Keeping Tabs on the Ninth Circuit
October 02, 2020 - This Week at the Ninth

This Week at The Ninth: The FAA and the FAAAA

This Week at The Ninth: The FAA and the FAAAA

This week at This Week, we take a look at two cases that divided the panels deciding them. In the first, the Ninth Circuit (splitting from the Fourth) held an arbitration clause the plaintiff had signed with a third party to be unenforceable even though that third party had subsequently acquired the defendant. In the second, the Court held that federal law does not preempt a state-law claim alleging that a freight broker negligently chose a motor carrier. 

The Court holds that an arbitration clause that covers affiliate companies cannot be the basis for compelled arbitration under the Federal Arbitration Act (FAA) when the company seeking to compel arbitration became an affiliate long after the arbitration agreement was signed.

Panel: Judges O’Scannlain, McKeown, and Bennett, with Judge O’Scannlain writing the majority opinion and a separate concurring opinion, and Judge Bennett dissenting.

Key Highlight: “No one disputes that arbitration clauses subject to the Act must be enforced in federal courts. But we are mindful that arbitration is a matter of consent, and we conclude that DIRECTV has failed to establish that Revitch consented to arbitrate this pending dispute.”

Background: In 2018, plaintiff Jeremy Revitch brought a putative class action against DIRECTV under the Telephone Consumer Protection Act, alleging that the satellite TV provider made unsolicited marketing calls to his cell phone. DIRECTV moved to compel arbitration. Although he was not a DIRECTV customer, Revitch had signed an arbitration agreement in 2011 with his cell phone provider, AT&T Mobility, that covered “all disputes and claims between” Revitch and AT&T Mobility or its “affiliates.” Because AT&T Mobility’s parent company, AT&T, Inc., had acquired DIRECTV in 2015, DIRECTV argued it was now an “affiliate” of AT&T Mobility for purposes of the arbitration clause. The district court (adopting the opinion of a magistrate judge) denied the motion, concluding that the arbitration agreement between Revitch and AT&T Mobility did not reflect the parties’ intent to arbitrate his claim against DIRECTV.

Result: The Ninth Circuit affirmed. Applying California contract law (as directed by the arbitration agreement’s choice-of-law provision), the Court concluded that because both DIRECTV and AT&T Mobility are owned by AT&T Inc., they fit the general meaning of “affiliates” under the arbitration agreement. But that wasn’t enough to compel arbitration. “Under this reading,” the Court said, “Revitch would be forced to arbitrate any dispute with any corporate entity that happens to be acquired by AT&T, Inc., even if neither the entity nor the dispute has anything to do with providing wireless services to Revitch—and even if the entity becomes an affiliate years or even decades in the future.” That outcome, the Court said, ran afoul of California’s rule against reading contracts to reach absurd results. Because Revitch “could not reasonably have expected that he would be forced to arbitrate an unrelated dispute with DIRECTV, a satellite television provider that would not become affiliated with AT&T until years later” when he signed the agreement with his wireless provider, the Court held that “a valid agreement to arbitrate between Revitch and DIRECTV does not exist.” The Court also held that the Federal Arbitration Act does not preempt California’s absurd-results canon of interpretation because that interpretative method does not disfavor arbitration agreements compared to other contracts. 

The Court acknowledged that its decision created a split with the Fourth Circuit. In Mey v. DIRECTV, the Fourth Circuit had reached the opposite outcome in materially identical circumstances in part because it thought that courts shouldn’t consider “troubling hypothetical scenarios” in interpreting the scope of an arbitration agreement. But in this context, the Ninth Circuit said that the prospect of troubling scenarios didn’t go to the scope of the agreement, but rather to its formation.

It was on this last point—scope vs. formation—that Judge O’Scannlain concurred. Because an arbitrable dispute under the FAA must ““aris[e] out of” the contract or transaction at issue, Judge O’Scannlain reasoned that, by negative implication, the FAA does not require the enforcement of an arbitration clause to settle a controversy that does not arise out of the contract or transaction. Applying that somewhat novel framework, Judge O’Scannlain expressed the view that the Court could affirm the district court on the separate ground that the controversy between DIRECTV and Revitch does not come within the Federal Arbitration Act because it does not “aris[e] out of” the contract between Revitch and AT&T Mobility.

