. Dist. LEXIS 44780 (March 16, 2023), Judge Kaplan refuses to compel arbitration of antitrust claims under the provisions of the meal-delivery services’ terms and conditions. In doing so, he gives ammunition to counsel who want to litigate, rather than arbitrate, their claims against these popular sites.

The decision arises out of an antitrust action brought by a class of direct consumers.  They allege that the defendants illegally fixed prices, in violation of the Sherman Act, by prohibiting restaurants using the services from selling meals at lower prices directly to consumers or, in the case of Grubhub or Uber, through competing platforms such as Doordash. The defendants moved to compel arbitration, maintaining that those logging onto their platforms agreed to accept terms of use which included arbitration clauses.

The court first addresses contract formation. In one of the potentially most impactful portions of the opinion, Judge Kaplan holds that Grubhub’s “checkout page . . . does not constitute a ‘clickwrap’ agreement . . . “ In reviewing the page, the Court finds that the website’s layout “does not require users to check a box or take any affirmative action indicating that they have assented to, let alone read, the Grubhub terms of use.”  Rather, according to the Court, the site merely states “in fine print” that “[b]y placing your order you agree to Grubhub’s terms of use.” Citing to Nicosia v. Amazon.com, Inc., 834 F. 3d 220, 236 (2^nd Cir. 2016), Judge Kaplan holds that such disclosure is insufficient to demonstrate acceptance of the terms “because ‘clicking “Place your order” does not specifically manifest assent to the additional term, for the purchaser is not specifically asked whether she agrees or to say “I agree.”’” The Court also rejects claims of constructive notice and that a subsequent email clarified the arbitration requirement, although that holding is based more on what the court considered limits in the evidence presented at the hearing than on any inherent legal issue related to those claims.  As to Uber, the court finds that a December 2021 amendment to the website terms mandates arbitration.  However, “except with respect to its December 2021 terms of use, Uber has not established that any plaintiff expressly manifested assent to any arbitration agreement with Uber or Postmates” nor has it demonstrated that a reasonable person would be on notice as to the existence of the arbitration agreements.  Again, however, the court bases this latter conclusion on the absence of “sufficient information about what [Defendant’s] app or web page looked like when the [Plaitniffs} signed up or at any relevant time prior to December 2021.”

The Court goes even further and categorizes all the arbitration provisions as unenforceable “infinite arbitration clause[s].” Grubhub required arbitration of “any other dispute with Grubhub. . . “ (Emphasis in opinion). Uber required that “any and all disputes, claims, or controversies between the parties shall be resolved only by individual arbitration.” (Emphasis in opinion). Uber, which acquired Postmate, argued that its terms applied to the plaintiffs’ claims against the acquiree. Opining that the antitrust claims here “are completely unrelated to [Plaintiffs’] use of the defendants’ platforms,” the court holds that “no reasonable person” would think that agreeing to these terms would encompass more than disputes “connected in some way to the [terms of use]agreement with [defendants],” quoting McFarlane v. Altice USA, Inc., 524 F. Supp. 3d 264, 277 (S.D.N.Y. 2021)(Brackets in opinion). This antitrust claim, based upon pricing policies between restaurants and the delivery services to which the plaintiffs were not even parties, the court holds, falls outside that expectation.

Some cautions.  The plaintiffs set up their delivery accounts as much as eight years ago, and the defendants may have changed or in the future may change the language of the clauses or their presentation on the website.  Also, the court’s holding on constructive notice is heavily driven by the evidence which the defendants presented as to the layout of the website.  Therefore, the case may be distinguishable from other fact patterns or litigation records.  However, it still gives real ammunition to those fighting to keep meal-delivery claims in front of a jury and out of arbitration – particularly as to claims by those who signed up with Uber or Postmates before December, 2021.  But, stay tuned. Since this is a class action with potentially large damages, expect an appeal to the Second Circuit under Section 16 of the Federal Arbitration Act.

