Courts must abide by the terms of arbitration agreements that invoke the governance of the Federal Arbitration Act (FAA), or contain a clearly written delegation clause. Terms that provide for an arbitrator to decide threshold issues may not be sidestepped or ignored by state courts. This is true even if the district court finds that the subject of the dispute is not within the scope of the arbitration agreement.
Appellants Uber Technologies, Inc. and its affiliate, Raiser LLC (collectively Uber) together created the Uber app. The Uber app is a software application that assists users in finding rides from independent drivers to a destination of their choice. In order to use the Uber app, users must create an account and agree to terms and conditions.
The terms and conditions contain an arbitration agreement that requires all disputes with Uber to be resolved through arbitration. It also states that the FAA governs the terms, interpretation and enforcement of the agreement. The agreement also contains a delegation clause which specifically provides, "The parties agree that the arbitrator and not any federal, state, or local court or agency, shall have exclusive authority to resolve any disputes relating to the interpretation, applicability, enforceability, or formation of this arbitration agreement. The arbitrator shall also be responsible for determining all threshold arbitrability issues relating to whether the terms are unconscionable or illusory and any defense to arbitration, including waiver, delays, laches or estoppel."
Andrea Work and Megan Royz both had the Uber app in their phones and created accounts in 2015 and 2016. On February 22, 2018, Work used the app to find a ride for both herself and Royz. While the two were riding in the car, the driver rear-ended another Uber driver. Work and Royz brought a claim against Uber for the injuries they sustained as a result of that accident.
Uber filed a motion to compel arbitration based on the provisions of the arbitration agreement contained with the terms and conditions the plaintiffs agreed to in setting up their Uber account. Uber pointed out that the agreement contained a delegation clause that required the arbitrator to resolve disputes related to the arbitration agreement's existence, interpretation, or enforceability.
Work and Royz opposed the motion. Their argument against requiring arbitration was that their claim did not fall within the scope of arbitration as it was intended under the agreement. Royz also claimed she was not subject to the agreement because she was not the one who secured the ride.
The district court denied Uber's motion to compel and concluded that the plaintiffs' claim was outside the scope of the arbitration agreement. It reasoned that the agreement involved the terms of service and not car accidents. It also agreed that the arbitration agreement was not unenforceable against Royz because she was not the passenger who used the app. Uber moved for reconsideration, which the district court denied. Uber appealed.
Issue Before the Court
Does the delegation agreement contained in the arbitration agreement between the parties require an arbitrator to decide threshold issues such as whether the cause of action presented was arbitrable at all?
A District Court May Not Refuse to Enforce a Valid Delegation Clause if it Finds that The Arbitration Agreement Does Not Apply to the Underlying Suit
Nevada employs a "fundamental policy favoring the enforceability of arbitration agreements, and will liberally construe arbitration clauses in favor of granting arbitration." Tallman v. Eighth Judicial Dist. Court, 131 Nev. 713, 720, 359 P.3d 113, 118-19 (2015). In addition, if an agreement states that it is governed by the FAA, courts must abide by its provisions and are bound by the Supreme Court precedent in Shein v. United States, 102 F. Supp. 320 (D.N.J. 1951) "Under the FAA, arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms."
A delegation clause is basically an additional agreement within the arbitration clause wherein the parties agree to have an arbitrator decide threshold issues as to the arbitration itself such as whether the parties agreed to arbitrate, or whether the agreement applies to a particular issue. Rent-A-Center, W. Inc. v. Jackson, 561 U.S. 63, 68-69 (2010).
Shein further explained, "When the parties' contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In these circumstances, a court possesses no power to decide the arbitrability issue. That is true even if the court thinks the argument that the arbitration agreement applies to a particular dispute is wholly groundless."
Based on clear precedent in this area, a court may not decide a threshold or gateway issue to arbitration if a delegation agreement is in place that clearly indicates that an arbitrator will decide this type of conflict between the parties. Therefore, the district court in this case did not have the right to refuse to refer the case to arbitration based on its assessment that the issue involved was not within the scope of the arbitration agreement. That was an issue for the arbitrator to decide.
The Parties to the Uber Contract Clearly Delegated Gateway Issues of Arbitrability to the Arbitrator
The court will look to the plain and clear language of a contract to determine the intent of the parties. Many courts have found that the mere mention of governance by the AAA's rules is sufficient evidence of the parties intent to have the arbitrator decide whether a particular claim is arbitrable. Mohamed v. Uber Techs, Inc., 848 F.3d 1201, 1207-09 (9th Cir. 2016).
In the case at hand, the agreement contains both an express delegation clause as well as an adoption of the AAA rules. The delegation clause clearly provides that the parties agree to allow an arbitrator decide any potential issue of arbitrability. It specifically states that the parties agree that an arbitrator has exclusive authority to resolve any disputes relating to the agreement's "interpretation, applicability, enforceability, or formation." The arbitrator is clearly the authority designated to decide threshold issues of arbitrability.
Further, even though Royz did not request the Uber ride on the occasion in question in this case, she had previously created an account with Uber and signed off on the terms and conditions, including the arbitration agreement. Based on these facts, the court found that Royz should also be subject to its terms.
The court concluded, "Where the United States Supreme Court interprets the FAA, state courts may not contradict or circumvent that precedent." This is in accordance with the previous Supreme Court decision in Shein, which in part held that a delegation clause gives the arbitrator the ability to determine gateway issues such as arbitrability.
Therefore, the district court erred in denying Uber's motion to compel arbitration and overstepped its authority in ruling that Work and Royz's claims were outside the scope of the arbitration agreement. That was a question for the arbitrator to determine and not the district court. Thus, the case is reversed and remanded and the lower court is ordered to refer the case for arbitration.