COTW #31 - Unconscionable arbitration agreement

Today’s Case-of-the-Week — Burnett v. Pagliacci Pizza (Washington Ct App 06/17/2019) [PDF] —caught my eye because of the somewhat non-traditional way the court handled the question of unconscionability.

Most courts find a contractual provision (arbitration clause or otherwise) unconscionable only if it is both procedurally and substantively unconscionable.

Procedural unconscionability has to do with how the contract was formed — adhesion contract, take-it-or-leave it approach, huge difference in bargaining power, etc.

Substantive unconscionability has to do with the actual terms in the contract — things that are vastly one-sided, harsh, or unlawful.

In this case the court — remarkably — held that procedural unconscionability alone will do the trick.



Class arbitration is available only when there is an affirmative contractual basis for concluding that the parties agreed to it (5-4).

Another 5-4 arbitration decision from the US Supreme Court: No class-action arbitrations based on ambiguity. There must be an affirmative contractual basis for concluding that the parties agreed to class arbitration. Lamps Plus v. Varela (US Supreme Ct 04/24/2019) [PDF].

Varela filed a putative class action against his employer on behalf of employees whose tax information had been disclosed to a hacker. Varela's employment contract contained an arbitration agreement, so the employer moved to compel arbitration on an individual – not class – basis. The trial court authorized class arbitration and dismissed Varela's claims. The 9th Circuit affirmed. The US Supreme Court (5-4) reversed, holding that under the Federal Arbitration Act (FAA), an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration.

The 9th Circuit recognized that Stolt-Nielsen S. A. v. Animal Feeds Int'l Corp., 559 U. S. 662 (2010), held that a court may not compel arbitration on a classwide basis when an agreement is "silent" on the availability of such arbitration. But the 9th Circuit ruled that Stolt-Nielsen was not controlling because the agreement in this case was ambiguous rather than silent on the issue of class arbitration.

The US Supreme Court pointed out that courts must give effect to the intent of the parties, and it is important to recognize the "fundamental" difference between class arbitration and the individualized form of arbitration envisioned by the FAA. Class arbitration "sacrifices the principal advantage of arbitration – its informality – and makes the process slower, more costly, and more likely to generate procedural morass than final judgment." Like silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to sacrifice the principal advantage of arbitration. Instead, there must be an affirmative contractual basis for concluding that the parties agreed to class arbitration.

The dissent would allow the application of California's "plain-vanilla rule of contract interpretation" which would require interpreting an ambiguous contract against the drafter.

Cross-Examination : Arbitration Boot Camp

There are two reasons to do cross examination.

  • One I call constructive.

  • The other I call destructive.

Constructive cross-examination — sometimes called hitchhiking — is where you're basically going to use the other side's witness as if they were your witness. That witness has things you need to know (or the arbitrator needs to know) and you simply ask a series of questions to get that information from the witness.

The other one is called destructive cross-examination — it's sometimes called impeachment — where you're trying to discredit the witness. Maybe you can show that witness is a liar. That's difficult and infrequent. But you can show sometimes the witness has a poor memory by asking a series of questions and see if they remember, or you can show bias by showing they’re related to somebody or they socialize with somebody. You don't come right out and say “Oh, well, you must be biased.” No, you just let the arbitrator form the arbitrator's own conclusions on that.

If you're going to use constructive cross-examination, you're probably not going to want to then turn around and try to impeach that witness because you want the arbitrator to believe the constructive part of that testimony that you've got.

Let me give you six ideas.

Number one: Don't repeat the unfavorable information that the witness has already given. You’re just repeating stuff that you don't want to hear and you don't want the arbitrator to hear again.

Number two: Use short questions and use plain words. Don't go into great big long complicated stuff.

Number three: I want you to use leading questions. People say don't use leading questions. But this is cross-examination, and you you can — and Irving Younger the great expert says you must — always use leading questions that would elicit either a yes or no answer.

Q: ”You came to work at eight o'clock that morning?”
A: ”Yes.”
Q: ”The supervisor was already at her desk?”
A: ”Yes.”
And so on. Very simple questions.

Number four: You should usually know what the answer is going to be before you ask the question. Otherwise, you might get surprised — unfavorably.

Number five: I want you to listen to the answer. I see it happen all the time where an advocate has a series of questions they want to ask and they go bulling through that series of questions, but they miss one of the answers that would have led them down a different rabbit hole that could have been quite favorable.

Number six: Do not quarrel with a witness. Do not argue with the witness. It only makes you look bad. And it usually doesn't help your case at all. Save your argument for when the case is over and you get to make an argument to the arbitrator.

So, before the hearing starts, when you're thinking about your cross-examination, know why it is you're going to cross-examine — constructive / destructive — and then prepare a list of questions that will lead you down the proper path to the answers that you want to hear or that you want the arbitrator to hear.

Selecting Your Arbitrator - Arbitration Boot Camp

You have an arbitration coming up, and it's time to select an arbitrator. Perhaps you got a list of potential arbitrators from AAA or FMCS.

Who are these people? What are they like? Which one(s) will be best for your case?

This 3 ½ minute video will give you some ideas.

Good hunting!

For more in the "Arbitration Boot Camp" series, go to www.RossRunkel.com/abc. They’re also on my YouTube channel.

Is Uber next? US Supreme Court case could be a game changer.

Is Uber next? US Supreme Court case could be a game changer.

Part of a series - Employment Law Case of the Week - by Ross Runkel.

