SAN FRANCISCO (CN) — Judge Richard Clifton invoked Victorian England contracts Thursday while the Ninth Circuit focused on the clash between ride-share giant Uber and its drivers over arbitration provisions.
“I sort of feel like I’m in a Dickens novel here,” Clifton said, as the parties argued over the enforceability of 2013 and 2014 contracts requiring drivers to arbitrate their claims with Uber, rather than take them to court.
The arbitration dispute arose from two class actions: one brought by Douglas O’Connor over for withheld tips and misclassification of drivers as independent contractors, the other by former Uber drivers Abdul Kadir Mohamed and Ronald Gillette, claiming Uber kicked them off the app after running background checks without their knowledge.
Settlements of the suits await approval from U.S. District Judge Edward Chen, who ruled in both cases that Uber could not force its drivers to arbitrate under “unconscionable” agreements.
Labor attorney Shannon Liss-Riordan said Uber’s appeal was one of the main reasons why she negotiated an $84 million settlement for the O’Connor class.
But Uber still wants the Ninth Circuit to decide whether Chen was correct. The panel heard arguments only on the Mohamed case Thursday, having taken the O’Connor arguments under submission.
As the three-judge panel pored over the contracts, one provision in particular stood out.
Chen had ruled the contracts unenforceable in part as a matter of public policy because they contained nonseverable provisions barring employees from acting as state representatives in labor lawsuits under California’s Private Attorney General Act.
The Private Attorney General’s Act (PAGA) allows private citizens, such as Uber drivers, to pursue civil penalties against an employer that violates labor laws. Proceeds from the penalties are split, with 75 percent going to the state and 25 percent to plaintiffs.
Chen had cited precedent from Sakkab v. Luxottica Retail NA, in which the Ninth Circuit held that the plaintiff did not have to waive his rights under PAGA because PAGA waivers are unenforceable under the California Supreme Court’s rule from Iskanian v. CLS Transportation Los Angeles LLC.
“Uber cannot run away from the arbitration agreements it drafted itself,” Mohamed class attorney Laura Ho told the Ninth Circuit panel Thursday. “It has a very clear PAGA waiver which we know is illegal. What it says in both 2013 and 2014 agreements is if the PAGA waiver is found to be unlawful, it is not severable.”
Uber’s attorney, Theodore Boutrous with Gibson, Dunn & Crutcher, argued differently.
“The provision that bars representative claims altogether is severable,” Boutrous said.
Clifton seemed to agree with Boutrous’ reading.
“I’ve got to say, I have a really hard time following it — particularly the 2013 agreement,” he said. “But at the end of the day, I wind up reading them to say those claims can’t go to arbitration they have to go to court even if everything else goes to arbitration.”
“You’ve put your finger on it,” Boutrous said.
“This provision was not a blanket waiver that violates Sakkab and Iskanian,” he added. “It only says PAGA representative claims should not be arbitrated.”
Clifton grilled Ho over a sentence in the 2013 agreement that says: “in such instances where the claim is brought as the private attorney general, such private attorney general claim must be litigated in a civil court of competent jurisdiction.”
“I freely concede that this is like an exercise in linguistics … but that last sentence seems to say in so many words, that claim goes to court,” Clifton said.
Ho, an attorney with Goldstein, Borgen, Dardarian & Ho, wanted to focus on the preceding sentence. “The sentence that controls is that PAGA shall not be severable from this arbitration provision,” she argued.
“Why do you say that controls?” Clifton asked. “We just erase the last sentence? Because that sentence seems to explain what that’s supposed to mean.”
Judge Richard Tallman interjected. “Particularly when it begins with, ‘not notwithstanding any other clause contained in this agreement,'” he said. “Isn’t that a never mind what the rest of the contract says?”
Judge Sandra Ikuta also seemed to conclude that the PAGA waiver, having been found unenforceable, doesn’t nullify the entire arbitration provision.
“The question is here whether the whole arbitration provision falls,” Ikuta said. “The second sentence says only as to the Private Attorney General claim is it litigated in a court of competent jurisdiction. So why wouldn’t we say, although the first sentence says its not severable from the arbitration provision, all that means is it must be litigated in a court of competent jurisdiction?”
Ho emphasized that “it’s not severable from the arbitration agreement.”
“Meaning the arbitration agreement will fail as the Private Attorney General waiver fails,” she said.
Clifton was not moved.
“If the last sentence didn’t exist, I might be able to ride that train,” he said. “But the last sentence is there and you keep trying to erase it. Because it seems to say what this means is, that claim goes to civil court. It doesn’t say everything goes to civil court.”
With Clifton doubting that Uber would want to “obliterate” its own arbitration clause, Ho took another stab. “Well it is a document drafted by Uber,” she said. “Which is unclear.”
Ikuta meanwhile took issue with Ho’s argument that the agreements were unconscionable because drivers had to read and sign them on their phones.
“My law clerks don’t read anything on paper,” she said. “Everything has to be on the screen. So I’m having trouble with an argument that says things you only read on your iPad or cellphone are illusory and not binding. That sounds like the old judge view as opposed to what everyone of your generation is doing.”
Ho said the issue was troubling not because of the format, but because there was no way a driver could save the document to read later, and that drivers were forced to sign if they wanted to start accepting rides.
“Welcome to the modern world,” Clifton said. “You rent a car in the old days, you’d sign something, and there was fine print on the back. I once asked someone at the counter if anyone ever read the back, and he’d never seen anybody read the back. Now it’s apps. Every time I get an update for the iPad, I have to agree to Apple’s terms. Nobody reads them. I hear what you’re saying, but the reality is people agree, we sign things, we agree to things, the law tries to protect to some level, but hasn’t led the courts to say be gone with all those electronic agreements.”
Tallman said the panel will try to issue a ruling “as soon as we can” but did not indicate which way it might go. The judges could decide to reverse Chen’s ruling on the 2014 agreement but affirm on the 2013 agreement.
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