“Gateway” Issue Delegation to an Arbitrator is Enforceable, Without Qualifications; Circuit Split Noted

The Eleventh Circuit enforced an employment-related arbitration agreement’s provision delegating to the arbitrator “gateway” questions of arbitrability in Jones v. Waffle House, Inc., 2017 WL 3381100 (11th Cir. Aug. 7, 2017).  The opinion, written by Judge Marcus and joined by Judge Hull and Judge Clevenger visiting from the Federal Circuit, also rejects the notion, adopted by the Fifth, Sixth, and Federal Circuits, that a court may except from the delegation analysis claims the court considers “wholly groundless.”

Jones unsuccessfully applied for a job at a Florida Waffle House in 2014. He filed a putative class action against Waffle House in the Middle District of Florida, claiming that Waffle House had failed to provide him with copies of his background checks in violation of the Fair Credit Reporting Act.  While that case was pending, Jones got a job at another Waffle House, in Kansas City.  When he accepted that job, he signed an arbitration agreement that covered “all claims and controversies [], past, present, or future, arising out of any aspect of or pertaining in any way to [his] employment.”  The agreement further provided that “[t]he Arbitrator, and not any federal, state, or local court or agency, shall have authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement.”  Jones didn’t tell his Florida lawyers about his new job, and he didn’t tell his new employers in Kansas City that he was suing Waffle House in Florida.  When Waffle House discovered that Jones had signed an arbitration agreement, it promptly moved to compel arbitration of his claims in the Florida case.  The district court denied the motion, and Waffle House appealed.

The Eleventh Circuit began its analysis with the principle—“now basic hornbook law”—that the FAA reflects “both a liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract.” And the Supreme Court’s decision in Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), established that parties may agree to arbitrate “gateway” questions about the scope, applicability, and enforceability of an arbitration agreement.  When the parties have agreed to a provision delegating gateway issues to an arbitrator, the court’s jurisdiction extends only to challenges to the delegation provision.  (2017 WL 3381100, at *3 (citing Parnell v. CashCall, Inc., 804 F.3d 1142 (11th Cir. 2015).)  And a court will examine a challenge to a delegation provision only if that provision is challenged “directly”—and not simply as part of the arbitration agreement as a whole.

The Eleventh Circuit noted that it was “not clear to us” that Jones’s arguments in the district court were “sufficiently focused” on the delegation provision. But even assuming that Jones had directly challenged the delegation provision, his challenges failed on the merits.

First, the provision was not unconscionable, procedurally or substantively. “[U]nder Georgia law,” the court noted, “an adhesion contract is not per se unconscionable.”  The provision in Jones’s agreement was in clear language and readable type.  Jones had been given at least three hours to read and sign his employment paperwork.  And he knew that his case against Waffle House was pending in Florida when he signed the arbitration agreement.  Jones argued that the agreement’s having been pre-signed by Waffle House’s Vice President and General Counsel rendered the agreement procedurally unconscionable, and the district court had agreed.  But the Eleventh Circuit rejected the argument—“whether or not it was advisable for Waffle House’s vice president to pre-sign the agreements, doing so was not ‘abhorrent to good morals and conscience,’ nor is there any evidence that Waffle House was seeking to take fraudulent advantage of Jones.”  The court similarly rejected Jones’s argument that the delegation provision was substantively unconscionable because it “terminate[d] [his] previously filed class action without explicitly saying so.”  The court noted that the agreement did not itself terminate the litigation—and Jones had signed it voluntarily and with full knowledge of his pending case, in any event.  “In this situation, Jones had the upper hand.”

Having determined that the delegation provision was valid, the court examined the language of the provision to determine “whether the parties have manifested a clear and unmistakable intent to arbitrate gateway issues.” They had—the delegation provision referred to “all disputes,” and its language was similar to that of provisions previously held to show the requisite intent to delegate gateway issues.

The next question was whether the court would consider, as the Fifth, Sixth, and Federal Circuits would, applying a “wholly groundless” exception to its delegation analysis. That exception, as explained by the Federal Circuit, allows a court to deny a motion to compel arbitration where “the court concludes that the parties to the agreement did clearly and unmistakably intend to delegate the power to decide arbitrability to an arbitrator,” but “the assertion of arbitrability is wholly groundless.”  The Eleventh Circuit joined the First, Second, Fourth, Eighth, Ninth, Tenth, and D.C. Circuits in rejecting the idea of a “wholly groundless” exception, finding that the exception “runs counter to the Supreme Court’s mandate” in AT & T Technologies Inc. v. Communications Workers of America, 475 U.S. 643 (1986) that “[w]hether ‘arguable’ or not, indeed even if it appears to the court to be frivolous,” a claim validly delegated to the arbitrator is to be decided by the arbitrator.

Finally, the court was unpersuaded by Jones’s argument that the arbitration agreement was an impermissible communication with him, because of the pendency of the class action and/or because he was represented in the Florida case by counsel. “[T]here is not the slimmest shred of evidence that the arbitration agreement was part of a purposeful attempt to communicate with putative class members, nor is there anything in this record even remotely suggesting that Waffle House contacted any putative class members and tried to get them to sign arbitration agreements.”  Nor was the agreement an impermissible ex parte communication with a represented party; the arbitration agreement did not mention the FCRA or the ongoing lawsuit, and there was no evidence that the Vice President and General Counsel who signed for Waffle House knew that the agreement would be presented to someone represented by counsel in a pending case.

Posted by Valerie Sanders.

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