New Prime v. Oliveira (US Supreme Ct 01/15/2019) [PDF] held that an interstate truck driver does not have to arbitrate his wage and hour claim – even though he signed an arbitration agreement.

This could have a big effect on lawsuits between Uber and their drivers. It probably turns on whether the drivers are IN interstate commerce.

Some pundits were surprised that the Court would issue a "pro-worker," "anti-arbitration" decision, failing to understand that the Justices all do their best to be faithful to the words Congress puts into its statutes.

Dominic Oliveira is an interstate truck driver whose contract with New Prime designates him as an independent contractor. The contract contains a mandatory arbitration provision and contains a "delegation clause," giving the arbitrator authority to decide threshold questions of arbitrability. Oliveira filed a class action claiming that New Prime failed to pay statutory minimum wage. The trial court denied New Prime's motion to compel arbitration; the 1st Circuit affirmed. The US Supreme Court affirmed unanimously. New Prime v. Oliveira (US Supreme Ct 01/15/2019) http://case.lawmemo.com/us/Oliveira.pdf

The Federal Arbitration Act (FAA) directs courts to compel arbitration, but §1 says that "nothing" in the Act "shall apply" to "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."

The Supreme Court held that the trial court – not the arbitrator – must first decide whether FAA §1 excludes Oliveira. This is because the contract's delegation clause (which is merely a specialized type of arbitration agreement) can be enforced only if the FAA applies in the first place.

The Supreme Court also held that FAA §1 excludes Oliveira. The FAA's term "contract of employment" refers to any agreement to perform work. At the time of the FAA's adoption in 1925, the phrase "contract of employment" was not a term of art, and dictionaries tended to treat "employment" more or less as a synonym for "work." Contemporaneous legal authorities provide no evidence that a "contract of employment" necessarily signaled a formal employer-employee relationship.

Emailed click box did not suffice to show assent to employer's arbitration agreement

We live in a digital age. What must an employer do to obtain digital agreement to its arbitration policy? Here is one case that gives one answer.

The New Jersey Appellate Division reversed the trial court's order compelling arbitration of a claim of religion discrimination. The court applied Leodori v. CIGNA Corp., 175 N.J. 293, 303 (2003) to find that there had not been an "explicit, affirmative agreement that unmistakably reflects the employee's assent." Skuse v. Pfizer (New Jersey Ct App 01/16/2018) [PDF].

The employer emailed to its workforce what it called a "training module" which described the company's mandatory arbitration policy. There was a link to the full text of the policy. In the module, employees simply were asked to "acknowledge" it with the click of an electronic button. The module declared that if an employee did not click the acknowledgement, but continued to work for the company for sixty or more days, the employee would be "deemed" to be bound by the arbitration policy.

The court held that the employee "never expressed in written or electronic form her explicit and unmistakable voluntary agreement to forego the court system and submit her discrimination claims against her former employer and its officials to binding arbitration." She clicked a box to indicate that she acknowledged receipt of the arbitration agreement, but nothing indicated she agreed to it. Compliance with the Leodori case requires that the click box contain the word "agree" or "agreement."

The court rejected the employer's argument that the employee was "deemed" to be bound by the arbitration policy because she continued to work for more than sixty days after receiving the arbitration agreement. "Such a proclamation of 'consent by default' is legally insufficient, however, to satisfy the requirements of explicit and unmistakable employee assent prescribed by Leodori."

Justice Kavanaugh’s 1st opinion: Arbitration

Justice Kavanaugh’s 1st opinion: Arbitration.

Part of a series - Employment Law Case of the Week - by Ross Runkel.

The US Supreme Court has held – unanimously – that courts must enforce an arbitration delegation clause even if the merits appear to be "wholly groundless." Henry Schein v. Archer & White (US Supreme Ct 01/08/2019) [PDF]. This is Justice Kavanaugh's first Supreme Court opinion. Eight pages.

[This is not an employment law case, yet it will have an impact on employment agreements that contain an arbitration clause.] Archer & White Sales sued Henry Schein alleging antitrust violations and seeking both money damages and injunctive relief. Schein moved to compel arbitration, citing an arbitration clause in the parties' contract. Archer & White argued that the dispute was not subject to arbitration because its complaint sought injunctive relief, at least in part, and the arbitration agreement had an exception for injunctive relief. Schein contended that because the rules governing the contract provide that arbitrators have the power to resolve arbitrability questions, an arbitrator – not the court – should decide whether the arbitration agreement applied. Lower courts held that the argument in favor of arbitration was "wholly groundless," and so the trial court could – and did – decide that the arbitration agreement did not cover this dispute. The US Supreme Court unanimously reversed.

The US Supreme Court held that the "wholly groundless" exception to arbitrability is inconsistent with the Federal Arbitration Act (FAA) and the Court's precedent. Under the FAA, arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms. The parties may agree to have an arbitrator decide not only the merits of a particular dispute, but also "gateway" questions of arbitrability. Therefore, when the parties' contract delegates the arbitrability question to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is wholly groundless. "[A] court may not 'rule on the potential merits of the underlying' claim that is assigned by contract to an arbitrator, 'even if it appears to the court to be frivolous.'"

Class-action arbitration - Dead or Alive at the US Supreme Court?

Class-action arbitration - Dead or Alive at the US Supreme Court? Lamps Plus v. Varela, argued at the US Supreme Court on October 29.

Issue: " Whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements."


Part of a series - Employment Law Case of the Week - by Ross Runkel.