Litigation Waiver; Post-Morgan Test in the Second Circuit

What happens when the defendant is unaware of a relevant arbitration clause?  The plaintiff in Alvarez v. Experian Information Solutions, Inc., 2023 U.S. Dist. LEXIS 43659 (E.D.N.Y. March 15, 2023)(Wicks, M.J), alleges that the defendant provided incorrect credit information to a potential lender; as a result, Alvarez claims, his mortgage application’s processing was delayed.  He seeks damages for additional rent and reputational loss on behalf of himself and members of a nationwide class. Over two years after filing the case and after the parties conducted class certification discovery, Experian (“EOS”) moved to compel arbitration under the terms and conditions of an agreement that Alvarez signed with ConsumerInfo.com (“ECS”), with which EOS shared a common parent.  It further claimed that it only learned of the relationship between plaintiff and ECS when it deposed his son on May 29, 2021.  That same day it sent plaintiff’s counsel a letter stating that it planned to move to compel arbitration. Plaintiff maintained that the eighteen month delay in bringing the motion and the intervening discovery constituted a litigation waiver of any arbitration rights.  The court rejects the argument and compels arbitration.

The case considers two relevant issues.  First, it addresses the standard in the Second Circuit for evaluating such waiver claims after the SCOTUS decision in Morgan v. Sundance, 142 S. Ct. 1708 (2022). There, the Supreme Court invalidated the Eighth Circuit’s arbitration-specific requirement that one asserting such waiver must demonstrate prejudice, even though such a requirement did not exist in the context of other waiver claims.  Magistrate Judge Wicks opines that the Second Circuit has not yet defined its standard in any post-Morgan decision. Recognizing that the District Courts in the Circuit have taken varying approaches, the court determines that the proper approach is to apply the first two factors of the pre-Morgan Second Circuit standard- the length of time that passed before the motion to compel was made and the “quality and quantity” of the discovery and motion practice that took place. Applying those tests, it finds that Experian did not “knowingly relinquish the right to arbitrate by acting inconsistently with that right . . “, quoting Morgan at 1712. As soon as Experian learned of the arbitration clause, it move to compel and there was only “limited pre-trial activity. . . .” “There has not been a substantial amount of merits-based litigation such as dispositive or merits-based motion practice nor was, or is, trial imminent.”

This type of judgment call is typical of litigation waiver cases.  The more interesting issue is contained in a single paragraph of the opinion – how does “ordinary negligence” in failing to discover the arbitration clause factor into a consideration of delay. Without any elaboration, the court holds that such negligence “alone is insufficient for a finding of waiver.” While not making it explicit, Judge Wicks seems to rely upon the “knowingly” portion of the Morgan quote above; in other words, he starts the waiver clock running from the date when EOS actually learned of the arbitration clause, rather than when it “should” have learned thereof.  He distinguishes Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F. 3d 20 (2^nd Cir. 1995)(eight month delay in seeking arbitration and a “trade practice” of arbitration), which affirmed a finding of waiver, basing the distinction on the fact that the defendant there had the contracts “in its own possession.” (Emphasis in opinion). Query, though – if the Morgan test really is one of “knowing” waiver, why should it make a difference where the relevant information was located? If waiver requires actual knowledge of the right to arbitrate and a party does not know that there is a piece of paper creating that right, why does it matter where the paper is resting? Or, alternatively, is “constructive knowledge” enough?

Scholarship; Restatement of the Law

The Restatement of the Law of International Commercial and Investor-State Arbitration, Draft 6 (which I believe is the final draft) is now available on Lexis. Per the ALI, “this project restates the U.S. law of international commercial and investor-state arbitration and covers, among other topics, arbitration agreements; conduct of and the judicial role in international arbitral proceedings in the United States; awards; recourse from and enforcement of international arbitral awards rendered in the United States; the judicial role in international arbitral proceedings abroad; enforcement of international arbitral awards rendered abroad; the preclusive effect of international arbitral awards; and ICSID Convention arbitration.” Thanks to the Reporter, George A. Bermann, and Associate Reporters, Jack J. Coe, Jr.; Christopher R. Drahozal; and Catherine A. Rogers for this monumental work. To learn more see the ALI website at International Commercial and Investor-State Arbitration Archives – The ALI Adviser.

Enjoy the rest of the week – and go UConn Huskies.  Both the men and the women’s basketball teams are in the March Madness Regionals, so I’ll be doing some heavy TV time.  

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