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Singh v. UBER Technologies Inc.

United States Court of Appeals, Third Circuit

September 11, 2019

JASWINDER SINGH, on behalf of himself and all those similarly situated,
v.
UBER TECHNOLOGIES INC Jaswinder Singh, Appellant

          Argued April 26, 2019

          On Appeal from the United States District Court for the District of New Jersey (D.C. Civ. Action No. 3-16-cv-03044) District Judge: Honorable Freda L. Wolfson

          Daniel A. Horowitz Matthew D. Miller Justin L. Swidler [ARGUED] Swartz Swidler Attorneys for Appellant

          Theodore J. Boutrous, Jr. Samuel E. Eckman Theane D. Evangelis [ARGUED] Gibson Dunn & Crutcher Joshua S. Lipshutz Gibson Dunn & Crutcher Paul C. Lantis William J. Simmons Littler Mendelson Attorneys for Appellee

          Before: GREENAWAY, JR., SHWARTZ, and PORTER, Circuit Judges.

          OPINION

          GREENAWAY, JR., CIRCUIT JUDGE.

         Arbitration agreements are essentially contracts that predetermine that a dispute between parties will be decided by an arbitrator, rather than in court. In response to judicial hostility toward these types of contracts, Congress passed the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16. The FAA places certain arbitration agreements on equal footing with all other contracts by requiring courts to enforce such agreements according to their terms. Section 2 provides that the FAA covers "a written provision in any maritime transaction or a contract evidencing a transaction involving commerce," id. § 2, but a provision in § 1 sets an outer limit, providing that "nothing" in the FAA "shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce," id. § 1 ("§ 1"). This outer limit sets the stage for the case before us.

         Jaswinder Singh brought this putative class action in the Superior Court of New Jersey, Monmouth County, on behalf of himself, and other similarly situated New Jersey Uber drivers. He alleged that Uber Technologies, Inc. ("Uber") misclassified them as independent contractors as opposed to employees, which resulted in their being deprived of overtime compensation, and having to incur business expenses for the benefit of Uber. Uber removed the case to federal court in the District of New Jersey. It then moved for the District Court to dismiss the case and compel Singh to have it decided by an arbitrator, on the basis of an agreement to arbitrate. Singh opposed the motion to compel arbitration on numerous grounds, one of which was that the District Court did not have the authority to compel arbitration under the FAA. He argued that, to the extent that he had an agreement with Uber, it fell within the ambit of the residual clause-the "any other class of workers" portion-of § 1. In the least, Singh asked that he be given the opportunity for discovery on the essential § 1 residual clause inquiry, which is whether the class of workers to which Singh belongs is "engaged in foreign or interstate commerce." Id.

         The District Court granted the motion over Singh's objections. But it did not reach the engaged-in-interstate commerce inquiry. Instead, the Court ruled that Singh did not fall within the ambit of the residual clause of § 1 because that clause only extends to transportation workers who transport goods, not those who transport passengers. We disagree with this reading. Consistent with our longstanding precedent, we hold that the residual clause of § 1 may extend to a class of transportation workers who transport passengers, so long as they are engaged in interstate commerce or in work so closely related thereto as to be in practical effect part of it. We will therefore vacate the District Court's order compelling arbitration. In addition, because neither the Complaint nor incorporated documents suffice to resolve the engaged-in-interstate-commerce inquiry, we will remand this and the remaining issues to the District Court for further proceedings consistent with this opinion.

         I. Background

         A. Legal

         The FAA "place[s] arbitration agreements on equal footing with all other contracts" by requiring courts to "enforce [such] agreements according to their terms." McDonald v. Cashcall, Inc., 883 F.3d 220, 226 (3d Cir. 2018) (first alteration in original) (citations omitted). So the statute provides that, like any other contract, arbitration agreements may be rendered unenforceable by grounds that exist at law or in equity for revocation. See id.; 9 U.S.C. § 2. To the extent that a particular ground implicates the threshold question of whether the parties are bound by an agreement to arbitrate, it is referred to as a gateway question of arbitrability and is typically resolved in court. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002); Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 756 (3d Cir. 2016).

         Although this is the typical route, the parties may contract around it, and agree to have even these questions decided by an arbitrator. To do so, the arbitration agreement need only include a clause-a delegation clause-that reserves arbitrability questions for an arbitrator to decide. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 70, 72 (2010) ("Rent-A-Center"). Where such a clause is included, courts cannot decide threshold questions of arbitrability "unless a party challenge[s] the delegation clause [specifically] and the court concludes that the delegation clause is not enforceable." MacDonald, 883 F.3d at 226 (citations omitted). The rationale is that a delegation clause is severable from the underlying arbitration agreement such that it is separately entitled to FAA-treatment-that is, unless specifically (and successfully) challenged, the clause is in and of itself treated as a valid contract that must be enforced under the FAA's enforcement provisions. See Rent-A-Center, 561 U.S. at 72.

         All of this, of course, assumes that the FAA controls. But what if it does not? Or, more precisely, who gets to decide the question of whether the FAA applies where there is a delegation clause? During the pendency of this appeal, the Supreme Court answered this question, holding that courts must be the ones to determine whether an agreement is excluded from FAA coverage even where there is a delegation clause. New Prime Inc. v. Oliveira, 139 S.Ct. 532, 538 (2019).

