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California Appeals Court Rules Uber Arbitration Agreement Enforceable

In our last post, we discussed a San Francisco federal court's decision to invalidate Uber's arbitration agreement with its driver on the ground that the delegation provision was ambiguous, not "clear and unmistakeable," based on an apparent conflict with the provision establishing venue in California courts.

The rationale of that decision was recently rejected by the U.S. Court of Appeals for the Ninth Circuit. [Yes, I know, it has been a long time since we've posted on this blog. We've been busy.] The case is Mohamed v. Uber Technologies Inc., 15-16178, and Gillette v. Uber Technologies Inc. 15-1618. The appeals court held that the conflict identified by the district court judge -- i.e. the inconsistency between the arbitration clause's delegation provision and the venue clause -- was 'artificial,' as the venue provision and the arbitration provision were not inconsistent, the venue provision simply applying to actions in court to enforce the arbitration provision or confirm an arbitration award, and to actions that the arbitration provision did not govern.

This is a victory for Uber and a blow to the several class actions pending against it. We are watching this litigation closely as well as the litigation between Uber and certain Lyft drivers [in which Uber was not as successful in applying its arbitration provision]. Stay tuned.
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11:08 PM

Arbitration Clause in Agreements Between Uber and Driver Held Invalid

Update: The rationale of the cases discussed in this post was rejected on appeal. See this post.

According to a story I received from @RecorderTweets, a California court recently held that Uber could not enforce the arbitration clause it placed in some online agreements with its drivers. The text of the order is not available, but it sounds from the story like the court's rationale was the same as or similar to an earlier court's ruling [link provided by onlabor.org, which also has a post discussing the ruling].

Part of the court's reasoning for invalidating the arbitration provision dealt with unconscionability, which we have blogged about under Florida law here.

But the impetus of the ruling I want to discuss in this post is that an enforceable arbitration agreement, especially the delegation provision, must not be contradicted by other terms of the contract. The delegation provision is the one that grants the arbitrator the power to determine whether the arbitration provision itself is enforceable. The U.S. Supreme Court made clear in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) that “[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” This is an exception to the general rule that doubts concerning an arbitration agreement should usually be resolved in favor of arbitration.

The 'clear and unmistakable' standard is a high one, and any potential ambiguity at all will render the delegation provision unenforceable, resulting in litigation. In the case of Uber's contracts, the ambiguity was apparent when reading the severability clause. While the intended effect of that clause likely in no way related to arbitrability, it was relevant to the issue of the delegation provision because it was contained within the jurisdictional statement, which provided for jurisdiction in California court. The court held that providing for jurisdiction in California court and immediately thereafter discussing severability -- which deals with what happens when one provision is deemed unenforceable -- could reasonably be read to mean that it was the California court who was to decide such unenforceability, and that this was potentially in conflict with the delegation provision in the arbitration clause, which provided that the arbitrator had authority to determine unenforceability. That conflict effectively rendered the delegation provision invalid, meaning that the court was then free to consider the driver's unconscionability defense itself rather than referring that matter to arbitration. And because the court then determined that the arbitration agreement was unconscionable, the entire dispute is now set to be litigated rather than arbitrated.

This case is an important reminder that contract drafters must consider the effect of all provisions of the agreement together.
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Federal Judge Overturns Goodell Decision re Tom Brady Suspension; Peterson and Rice Cases Cited as Precedent

In a lengthy and well-reasoned opinion, Judge Berman of the U.S. District Court for the Southern District of New York has overturned NFL Commissioner Goodell's decision as arbitrator of the dispute between the NFL and the NFLPA to suspend Patriots Quarterback Tom Brady four game for his alleged involvement in deflating footballs during last year's championship run.

We have blogged before that the grounds to overturn an arbitration award are limited. They include:
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
9 U.S.C. § 10(a). The U.S. Supreme Court has held that this list is exhaustive, Hall Street Assoc., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008); and Federal courts have largely construed this to mean that arbitrator errors of law, even manifest disregard of the law, do not warrant vacating an arbitration award. Generally speaking, this means that vacating an arbitration award is an uphill battle.

Here, the essence of Judge Berman's opinion is that the fact that the NFL doled out a suspension rather than a fine -- and Commissioner Goodell as the arbitrator upheld it -- warranted relief under § 10(a)(4), because the collective bargaining agreement and the "law of the shop" understood to apply generally in NFL collective bargaining cases, allowed suspension only when the player was on notice of the possibility of suspension prior to committing the act (which here was 'possession of general knowledge that the balls were being deflated'). The facts of the case made clear that Brady was on no such notice, because the CBA and the rules circulated to the players didn't specify it. Therefore, according to the Judge, the four game suspension was an example of the arbitrator "dispensing his own brand of industrial justice," which equates to exceeding his powers. As authority, the Judge cited (among other cases) the Ray Rice arbitration ruling, the Adrian Peterson arbitration ruling, and bountygate, each of which acknowledged that there was no precedent whatsoever for a suspension where the player did not know that a suspension was a possibility.