Judge Bennett dissented. In his view, the arbitration clause’s express terms encompassed the parties’ dispute, and that the Court’s inquiry should have ended there. “[N]othing in the contract language, including the language surrounding the term ‘affiliates,’ supports rewriting the contract to import a temporal limit into the meaning of ‘affiliates,’” he wrote. “DIRECTV, as an affiliate of AT&T, may therefore enforce the arbitration agreement.” Even if the term “affiliates” was ambiguous, Judge Bennett said, any ambiguity about the scope of an arbitration clause must be resolved in favor of arbitration. And the issue presented was one of scope, not formation, because “Revitch does not dispute the existence of the arbitration agreement.” Finally, Judge Bennett reasoned, the absurd-results canon was inapplicable because compelled arbitration was not an absurd result and because the majority’s application disfavored arbitration.

A divided panel hold that a negligence claim against a freight broker falls within the general scope of the Federal Aviation Administration Authorization Act (FAAAA), but is saved from preemption by the statutory exception for safety regulations. 

The panel: Judges Fernandez, Nguyen, and Bolton (D. Ariz.), with Judge Nguyen writing for the majority and Judge Fernandez partially dissenting.

Key highlight: “We note . . . that few common-law claims, if any, would be preempted if the FAAAA only preempts state laws that bind brokers to specific prices, routes, or services. As an initial matter, there is no question that common-law claims are within the scope of the preemption clause. Yet common-law claims typically regulate behavior by imposing broad standards of conduct, not by compelling individuals to engage in (or refrain from engaging in) any specific conduct.” (Citation omitted)

Background: Plaintiff Allen Miller was injured in a car accident involving a semi-tractor trailer whose driver lost cost control in icy conditions and swerved over the I-80 median strip into oncoming traffic. Miller sued C.H. Robinson, the freight broker for that trailer, claiming that it had negligently selected a motor carrier with a history of safety violations. In response, C.H. Robinson invoked the FAAAA, which expressly preempts any state-law actions “related to a price, route, or service of any . . . broker" unless that claim falls within certain enumerated exceptions, including one for “the safety regulatory authority of a State with respect to motor vehicles.” The district court granted C.H. Robinson’s motion for judgment on the pleadings.

Result: A divided Ninth Circuit panel reversed. The Court agreed with the district court’s conclusion that Miller’s suit was “related to” a freight broker’s “rates, route or services,” and thus fell within the general scope of the FAAAA’s broad preemption provision. The Court distinguished cases holding that the FAAAA does not, for example, apply to minimum-wage or meal-and-rest-break law. Those claims, the Court explained, compelled the defendants to take certain actions with respect to their workers, whereas the application of state law here would interfere with the defendant’s provision of its “service” to customers—namely, the “selection of motor carriers,” which “is one of the core services of brokers.” That result held even if the plaintiff’s claim would not “bind” a broker to any “specific prices, routes, or services”; it was enough that the common-law claim would subject brokers to general standards of care in their provision of such services.

But the majority held that the FAAAA’s “safety” exception saved Miller’s claim from preemption. The Court first rejected C.H. Robinson’s argument that this exception did not apply to common-law claims, explaining that Congress had intended this provision to ensure that the FAAAA would preempt states’ power to regulate economic activity, but not their power to regulate safety issues. “That power,” the Court held, “plainly includes the ability to regulate safety through common-law tort claims.” After all, the Court continued, “if the preemption provision targets a government’s exercise of regulatory authority, and that provision encompasses common-law claims, then surely ‘the safety regulatory authority of a State’ also includes at least some common-law claims.” 

The Court then rejected C.H. Robinson’s contention that Miller’s claim was not one “with respect to motor vehicles.” As the majority explained, the Ninth Circuit had previously held that that safety regulations having even an indirect connection with motor vehicles fall within the exception. And “[i]f criminal history disclosure requirements for tow truck drivers have the requisite connection with motor vehicles”—as the Court had previously held—“then negligence claims against brokers that arise out of motor vehicle accidents must as well: Neither directly regulates motor vehicles, but both promote safety on the road.”

Judge Fernandez dissented only on this last point. Citing, among other things, the dissent in Palsgraf v. Long Island R.R., he argued that because C.H. Robinson was merely a broker, and not itself a motor carrier, any connection to motor-vehicle safety was too remote for the FAAAA’s exception to apply.