Eleventh Circuit Affirms Denial of Motion to Force Arbitration in Class Action Power | King and Spalding
In Calderon vs. Sixt Rent A Car, LLC, the Eleventh Circuit interpreted an arbitration clause in a car rental agreement that the plaintiff entered into on Orbitz.com restrictively. The court ruled that the clause did not apply to a dispute between the plaintiff and the car rental company.
- Plaintiff Philippe Calderon booked a rental car from Sixt Rent A Car, LLC on Orbitz.com, a third-party booking site that customers can use to make travel reservations. At the end of the rental, Sixt billed him for damage to the vehicle for which Calderon claimed he was not responsible. Mr. Calderon has filed a putative class action lawsuit against Sixt, alleging breach of contract and violations of state consumer protection laws.
- The arbitration clause in Orbitz’s Terms of Service read: “Any claim will be resolved by binding arbitration, rather than by court. … This includes any claim you make against us, our affiliates, our travel suppliers or any company offering products or services through us, including the suppliers (who are the beneficiaries of this arbitration agreement).
- The court quickly determined that categories 1, 2, 4 and 5 only referred to interactions between Orbitz and its customers. Thus, the question of whether Mr. Calderon’s dispute fell within the definition of “claims” depended on whether point 3 – relating to “any service or product provided” – included only the services or products. provided by Orbitz, or was broad enough to encompass services or products provided by third parties such as Sixt.
- The Eleventh Circuit concluded that “any services or products provided” were limited to the services or products provided by Orbitz, and not to the services or products provided by third parties such as Sixt. The tribunal came to this conclusion for three reasons:
- First, a common rule of contract interpretation is that “the meaning of particular terms may be determined by reference to other closely related words” and the other items in the list of types of disputes qualified as “claims” relate only to matters involving Orbitz, and not third parties.
- Second, the Terms of Service require that any customer with a “complaint” give Orbitz an opportunity to resolve it before making a complaint. This provision would hardly make sense if the “claims” included disputes with third parties other than Orbitz, as Orbitz would be powerless to resolve them.
- Finally, for reasons of “common sense”, disputes with third parties other than Orbitz, such as the case of Mr. Calderon, may often not involve Orbitz at all and should not be subject to the compulsory arbitration clause. from Orbitz.
- In reaching this conclusion, the Eleventh Circuit recognized the decision of the Supreme Court in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 US 1 (1983), who held that “any doubt as to the scope of arbitrable issues should be resolved in favor of arbitration. But the court concluded that this rule of interpretation did not apply, ruling that it “emanates from the federal law on arbitration and therefore only applies to the” arbitration agreement “.[s] within the scope of the Law. ”
- Although Orbitz’s Terms of Service expressly state that they are “governed by Federal Arbitration Law,” the law is limited to “controversies that arise out of the contract containing the arbitration agreement or the transaction that is the proof ”. But Mr Calderon’s lawsuit did not “flow” from the contract he made with Orbitz, as the dispute he had with Sixt was not “an immediate and foreseeable result” of the execution by Orbitz or Mr. Calderon from their contractual obligations. Indeed, Mr. Calderon’s complaint did not “name Orbitz as a defendant, identify wrongdoing on Orbitz’s part, or alleged a violation of Orbitz’s terms of service by anyone.”
- Justice Newsom wrote a concurring opinion that called into question the origins of the Moses H. Cone canon, claiming that it is “just made up” and should be reassessed. Diving into the history of federal arbitration law, Justice Newsom explained how arbitration contracts were “functionally unenforceable” because courts allowed parties to revoke arbitration agreements. As a result, Congress passed the FAA in 1925 to ensure that written arbitration agreements would be enforceable. But the lower courts then went further, borrowing the pro-arbitration canon of a federal labor law (despite significant differences between that law and the FAA) and aggressively applying pro-arbitration. Politics behind the FAA, not its plain text. The Supreme Court then capitalized on these trends by Moses H. Cone to endorse the “pro-arbitration canon in the strongest possible terms”, and the lower courts have followed suit. Justice Newsom explained that there are at least three problems with this canon: (1) it is a “substantive canon” which orders the courts to “deviate from the most natural interpretation of ‘a contract’ in favor of a pro-arbitration policy, (2) it is a particularly powerful substantive canon that courts easily apply, and (3) it is a ‘judicial invention’. He concluded that we would be “better off without the Moses H. Cone cannon. “
- The tribunal’s opinion is important in that it represents one of the first opinions in the Eleventh Circuit to determine whether federal arbitration law, including its strong presumption in favor of arbitration, applies to disputes. having only a tangential relationship with the contract containing the arbitration clause. This also represents a potential obstacle for defendants wishing to enforce the arbitration provisions contained in the contracts of third party affiliates. To guard against this, arbitration clauses must be carefully drafted to cover all types of disputes that the company wishes to arbitrate. Additionally, third party affiliates may consider adopting their own arbitration agreements rather than relying solely on the service provider’s agreement. In addition, the concurring opinion of Judge Newsom can give litigants a roadmap to challenge the Moses H. Cone canon, perhaps for the purpose of seeking certiorari on this issue from the Supreme Court.
- Read the opinion of the Eleventh Circuit here.