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Zawada v. Uber Technologies, Inc.

United States District Court, E.D. Michigan, Southern Division

December 27, 2016

ARTHUR ZAWADA and NASHAT FARHA, individually and on behalf of all others similarly situated, Plaintiffs,

          Stephanie Dawkins Davis, Magistrate Judge.



         Plaintiffs Arthur Zawada and Nashat Farha utilized a smartphone application created by Defendant Uber Technologies, Inc. to connect with customers looking for transportation. They also received payment from their customers through the app. In order to use the technology, Plaintiffs had to “Agree” to a contract with Defendant Raiser, LLC that was presented to them on their smartphones through the app. This contract included an arbitration provision, by which the parties agreed to submit any disputes to arbitration rather than bringing suit in court. The contract also included a conspicuously-presented opt-out provision, by which Plaintiffs could have avoided arbitration. But they chose not to opt out. Nevertheless, when Plaintiffs became dissatisfied with Uber's payment practices, they filed suit in this Court. Because the arbitration provision contains a clear and unmistakable delegation provision by which the parties agreed to even arbitrate whether the arbitration controversy is arbitrable, the Court must compel arbitration. Plaintiffs' argument that the provision is unconscionable does not change that result.

         I. BACKGROUND

         Defendant Uber Technologies, Inc. created an on-demand transportation software application (“app”) that operates through smartphones. (R. 15, ¶¶ 1, 22.) Defendant Raiser, LLC is Uber's wholly-owned subsidiary. (R. 18, ¶ 21.) Customers use their smartphones to request rides through the Uber app. (R. 15, ¶ 1.) The request is routed to the locally-available Uber drivers, who use their own vehicles to pick up and transport customers. (R. 15, ¶ 1.) The customer pays through the smartphone app, and the driver “is paid directly by Uber for a portion of the fare collected from the customer[.]” (R. 15, ¶ 30.) Plaintiffs Artur Zawada and Nashat Farha were two such drivers in Michigan. Zawada worked as an Uber driver in 2015; Farhat began working as an Uber driver in 2015 and is still employed with Uber. (R. 15, ¶¶ 10-18.)

         When drivers seek to utilize Uber's software to begin transporting customers, they must enter into the “Raiser Software Sublicense & Online Services Agreement” (“Agreement”). (R. 17-5, PID 291.) To enter the Agreement, the driver must log in to the Uber app, sign up as a driver, and click a hyperlink that is then presented on the screen. (R. 17-5, PID 291-92; R. 17-5, PID 298-99.) Clicking the link opens the Agreement, which can then be reviewed in its entirety by scrolling through the screen. (R. 17-5, PID 292.) There are no time limitations to reviewing the Agreement. (R. 17-5, PID 292.) To advance past the “Agreement” screen, the Uber driver must first click “YES, I AGREE” and then click “CONFIRM.” (R. 17-5, PID 292.) After clicking the “agree” and “confirm” buttons, drivers are sent to the Driver Portal in the app, where they can still access the Agreement at any time. (R. 17-5, PID 293.) As relevant here, the Agreement contains an Arbitration Provision. (R. 17-5, PID 302, 326.) Once the driver accepts the Agreement, he or she may still opt out of the Arbitration Provision if he or she so chooses. (R. 17-5, PID 294.) Uber Operations Specialist Michael Coleman avers that “numerous” drivers opted out of the Arbitration Provision in the timeframe in which Plaintiffs were Uber drivers. (R. 17-5, PID 294.)

         Farha and Zawada each entered the November 10, 2014, and later, the December 10, 2015 versions of this agreement. (R. 17-5, PID 292.) Farha's account was activated on September 1, 2015, and that same day, he accepted the November 10, 2014 version of the agreement. (R. 17-5, PID 293.) Zawada's account was activated on November 10, 2015, and on that day, he accepted the November 10, 2014 version of the agreement. (R. 17-5, PID 294.) Uber circulated a new version of the agreement via the app in December 2015. (R. 17-5, PID 295.) Uber Operations Specialist Michael Coleman avers that neither Farha nor Zawada opted out of the Arbitration Provision in either agreement within 30 days of accepting it. (R. 17-5, PID 294.)

