Christmas is past, so it is time to start thinking about ADR, again.  Today’s matters include an important drafting tip and two cases which highlight the nuances of the “last-mile” driver question.

Selection of a non-existent forum

Shandong Luxi Pharmaceutical Co. Ltd. v. Camphor Technologies, Inc., 2021 U.S. Dist. LEXIS 244809 (M.D. Fla. December 23, 2021), is a warning to drafters to include a back-up to the tribunal which they select as a forum for arbitration.  The parties entered into a series of supply and distribution agreements which provided for arbitration before the “Arbitration Institute of the United States Chamber of Commerce in accordance with its Arbitration Rules.”  There is no such forum.[1]  The issue before the court is whether the forum designation is integral to the arbitration and, therefore, its failure is fatal to the use of arbitration to resolve a dispute.

The court declines defendant’s invitation to appoint an arbitrator under the provisions of Section 5 of the Federal Arbitration Act. Citing to Inetianbor v CashCall, Inc., 768 F. 3d 1346 (11^th Cir. 2014), Judge Honeywell holds that the court may only exercise that authority where the forum selection is not “an integral part of the agreement to arbitrate,” but merely “an ancillary logistical concern.”  Analyzing the agreement, the court finds that the tribunal selection is “integral” to dispute resolution.  The court opines that “the [dispute] provision plainly states that disputes arising out of the agreement which cannot be amicably settled ‘shall’ be submitted to be resolved by [the non-existent tribunal}. . . Use of the mandatory word ‘shall’ in the agreement supports a finding of intent to require arbitration with this particular forum and under its procedural rules.  The language of the provision does not indicate that the choice of arbitral forum or procedural rules was otherwise optional.”  Further, Judge Honeywell finds that the parties continued to designate that specific forum and its rules through three different agreements in 2014, 2016, and 2019.  “The repeated choice of forum in all three agreements supports the conclusion that the designation of that forum and its rules was integral to the agreements.”   Accordingly, she denies Camphor’s motion to compel arbitration. “[I]t would not be appropriate for the court to step in and appoint a different arbitral forum.”

The lesson is clear. Unless the parties are so tied to one arbitral tribunal that they would rather litigate than go elsewhere, the drafters of an arbitration provision should always either designate a backup or indicate that the court has authority to do so under Section 5 of the FAA. While it is unlikely that an established forum like the American Arbitration Association, JAMS, or the ICC will go away, arbitration clauses may only become relevant years – or decades – after the parties sign their agreement. There is no reason to run the risk of losing the right to arbitrate when a few words in the agreement can satisfy the parties’ goal of staying out of court.

Delivery drivers and the FAA

Mark Ross was employed by an employee staffing company, working as a delivery driver for a warehouse operated by Auto-Wares, LLC.  In Ross v. Subcontracting Concepts, LLC, 2021 U.S. Dist. LEXIS 245231 (E.D. Mich. December 23, 2021), he brought a class action on behalf of himself and other delivery drivers, alleging misclassification as an independent contractor and violations of the Fair Labor Standards Act. Both the staffing company and the warehouse moved to compel arbitration. The case revolves around the oft-raised question of whether such drivers are “workers . . .engaged in foreign or interstate commerce” and, therefore, exempt from an order to compel arbitration under the Federal Arbitration Act.

Finding that the closest precedent in the Sixth Circuit, Bacashihua v. U.S. Postal Service, 859 F. 2d 402, 405 (6^th Cir. 1988), involved parcel post distributors who “are responsible for dozens, if not hundreds, of items of mailing moving in ‘interstate commerce’ on a daily basis,” the court, Parker, J., reviews Circuit Court holdings elsewhere.  She emphasizes that the job of drivers like Ross involves delivering items which Auto-Wares has itself already purchased from the manufacturer. Auto-Ware is “the end of the interstate journey because Auto-Wares is the customer, and a retail customer has not yet purchased the product. Auto-Wares’ drivers then transfer these products to an Auto-Wares retail store. The products sit at the local Auto-Wares retail store until purchased by local consumers, and then Plaintiff or similarly situated individuals execute the delivery.” (Emphasis added).  Thus, the court holds, unlike in Waithaka v. Amazon.com, 966 F.3d 10 (1^st Cir. 2020), and Rittman v. Amazon.com, 971 F. 3d 904 (9^th Cir. 2020), Ross and the other class members are not really “last-mile” drivers, who complete a transaction which is part of a continuous flow across state lines from the time of the customer’s order.  Rather, Ross delivers items which had “come to rest until ordered by a customer.”  Therefore, Judge Parker holds, the FAA’s section 1 “interstate commerce” exemption does not apply; since the other prerequisites to arbitration under the Act are present, the court grants the motion to compel arbitration.

