Today, another Circuit takes a look at whether the interstate transportation exception to coverage under the FAA applies to ride-share drivers. Also, cases discuss the procedural issues raised by interlocutory appeals after the denial of a motion to compel; the scope of federal question jurisdiction under the FAA, including an oral argument before SCOTUS; and conflicting agreements.

Ride-share drivers and the FAA

The First Circuit joins the debate over whether ride-share drivers fall within the Federal Arbitration Act’s exemption of “any other class of workers engaged in foreign or interstate commerce.”  In Cunningham v. Lyft, Inc., 2021 U.S. App. LEXIS 33010 (1^st Cir. Nov. 5, 2021), Circuit Judge Kayatta, writing for himself, Circuit Judge Lynch, and District Judge McElroy, sitting by designation, joins the courts holding that Lyft drivers and, by implication, Uber drivers operate primarily on a local basis and are not in interstate commerce.

Like most ride-share cases, Cunningham arises out of a dispute as to whether drivers are employees or independent contractors.  Plaintiff claims that he and the class members were misclassified as contractors and, accordingly, did not receive sick leave benefits. Lyft moved to compel arbitration of the claim pursuant to the terms of service to which it claimed its drivers agreed.  The District Court held that the drivers fell within the FAA’s Section 1 exemption and denied the motion to compel arbitration.  The Court of Appeals reverses that decision.

The record cited by the panel showed that from September 17, 2016, to April 7, 2020, fewer than 2% of Lyft rides nationwide crossed state lines and that fewer than 0.5% of those in Massachusetts, where the plaintiff operated, did so.  Thus, Judge Kayatta frames the question  as whether “a class of workers qualif[ies] under Section 1 [of the FAA] if many but not all of the workers cross states [sic] lines on a very small percentage of their trips?” Joining the Ninth Circuit in Capriole v. Uber Technologies, Inc., 7 F. 4^th 854 (9^th Cir. 2021), the court holds that they do not so qualify for exemption, as interstate driving is not a “central part of  the job description. . . Someone whose occupation is not defined by its engagement in interstate commerce does not qualify for the exemption just because she occasionally performs that kind of work.” (quoting Capriole)(Emphasis added).

The panel likewise rejects Cunningham’s position that, because Lyft represents 40% of the traffic at Logan Airport during peak times and that 62% of Lyft riders have used the service to get to the airport, its drivers are a part of the chain of interstate commerce related to air travel.  As with other cases refusing to follow that lead, Cunningham focuses on  the Supreme Court’s decision in United States v. Yellow Cab Co, 332 U.S. 218 (1947).  At the time of the decision in Yellow Cab, rail travelers going from the East Coast to the West had to change stations in Chicago, even though they had a through ticket. The case considered whether cab drivers whom the railroads retained to transfer rail passengers between stations were sufficiently tied to interstate commerce to fall under the Sherman Antitrust Act.  SCOTUS distinguished two scenarios. In the first, the drivers contracted with the railroads to transfer passengers, and the cab fare was included in the railroad ticket; in those cases, the court held that the drivers were sufficiently intertwined with interstate commerce to fall under the Sherman Act’s antitrust jurisdiction.  The second scenario involved drivers whom passengers hired directly to take them from the passengers’ homes to the train station where they would board an interstate train; there, SCOTUS held that the interstate commerce tie was missing, as “that service was not an integral part of interstate transportation. . . . To the taxicab driver, it is just another local fare.” (Yellow Cab as quoted in Cunningham). The panel here equates Lyft drivers to the intrastate taxi in the second scenario. The panel “draw[s] a line” between the interstate transportation provided by the airlines and the local intrastate transportation provided by Lyft drivers.

Judge Kayatta leaves open an interesting work-around in some limited instances. He does not resolve the effect of Lyft’s partnership with some airlines under which the latter promote the ride-share service and sometimes actually issue credits toward a Lyft ride, as he opines that the issue was not preserved below.  So, is a rider traveling on such a credit the same as the Chicago taxi passenger whose cab fare was included in the original ticket price for his or her train ride?  Are there a sufficient number of such rides to impact decisions as to the scope of the Section 1 exemption?