         Plaintiffs say that Uber's success has come at a price to its drivers: “Uber unlawfully misclassifies its drivers as independent contractors when in fact it controls them as employees.” (R. 1 ¶ 2.) Instead of seeking arbitration to resolve this dispute, however, Plaintiffs filed suit in this Court on April 12, 2016. (R. 1.) Plaintiffs seek to represent a class of Uber drivers in the state of Michigan. (R. 18, ¶ 65.) They allege that Uber's business practices have deprived them of fair compensation. (See generally R. 18.) Defendants now seek to compel arbitration in this matter based on the Arbitration Provision. (R. 17.) The motion is fully briefed and the Court heard argument on December 15, 2016.

         The Court is not alone in addressing this arbitration issue. Similar lawsuits have been filed across the country. At the time of the filing of this motion, every federal court save one in the Northern District of California had granted Defendants' motions to compel arbitration. Thus, Plaintiffs urged this Court to follow the California ruling. But the Ninth Circuit recently reversed that ruling, leaving little support for Plaintiffs' arguments.

         II. ANALYSIS

         The Federal Arbitration Act (“FAA”) “creates federal substantive law requiring the parties to honor arbitration agreements[.]” Ford v. Hamilton Inv., 29 F.3d 255, 257 (6th Cir. 1994). One section of the FAA provides,

A written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2. This section “‘embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts.'” Seawright v. Am. Gen. Fin., Inc., 507 F.3d 967, 972 (6th Cir. 2007) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006)). Even so, “[a]rbitration is a ‘matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'” Richmond Health Facilities v. Nichols, 811 F.3d 192, 195 (6th Cir. 2016) (quoting AT&T Techs. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986)). Therefore, “Before compelling an unwilling party to arbitrate, the court must engage in a limited review to determine whether the dispute is arbitrable; meaning that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of that agreement.” Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003).

         Before engaging in that inquiry, the Court pauses to address a threshold issue. The parties disagree as to whether the Court should examine the 2014 or the 2015 Raiser Agreement in its analysis. On the one hand, the 2014 Agreement contains a survival clause, which states that “Sections . . . 14 and 15 [the Arbitration Provision] shall survive the termination of this Agreement.” (R. 17-5, PID 313.) And Defendants have largely cited the 2014 Agreement in their arguments. On the other hand, Defendants say, “The validity of the December 2015 Arbitration Provision is being litigated in another Court. . . . [but that judge] terminated his injunction prohibiting enforcement of the December 2015 Arbitration Provision. Thus, Defendants can now enforce the December 2015 Arbitration Provision, making it the operative agreement with Plaintiffs.” (R. 22, PID 448 n.3.)

         Ultimately, whether the Court examines the 2014 Agreement or the 2015 Agreement, the language that operates to compel arbitration here is identical or functionally identical. And because the Court views the Arbitration Provision as severable from the rest of the contract, any changes in the rest of the contractual language from 2014 to 2015 would make no difference. The Court therefore cites to the appropriate section from both agreements, and where there are differences, explains why the differences are immaterial.

         A. Delegation Clause

         The Supreme Court “ha[s] recognized that parties can agree to arbitrate ‘gateway' questions of ‘arbitrability, ' such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.” Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68-69 (2010). “An agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other.” Id.

         Still, “Courts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]' evidence that they did so.” First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (citation omitted, modifications in original). Aside from the “clear and unmistakable” requirement, which relates to the parties' “intent, ” a party could also challenge the “validity” of the provision under § 2. Rent-A-Ctr., 561 U.S. at 70-71. However, “a party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate.” Id.

         Here, the 2014 and 2015 Agreements contain an identical delegation provision:

[T]his Arbitration Provision is intended to apply to the resolution of disputes that would otherwise be resolved in a court of law or before a forum other than arbitration. . . . Such disputes include without limitation disputes arising out of or relating to interpretation or application of this Arbitration Provision, including the enforceability, revocability, or validity of the Arbitration Provision or any portion of the Arbitration Provision. All such matters shall be decided by an Arbitrator and not by a court or judge.

(R. 17-5, PID 316, 342.) Defendants have invoked that provision. (R. 17, PID 251.) Plaintiffs make both types of challenges outlined in Rent-A-Center: they say that the parties did not clearly and unmistakably agree to arbitrate arbitrability (R. 20, PID 378) and, ...

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