Judge Berman also stated that relief was appropriate under § 10(a)(3), because the NFLPA wanted to call the co-author of the Wells report as a witness in the arbitration and Commissioner Goodell did not allow it under the argument that his testimony will be cumulative. The Judge found that the failure to allow the NFLPA to call this witness constituted a deprival of due process.

For the record, deflategate is not over. Commissioner Goodell has already issued a statement that the NFL will appeal the decision to the Second Circuit. Stay tuned.
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Florida Supreme Court Clarifies Statute of Frauds

The Florida Supreme Court recently issued an opinion clarifying application of the Statute of Frauds to oral contracts in Florida. The decision, Browning v. Poirier, No. SC13-2416, 40 Fla. L. Weekly S304 (Fla. May 28, 2015), is available from the court's website here.

Florida's general Statute of Frauds defense provides that
"No action shall be brought...upon any agreement that is not to be performed within the space of 1 year from the making thereof...unless the agreement or promise upon which such action shall be brought, or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith or by some other person by her or him thereunto lawfully authorized."
§ 725.01, Fla. Stat. (2014) (emphasis added). The Statute of Frauds takes its origin from an Act of English Parliament written by Lord Nottingham and passed in 1677. It was supposed to, as the name suggests, prevent people from bringing fraudulent claims containing nothing more than spurious allegations of the existence of an oral contract, by requiring that certain important contracts be in writing to be enforceable. [Editorial note: in my experience, the Statute of Frauds itself has been used more to perpetrate fraud than to prevent it, by people who, if called to testify, would concede that they have an oral agreement, but who escape the requirement to testify by raising the defense. To that extent I respectfully disagree with my ancestors as to its desirability.]

The issue in Browning was whether the parties' oral agreement to split lottery winnings was enforceable. The agreement was allegedly entered in 1993 between a boyfriend and girlfriend, to last as long as they were together. In 2007, which you will note is much longer than one year after the contract was made, the girlfriend won the lottery ($1 Million). The boyfriend demanded half the winnings, and the girlfriend allegedly refused. After trial, the trial court ruled for the girlfriend on her Statute of Frauds defense, and on appeal, the Fifth DCA upheld the trial court's decision, in Browning v. Poirier, 128 So. 3d 144 (Fla. 5th DCA 2013). According to the Fifth DCA (en banc), since the boyfriend conceded that when the parties entered into the agreement they intended to stay together for more than one year, the Statute of Frauds applied and the oral contract was not enforceable. The Fifth DCA relied on some less-than-clear language from the seminal case of Yates v. Ball, 132 Fla. 132, 181 So. 341, 344 (1937) (which is apparently too old for Google Scholar to care to link to), stating that the the question turned on the parties intent at the time they made the oral contract.

The Florida Supreme Court disagreed, holding that since the contract's terms did not specify a definite time period that exceed one year (being silent on its duration), and since it was capable of being performed within one year (e.g. if one of the parties won the lottery days or months after the agreement was initially made or if they broke up within a year), the fact that the agreement actually lasted longer than one year was irrelevant. According to the court, it was also irrelevant that the parties may have intended that the contract last for more than one year. Notwithstanding Yates, which the court receded from to the extent it was inconsistent, the proper test is whether according to its terms the contract is theoretically capable of being fully performed in one year. If it is, then the Statute of Frauds does not apply and the contract will be enforceable.

Note that this is a broad reading of the highlighted language from the Statute, which will limit the Statute's applicability. It would seem that the Florida Supreme Court shares my opinion.

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Florida Supreme Court Holds Citizens Immune from Bad Faith Actions Unless Egregious/ Outrageous Conduct is Alleged

We previously blogged about a case in which Florida's First DCA found that Citizens Property Insurance, a State-run property insurer, was not immune from suit for alleged bad faith pursuant to § 624.155(1)(b)(1), Florida Statutes. The Florida Supreme Court today overturned that decision, agreeing with the Fifth DCA's decision in Citizens Property Ins. Corp. v. Garfinkel, 25 So. 3d 62 (Fla. 5th DCA 2009). According to the supreme court, in order to defeat Citizens' immunity under § 627.351(6)(s)1, Florida Statutes, the insured's complaint must allege that the insurer's conduct rises to the level of egregious and outrageous conduct. Therefore, whether Citizens is immune from suit for bad faith must be decided on a case-by-case basis.
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