836 F.3d 1102
9th Cir.2016Background
- Two former Uber drivers, Abdul Mohamed (Boston) and Ronald Gillette (San Francisco), sued Uber (and Rasier) alleging improper use of consumer credit reports (FCRA and state statutes); Gillette also brought a representative PAGA claim for employee misclassification.
- Drivers had accepted one or more clickwrap agreements (2013 and 2014 Software License / Driver Addendum versions) containing arbitration provisions, class/collective/representative-action waivers, and opt-out mechanisms (30-day opt-out; 2014 allowed email opt-out).
- District court denied Uber’s motions to compel arbitration, finding delegation clauses unclear or unconscionable and the PAGA waiver unenforceable and unseverable in the 2013 Agreement.
- On appeal, Uber argued that (1) arbitrability was delegated to the arbitrator and (2) the arbitration provisions were otherwise enforceable; plaintiffs challenged delegation, unconscionability, fee-splitting (effective vindication), and PAGA waiver enforceability.
- Ninth Circuit held the delegation clauses clearly and unmistakably delegated arbitrability to the arbitrator (except challenges to the 2013 Agreement’s PAGA waiver), found delegation provisions not procedurally unconscionable, severed the invalid PAGA waiver in the 2013 Agreement (so Gillette’s PAGA claim may proceed in court), and remanded to compel arbitration for the remaining disputes.
- The court also affirmed denial of joinder for Hirease (background-check company), holding Hirease failed to show agency, identity-of-interest, or that claims against it were intertwined with the arbitration-covered contract.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitrability (who decides arbitrability) was delegated to an arbitrator | Plaintiffs: delegation clauses are unclear, thus courts should decide arbitrability | Uber: contracts clearly and unmistakably delegate arbitrability to arbitrators | Court: delegation clauses clearly and unmistakably delegate arbitrability to arbitrator except for 2013 Agreement’s carve-out for PAGA waiver challenges |
| Whether the delegation provisions are unconscionable | Plaintiffs: delegation clauses procedurally and substantively unconscionable (adhesive, hidden, cost-shifting) | Uber: meaningful opt-out (especially 2014) negates procedural unconscionability; Uber agreed to pay arbitration costs | Court: delegation provisions not procedurally unconscionable; thus plaintiffs’ unconscionability challenges must go to arbitrator |
| Enforceability and severability of the 2013 Agreement’s PAGA waiver | Plaintiffs: PAGA waiver invalid under California law (Iskanian) and unseverable, voiding arbitration | Uber: opt-out and severability provisions save the waiver/arbitration | Court: PAGA waiver invalid under Iskanian but severable; representative PAGA claims may be litigated in court while remaining arbitration provisions stand |
| Whether Hirease (non-signatory) can compel arbitration | Mohamed: alleges agency/identity-of-interest making Hirease bound by Uber’s arbitration clause | Hirease: asserts agency, identity of interest, and claims intertwined with the contract | Court: affirmed denial — Hirease failed to show agency, identity-of-interest, or that claims against it are intertwined with the arbitration-covered contract |
Key Cases Cited
- Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069 (9th Cir.) (standard for who decides arbitrability)
- Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (Sup. Ct.) (delegation clause enforces arbitrability when clear and unmistakable)
- Momot v. Mastro, 652 F.3d 982 (9th Cir.) (language delegating validity of arbitration clause delegates arbitrability)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (Sup. Ct.) (distinguishing who decides procedural arbitrability issues)
- Iskanian v. CLS Transp. L.A., LLC, 327 P.3d 129 (Cal.) (PAGA representative-waiver rule)
- Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425 (9th Cir.) (FAA does not preempt Iskanian)
- Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304 (Sup. Ct.) (effective vindication doctrine re: prohibitively high arbitration costs)
- Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir.) (adhesiveness and unconscionability framework)
- Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669 (Cal.) (procedural and substantive unconscionability elements)