Stay of litigation pending interim appeal

Triplet v. Menard, Inc., 2021 U.S. Dist. LEXIS 214521 (D.S.D. Nov. 5, 2021), addresses whether an action should continue toward a decision on the merits during the pendency of an interlocutory appeal from the denial of a motion to compel arbitration. Absent Eighth Circuit precedent, the court, Kornmann, J., joins those cases holding that a District Court is divested of jurisdiction during an appeal where its actions would “mirror” the issue before the Circuit Court.  Here, the issue on appeal is whether the dispute was arbitrable.  By moving forward with the case, the District Court would effectively be acting as if the issue were already resolved and that the judge, not the arbitral panel, should decide the merits.  To do so, the court opines, exposes the parties to expense which would be wasted if the appellate court were reverse the District Court’s denial of the motion to compel arbitration; in that event, the actions of the District Court on the issue would be irrelevant, as the same questions would now be sent to the arbitral panel.  Accordingly, the court grants Menard’s motion to stay the case pending appellate resolution.

Federal question jurisdiction over a motion to vacate

Professional Hospital Guaynabo, Inc. v. MSO of Puerto Rico, Inc., 2021 U.S. Dist. LEXIS 214766 (D.P.R. Nov. 4, 2021), addresses whether the dispute underlying an arbitration raises a federal question.

The parties engaged in arbitration over Plaintiff’s claim that Defendant owed it  approximately $618,000 for medical and hospitalization expenses. The parties’ contract provided that the party claiming a breach of the MSO agreement needed to file for arbitration within sixty days of “the last attempted resolution. . . .” The arbitrator found that any claim was triggered on December 5, 2016, and that a demand filed on December 18, 2017, was untimely. He, therefore, denied the claim.  The hospital filed an application to vacate the award under the FAA.

It is black letter law that the Federal Arbitration Act does not create subject matter jurisdiction; there must be an independent basis therefor.  There was no diversity of citizenship between the parties; rather, the hospital alleged that there was federal question jurisdiction because the underlying question in dispute implicated the Medicare Act.   The court, Delgado-Hernandez, J., holds that, as the Medicare Act creates no private cause of action and the parties’ dispute arises out of an alleged contractual breach, no federal question is implicated.  Accordingly, he dismisses the action for lack of subject matter jurisdiction, without reaching the merits.

SCOTUS may make this jurisdictional issue moot in the future, as Badgerow v. Wagner, which was argued last week, addresses whether there is “look through” federal question jurisdiction over applications to vacate or confirm an arbitration.  For more on the status of Badgerow, see below.

Conflicting agreements

Hawley v. Boysen, 2021 U.S. Dist. LEXIS 213234 (D. Kan. Nov. 4, 2021), holds that conflicts between the arbitration provisions of multiple agreements executed as part of a single transaction demonstrate that the parties had no meeting of the minds.  Accordingly, the court denies defendants’ motion to compel arbitration.

The parties executed two agreements as part of a proposed arrangement to develop and market technology.  One agreement, the Joint Venture Agreement (“JVA”), provided that any dispute would be mediated and submitted to arbitration.  A second, the Asset Purchase Agreement (“APA”), provided for arbitration only “upon written acceptance to a binding arbitration hearing by both parties.” Each agreement contained a merger clause that incorporated the other agreement, and the agreements did not give either provision preference over the other.  Finding that the two agreements cannot be harmonized, Judge Lungstrum holds that there was no meeting of the minds, since the APA allows for arbitration only upon written consent of the parties, while the JVA imposes mandatory arbitration.” “[T]here is no basis to favor one agreement’s arbitration clause over the other’s clause, and enforcing either clause would violate the other.”  He denies the motion to compel arbitration.  In an important reminder of the difference between the question of whether the parties have formed an agreement to arbitrate and the evaluation of the scope of such an agreement, the court holds that “when the dispute is whether there is a valid and enforceable arbitration in the first place, the presumption of arbitrability falls away.’” (quoting Riley Manufacturing Co., Inc. v. Anchor Glass Container Corp., 157 F. 3d 775 (10^th Cir. 1998).

Drafters’ lesson – If there are two agreements that contain dispute resolution provisions, establish which one applies in the event of an inconsistency.

SCOTUS

As reported last week, the Supreme Court heard oral argument in Badgerow v. Walter, addressing whether “look through” federal question jurisdiction is available over a petition to confirm or vacate an arbitration under the FAA.  Ronald Mann of Columbia Law School has an extensive summary of the oral argument at SCOTUSblog.com  https://www.scotusblog.com/2021/11/justices-balance-policy-and-text-to-guide-jurisdiction-over-motions-to-vacate-arbitration-awards/

For those wanting to review the actual argument, audio and a transcript thereof are available at  https://www.supremecourt.gov/oral_arguments/audio/2021/20-1143

I hope your week is off to an easy start.

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