On the same day as the District Court’s decision in Ross, the Ninth Circuit decided an important case that may expand the scope of the “interstate commerce” exemption and, certainly, goes further than would Judge Parker.[2]  In Carmona v. Domino’s Pizza, LLC, 2021 U.S. App. LEXIS 38045 (9^th Cir., December 23, 2021)(Hurwitz, C.J., writing for himself and Wardlaw, C.J., and Barrington, C.J., sitting by designation), the Court extends its holding in Rittman to drivers who deliver pizza products from the Domino’s warehouse to individual franchisees. As described in the opinion, Domino’s product distribution system includes a stop at a Supply Center where “Domino’s employees reapportion, weigh, pack, and otherwise prepare the goods to be sent to franchisees.  Domono’s franchisees in Southern California order the goods either online or by calling the Supply Center, and the plaintiff drivers (‘D&S drivers’), who are employees of Domino’s, then deliver the goods to the franchisees.”  The court holds that such drivers, like those in Rittman, are “last-mile drivers.” In making that determination, the panel focuses on the fact that “Domino’s is involved in the process from beginning to the ultimate delivery of the goods to their destinations and its ‘business includes not just the selling of goods, but also the delivery of those goods.’” (internal citation omitted).  While the court recognizes that, unlike in the case of Amazon products, there is an “alleged ‘alteration’” of the products between the time that they enter California and the time of their delivery to the franchisees, it finds those changes to be insufficient to alter the Rittman analysis. “Some of the goods are transformed into pizza dough at the Supply Center,” but other “items, such as mushrooms are simply reapportioned, weighed, packaged, and stored before being delivered to franchisees by the D&S drivers.”  The court distinguishes the classic precedent in A.L.A. Schecher Poultry Corp. v. U.S., 295 U.S. 495 (1935), which “held that live poultry was no longer in the stream of interstate commerce after being processed at slaughterhouses and sold locally to retail dealers and butchers who in turn sold directly to consumers. Here, the relevant goods are not transformed into a different form and were procured out-of-state by Domino’s to be sold Domino’s franchisees, not to an unrelated third party.”

A comparison of Ross and Carmona raises the important issue of what kind of action is sufficient to break the chain of interstate commerce.  How relevant is the almost century-old precedent in Schechter?  Would it matter if the Supply Center fully assembled pies and shipped them frozen to the franchisees, rather than shipping only the dough and toppings?  Is the only relevant factor the fact that the ultimate delivery of a product to the customer comes from the same company with whom he or she placed the initial order? The Supreme Court has chosen to avoid the “last-mile” question in the past, denying cert. in Rittman, 141 S. Ct. 1374 (2021), and Waithaka, 141 S. Ct. 2794 (2021).  Perhaps it is time for SCOTUS to bring some more guidance to the question.

CBA Arbitration and Civil Rights Claims

Goodman v. Norristown Area School District, 2021 U.S. Dist. LEXIS 243833 (E.D. Pa. December 22, 2021)(Beetlestone, J.), centers on the elements necessary to prove a violation of Title VII and other employment statutes.  However, for those interested in arbitration, it reaffirms the principle that an award entered pursuant to a collective bargaining agreement arbitration does not bar employees from later bringing civil rights claims.

You have one week to eat all the Christmas cookies before the inevitable resolution to lose weight kicks in on January 1^st.  Use it well.

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

[1] The opinion does not indicate how the agreement ended up designating a non-existent arbitral institution.  Here’s one potential explanation, for which I have no hard evidence.  Since the plaintiff is a China corporation, it may have assumed that the “American Chamber of Commerce,” like the International Chamber of Commerce, manages a dispute resolution process.  Defendant may not have been represented in negotiating the agreements or it did not pay particular attention to the details of the arbitration clause.

[2]  Judge Parker, in fact, cites the District Court’s opinion in Carmona as a “but cf.”