Uber can’t bootstrap arbitration clause to evade antitrust class action – N.Y. judge

May 10, 2016

(Reuters) – Last month, facing what we now know to be as much as $852 million in exposure to drivers in California and Massachusetts, the ride-sharing company Uber agreed to a class action settlement with drivers in those states. At the time of the agreement, valued at between $84 and $100 million, Uber was in the midst of appealing a series of decisions by U.S. District Judge Edward Chen of San Francisco, who held that the company’s mandatory arbitration clause was unenforceable.

Judge Chen increasingly appears to have been an outlier on that issue. In April, U.S. District Judge Douglas Rayes of Phoenix expressly declined to follow Judge Chen’s reasoning. He upheld Uber’s clause and sent the named plaintiff in a class of Arizona drivers to arbitration. And as my Reuters colleague Dan Wiessner reported last week, federal judges in Baltimore and Tampa have also rejected arguments that Uber’s mandatory arbitration provision is unconscionable. Like Judge Rayes, those courts ruled that drivers who wanted to lead class actions must instead arbitrate their claims individually. I’m sure drivers will keep fighting for their right to bring class actions, but right now, they’re losing the war.

Meanwhile, Uber’s co-founder and CEO, Travis Kalanick, is defending an antitrust class action in federal court in Manhattan by a passenger who alleges a price-fixing conspiracy among Uber drivers. I told you last month about the company’s fateful strategic decision in that case not to invoke the mandatory arbitration provision in its agreement with passengers. Uber figured U.S. District Judge Jed Rakoff would quickly dispose of the purported class action, which posits an antitrust scheme involving hundreds of thousands of drivers who don’t even know of each others’ existence. That thinking backfired when Judge Rakoff refused to dismiss the class action.

And now a backup argument by Uber has also failed. On Monday, the judge denied Uber’s motion for reconsideration, holding that company’s class action waiver provision is both entwined with the arbitration clause and unenforceable under California law.

Uber’s antitrust lawyers at Boies Schiller & Flexner argued in the CEO’s reconsideration motion that under the specific language of its passenger agreement, riders waive the right to bring class actions against the company in addition to agreeing to arbitrate their disputes. So, according to Uber, even though it did not invoke mandatory arbitration in the case, it can still block the named plaintiff, Spencer Meyer, from bringing classwide claims. As precedent, Uber cited the U.S. Supreme Court’s pro-arbitration rulings in AT&T Mobility v. Concepcion, American Express v. Italian Colors and DirecTV v. Imburgia.

Meyer’s lawyers, Andrew Schmidt Law and Harter Secrest & Emery responded that the class action waiver cannot be disentangled from the arbitration clause, and since the Uber CEO didn’t invoke arbitration, he cannot separately try to block the class action. The opposition brief also said the Supreme Court’s rulings on class action waivers have all come in cases involving mandatory arbitration provisions. A separate waiver of class action rights, the brief said, would be unconscionable under California’s Supreme Court precedent that remains good law even after the U.S. Supreme Court’s pro arbitration rulings.

Judge Rakoff agreed with all of the plaintiff’s arguments. He found that Uber’s CEO isn’t procedurally entitled to reconsideration – but even if he were, his motion would fail. The contractual class action waiver, according to the judge, “is most plausibly read as an explanation of the rights that the parties are giving up in agreeing to arbitrate disputes, and not as an independently effective waiver of the right to pursue a class action outside the arbitration context.” Since the Uber CEO didn’t move to compel arbitration, he can’t separately block the class action, Rakoff said.

And besides, according to the judge, a separate class action waiver would be unconscionable under California’s Discover Bank v. Superior Court. “It is clear that the Supreme Court has not overridden the California Supreme Court’s determination that class action waivers are unconscionable  except in the case of an arbitration proceeding,” the judge wrote.

He seemed to chide Uber for suggesting otherwise: “Adopting defendant’s views on the effect of Concepcion and related cases on California’s unconscionability doctrine would be, not a necessary or inevitable result of Supreme Court precedent, but a dramatic extension of case law on the Federal Arbitration Act into the hitherto largely undisturbed waters of independent class action waivers,” Judge Rakoff wrote. “Into those waters the court declines to recklessly plunge.”

I’ve said before the plaintiff’s lawyers in this case have pulled some smart drafting maneuvers to get around Uber’s arbitration clause and to pique Judge Rakoff’s curiosity. They also did an admirable job opposing Uber’s reconsideration motion. I still doubt they’re going to be able to prove an antitrust conspiracy but they are certainly more formidable opponents than Uber seemed to think at the beginning of this case.

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