Doctor's Associates, Inc. v. Alemayehu, 934 F.3d 245

Background

Girum Alemayehu applied online (Feb. 2017) to purchase an existing Subway franchise and, as part of the application, checked a box agreeing to an arbitration clause requiring disputes about the application to be arbitrated in Connecticut.
After application, DAI/its agent Clear Stone undertook evaluative steps (Wonderlic test, interviews, training referrals); Alemayehu alleges Clear Stone and DAI denied his application and discriminated on the basis of race.
Alemayehu sued in Colorado federal court under 42 U.S.C. § 1981 and related state claims. DAI sued in District of Connecticut to compel arbitration under the Franchise Application clause.
The Connecticut district court denied DAI’s motion to compel, holding the Franchise Application arbitration clause lacked consideration because it contained only unilateral promises by Alemayehu and no binding promises by DAI.
DAI appealed to the Second Circuit, which considered (1) whether consideration is a court (not arbitrator) question and (2) whether DAI’s consideration (its review/consideration of the application and related acts) sufficed to form a contract.
The Second Circuit vacated and remanded, holding (a) consideration is a question of contract formation for the court to decide, and (b) DAI’s review/consideration of the application constituted sufficient consideration to form a binding arbitration agreement.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Who decides whether an arbitration clause is supported by consideration?	DAI: threshold arbitrability questions can be delegated to arbitrator via incorporation of AAA/ADRC rules.	Alemayehu: formation issues (like consideration) must be decided by courts.	Court: Whether consideration exists is a contract-formation question for courts, not for arbitrators.
Was there adequate consideration for the arbitration clause?	DAI: Yes — by submitting the application Alemayehu received DAI’s performance (review/consideration), which is bargained-for consideration.	Alemayehu: No — the application contains unilateral promises and DAI made no enforceable promise to consider applications, so lack of mutual obligation.	Court: Yes — DAI’s actual review/consideration of the application constituted sufficient performance/benefit to form a contract supporting the arbitration clause.
Effect of incorporating AAA/ADRC rules that empower arbitrators to decide arbitrability	DAI: Incorporation shows clear delegation to arbitrator on arbitrability questions.	Alemayehu: Even if delegation exists, a court must still decide whether an arbitration agreement was formed.	Court: Incorporation does not eliminate the court’s duty to decide formation/consideration first (Granite Rock).
Remand scope after finding consideration present	DAI: Once consideration exists, arbitrability should be decided and arbitration compelled.	Alemayehu: Raised multiple other defenses the district court did not address.	Court: Vacated district judgment and remanded for consideration of Alemayehu’s other arguments and further proceedings.

Key Cases Cited

First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (courts presumptively decide threshold arbitrability questions absent clear delegation)
Granite Rock Co. v. International Broth. of Teamsters, 561 U.S. 287 (2010) (courts must resolve formation questions before ordering arbitration)
Schnabel v. Trilegiant Corp., 697 F.3d 110 (2d Cir. 2012) (FAA favors enforcing arbitration agreements; apply ordinary contract principles)
Nicosia v. Amazon.com, Inc., 834 F.3d 220 (2d Cir. 2016) (standard for courts reviewing motions to compel arbitration: consider relevant admissible evidence)
Meyer v. Uber Techs., Inc., 868 F.3d 66 (2d Cir. 2017) (standard of review: denial of motion to compel arbitration reviewed de novo)
Contec Corp. v. Remote Solution, Co. Ltd., 398 F.3d 205 (2d Cir. 2005) (incorporation of AAA rules can be "clear and unmistakable" evidence of delegation of arbitrability)
Bell v. Cendant Corp., 293 F.3d 563 (2d Cir. 2002) (a broad arbitration agreement can delegate scope questions to arbitrator)