890 F.3d 546
5th Cir.2018Background
- HomeAway operates vacation-rental websites; Arnold and Seim are hosts who sued over HomeAway’s imposition of traveler service fees.
- HomeAway’s online Terms (Feb/Apr 2016) included a broad arbitration clause and incorporated the AAA Rules.
- HomeAway moved to compel arbitration in both cases; district courts reached opposite results (Arnold: denied under Texas law as arbitration clause allegedly illusory; Seim: granted under Kentucky law).
- Central contested issue: whether parties agreed to delegate threshold arbitrability questions (i.e., gateway issues) to an arbitrator and whether state-law illusoriness challenges defeat delegation.
- Fifth Circuit reviewed de novo, framed plaintiff challenges as validity (not formation) challenges, and applied the clear-and-unmistakable standard for delegation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs are bound to arbitrate threshold arbitrability questions (delegation) | Arnold: arbitration clause is illusory under Texas law; Seim: challenged scope/application but conceded arbitration for some claims | HomeAway: Terms incorporate AAA Rules, which is clear-and-unmistakable delegation of gateway issues to arbitrator | Court: Incorporation of AAA Rules shows clear-and-unmistakable delegation; plaintiffs must arbitrate threshold questions |
| Whether an illusoriness challenge is a formation (court decides) or validity (arbitrator decides) issue | Arnold: illusoriness defeats arbitration because it negates consideration (formation) | HomeAway: illusoriness is a validity/enforceability defense that, absent a specific attack on delegation clause, goes to arbitrator | Court: Illusoriness here is a validity challenge, not a formation challenge; therefore, because delegation clause is validly incorporated, arbitrator decides |
| Whether incorporation of AAA Rules is valid clear-and-unmistakable evidence of delegation in consumer adhesion contracts | Arnold: Petrofac and similar cases involved sophisticated parties; not applicable to consumer adhesion context | HomeAway: Fifth Circuit precedent treats AAA incorporation as clear-and-unmistakable regardless of sophistication | Court: Rejected sophistication-based exception; applied Petrofac rule—AAA incorporation suffices for delegation |
| Whether district courts may decide gateway issues despite delegation clause | Plaintiffs: district court should resolve threshold enforceability when clause is illusory | HomeAway: district court must enforce delegation and compel arbitration of gateway issues | Court: District courts should not decide gateway questions where delegation clause is clearly incorporated; remand to compel arbitration in both cases |
Key Cases Cited
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (Sup. Ct. 2010) (parties may delegate arbitrability to arbitrator; courts decide only when delegation clause itself is specifically challenged)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (Sup. Ct. 2006) (validity of entire contract vs. arbitration clause distinction; challenges to contract as a whole go to arbitrator)
- Petrofac, Inc. v. Dyn-McDermott Petroleum Operations Co., 687 F.3d 671 (5th Cir. 2012) (incorporation of AAA Rules constitutes clear-and-unmistakable evidence of delegation)
- Kubala v. Supreme Prod. Servs., 830 F.3d 199 (5th Cir. 2016) (standard of review for motions to compel arbitration: de novo)
- Lefoldt for Natchez Regional Medical Center Liquidation Trust v. Horne, L.L.P., 853 F.3d 804 (5th Cir. 2017) (distinguishing formation vs. enforceability rules; state-law rules can operate as validity defenses)
- IQ Prods. Co. v. WD-40 Co., 871 F.3d 344 (5th Cir. 2017) (clarifies when an arbitration clause covering some set of claims means scope disputes go to arbitrator)