A Massachusetts Lyft driver’s class action alleging that the ride-sharing company violated the Wage Act by classifying him as an independent contractor is subject to a mandatory arbitration clause in the company’s “clickwrap” terms of service agreement, the 1st U.S. Circuit Court of Appeals has ruled in a closely watched case.
Writing for a unanimous panel in Bekele v. Lyft, Inc., Judge Sandra L. Lynch concluded that the parties had a “valid and enforceable agreement to arbitrate” under Massachusetts law.
The plaintiff, Yilkal Bekele, argued that Lyft’s arbitration clause was substantively unconscionable because it included a fee-splitting provision. According to Bekele, he and other Lyft drivers could not afford the high costs of hearings under American Arbitration Association commercial rules as dictated by the agreement.
Lynch found this contention to be a non-starter.
“Under the precedent of this court and the Massachusetts Supreme Judicial Court, Lyft’s offer before the district court to pay all fees for an arbitration with Bekele sinks this argument,” the judge wrote.
The ruling affirms a 2016 decision by U.S. District Court Judge F. Dennis Saylor IV.
According to court records, Bekele began driving for Lyft in mid-2014. In order to sign up as a driver, the plaintiff tapped “I accept” on his iPhone 4 when presented with Lyft’s Terms of Service Agreement. The contract required that all disputes between the parties be resolved by one-on-one arbitration.
The plaintiff sued in state court alleging Lyft misclassified its drivers as independent contractors. Lyft removed the Wage Act class action to federal court and moved to dismiss in favor of arbitration of the plaintiff’s individual claim in accordance with its terms of the company’s terms of service agreement, which also specifically precluded collective actions. Saylor dismissed the case in favor of arbitration.
The main argument was that the arbitration agreement was unconscionable and unenforceable. The court discussed and rejected the claims that the arbitration agreement was unconscionable and unenforceable.
To show unconscionability under Massachusetts law, Bekele must prove “both substantive unconscionability (that the terms are oppressive to one party) and procedural unconscionability (thatthe circumstances surrounding the formation of the contract showthat the aggrieved party had no meaningful choice and was subject to unfair surprise).” Machado v. System4 LLC (Machado II), 28N.E.3d 401, 414 (Mass. 2015) (emphasis added) (citations and internal quotation marks omitted). Reviewing de novo, seeCullinane,893 F.3d at 60, we put aside Bekele’s procedural attack and decide that, because Bekele cannot show substantive unconscionability, the agreement is enforceable.
Bekele’s principal argument that the agreementis substantively unconscionable stems from the arbitration clause’s selection of AAA Commercial Rules. As said, in October 2014when theparties’agreementwasformed,theseRulesrequiredBekeleand Lyft to split equally the arbitration’s costs. Bekele arguesthat he and other Lyft drivers cannot afford such high fees and that this arrangement is substantively unconscionable. Under the precedent of this court and the Massachusetts Supreme Judicial Court (“SJC”), Lyft’s offer before the district court to pay all fees for an arbitration with Bekele sinks thisargument.
In Massachusetts, an arbitration-fee-splitting arrangement is not substantively unconscionable when the arbitration fees a plaintiff would owe amount to less than the damagestheplaintiffclaims.3 Forexample,theSJCsaidin McInnes v. LPL Financial, LLC, 994 N.E.2d 790 (Mass. 2013), that “an adhesion contract that imposes ‘filing and administrative fees attached to arbitration that are so high as to make access tothe forum impracticable’ may . . . be unenforceable.” Id. at798-99 (quotingAm.ExpressCo.v.ItalianColorsRest.,570U.S.228, 236 (2013)). McInnes then enforced the arbitration provision at issue because “the amount of the arbitration fees would not make access to the arbitral forum impracticable in view of the substantial amount in compensatory damages that [the plaintiff] claims.” Id. at 799. Again, in Machado v. System4 LLC (Machado I),989N.E.2d464(Mass.2013)andMachadov.System4LLC(Machado II),28N.E.3d401(Mass.2015),theSJCconcludedthataprovision that required splitting arbitration costs was enforceable andnot substantively unconscionable because the plaintiffs’ costs of arbitration were less than the plaintiffs’ potential recovery under the Wage Act.4 Machado II, 28 N.E.3d at 414 (citingMachado I, 989 N.E.2d at 471-72). Here, Bekele faces $0 in arbitration fees, an amount lower than his potential recovery (which he estimates could be about $1,000). As in McInnes and Machado Iand II, then, the agreement is enforceable.
BekelecontendsthatLyft’soffertopayforarbitration cannot be considered because, under more general principles of Massachusetts law, unconscionability is determined at the timeof contracting. SeeMiller v. Cotter, 863 N.E.2d 537, 545 (Mass. 2007). But Massachusetts’ specific framework for evaluating fee- sharing arrangements allows courts to consider facts developed duringlitigation,suchasLyft’soffertopay.Infact,thecase- specificevaluationMcInnesandMachadoIandIIrequireusto undertake depends on facts and figures, such as the claims and potential recovery, unknowable at the time of contracting.
Courts use a similar approach to evaluate arbitration feeswhentheclaimsthatwouldbearbitratedarefederalstatutory claims. SeeGreen Tree Fin. Corp. v. Randolph, 531 U.S. 79, 90 (2000) (recognizing that “large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutoryrightsinthearbitralforum”andholdingthatsuchcosts could render an arbitration agreement unenforceable as to those federal claims). Indeed, in that context, this court hasenforcedan arbitration agreement under circumstances like thosepresented here. In Large v. Conseco Finance Servicing Corp., 292 F.3d 49 (1st Cir. 2002), the plaintiffs sought to avoid arbitration of their claims under the Federal Truth in Lending Act because arbitrating would be prohibitively expensive. Id. at 56. After theotherpartyagreedtopayforthearbitration,theLargecourt compelled arbitration and rejected the plaintiffs’ request for discovery on costs. Id. at 56-57. We held that no showing of prohibitive costs was “possible because [the other party] has agreed to cover the costs of arbitration.” Id. at 56. Numerous other federal courts have done the same in cases involvingoffers to pay for arbitration of federal statutory claims. See,e.g., Muriithi v. Shuttle Express, Inc., 712 F.3d 173, 183 n.10 (4th Cir. 2013); Ragone v. Atl. Video at Manhattan Ctr., 595 F.3d115, 125 (2d Cir. 2010).
Bekele further argues that, even considering Lyft’s offer, the cost-sharing requirement is substantively unconscionable. He points to cases holding that fee splitting is per se unconscionable under California law. See, e.g., Ting v. AT&T, 319 F.3d 1126, 1151 (9th Cir. 2003); Circuit City Storesv. Adams, 279 F.3d 889, 892 (9th Cir. 2002). But, as explained, Massachusetts has taken a case-specific approach to evaluating fee-splitting arrangements.
Bekele next urges us to adopt a rule that a cost-splitting provision is “unenforceable whenever it wouldhave the ‘chilling effect’ of deterring a substantial number of potential litigants from seeking to vindicate their statutory rights.” Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 661 (6th Cir 2003). But this too would conflict with the SJC’scase- by-case approach, which looks not at the contract in theabstract nor at other potential litigants but at the individual claimant. Here, Lyft’s offer to pay to arbitrate Bekele’s claims meansthat he cannot show that the arbitration clause’s fee-sharing arrangement renders that provision unenforceable.
See Bekele v. Lyft, Inc.,