         Specifically, §§ 1 and 2 of the FAA identify the subset of arbitration agreements covered by the statute. Since they come before the FAA's enforcement clauses under §§ 3 and 4-which authorize a court to stay a proceeding and compel arbitration-the Supreme Court reasoned that §§ 3 and 4 cannot apply to an arbitration agreement that is excluded from the FAA's coverage by the terms of §§ 1 and 2. Id. at 537-38. Pursuant to the rationale offered by Rent-A-Center, the Court viewed a delegation clause as "merely a specialized type of arbitration agreement," and, as a result, held that the same reasoning applied. Id. at 538.

         This background sets the stage for our case: the contract between the parties contains an arbitration provision and a delegation clause. If the contract is covered by the FAA, these provisions might combine to require the parties to have much of their dispute resolved by an arbitrator. However, the parties disagree over whether their contract is excluded from the FAA under the residual clause of § 1.

         B. Procedural

         1. Proceedings in the District Court

         Singh brought this putative class action in the Superior Court of New Jersey, Monmouth County, on behalf of himself and other similarly situated New Jersey Uber drivers. He alleged that Uber misclassified them as independent contractors as opposed to employees, and that, as a result, Uber deprived them of overtime compensation, and required them to incur business expenses for the benefit of Uber. Uber removed the action to federal court in the District of New Jersey. It then moved to dismiss the action and compel arbitration pursuant to the arbitration provision of an agreement between the parties called the Rasier Software Sublicense Agreement ("Rasier Agreement").

         In response to the motion, Singh argued that there was no valid agreement between Uber and him, and, even if there was, he was not bound by its arbitration provision for four reasons: (1) Uber failed to meet its burden to show that the provision was a constitutional waiver of the Seventh Amendment right to a jury trial; (2) the provision is excluded under the residual clause of § 1 of the FAA; (3) the provision violated the National Labor Relations Act ("NLRA"), the Norris-LaGuardia Act, and the New Jersey Wage and Hour Law ("NJWHL"); and (4) the provision was unconscionable.

         As to the residual clause of § 1 of the FAA specifically, Singh argued that he had at least put forth enough to warrant discovery on the question. He relied on our decision in Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013), to support this argument. There, we recognized that our precedents suggested two possible standards under which a motion to compel arbitration could be decided-the motion to dismiss standard or the summary judgment standard. Id. at 771-72. The two differ significantly, as we accept as true the facts established by the pleadings-the complaint and incorporated documents-when deciding the former, but, for the latter, we require the party opposing the motion to submit evidence, which is typically obtained through discovery. See id. at 772 (citing Fed.R.Civ.P. 56(c)(1)(A)).

         We held that the motion to dismiss standard applies to a motion to compel arbitration where a party's claims are "subject to an enforceable arbitration clause"-that is, where the existence of a valid agreement to arbitrate between the parties is apparent from the face of the complaint or incorporated documents. Id. at 774, 776. "But if the complaint and its supporting documents are unclear" as to whether the parties agreed to arbitrate, "or if the plaintiff has responded to a motion to compel arbitration with additional facts sufficient to place the agreement" in dispute, a "restricted inquiry into factual issues [is] necessary . . . ." Id. at 774-75 (emphases added) (internal quotation marks and citations omitted). The motion to compel arbitration is judged under a summary judgment standard if it is renewed after this inquiry. Id. at 775.

         Uber asked the Court to reject this request for discovery on the grounds that the residual clause of § 1 of the FAA only applies to transportation workers that transport goods, the parties' agreement states that the FAA would govern, and that, even if the FAA did not govern, the result would be the same under the New Jersey Arbitration Act ("NJAA"), N.J. Stat. Ann. §§ 2A:23B-1 to -32. In addition, Uber put forth that the parties' agreement contained a valid delegation clause, which, unless successfully challenged, required that all the issues Singh raised regarding the validity of their arbitration agreement-including the § 1 residual clause issue-be decided by an arbitrator.

         The District Court ruled in Uber's favor, without addressing the discovery or delegation clause arguments.

         It recognized that the parties had "agree[d] to have [threshold issues] decided by an arbitrator through the inclusion of a delegation clause within the arbitration agreement," App. 7, but nonetheless proceeded to address four of the five issues presented by Singh. It determined that the delegation clause was valid, that the parties had in fact entered into a valid and enforceable arbitration agreement, and that the residual clause of § 1 of the FAA does not extend to transportation workers who transport passengers. It also found that the arbitration provision did not violate the NLRA or the other labor-related statutes, and was not unconscionable. It did not decide whether the parties' dispute fell within the scope of the arbitration provision, on the basis that the delegation clause required that this determination be "reserved for the arbitrator." App. 28.

         2. Proceedings on Appeal

         Singh appealed the District Court's § 1 determination, its determination that the arbitration provision did not violate the NJWHL, its failure to address his Seventh Amendment argument, and its rulings on unconscionability.[1] In its response brief on appeal, Uber primarily argued that Singh had waived any issue as to the enforceability of the delegation clause, and, as such, all of the issues Singh raises on appeal must be decided by an arbitrator. Given New Prime, Uber now concedes that a court has to resolve Singh's § 1 argument as an antecedent matter.

         Section 1 of the FAA requires that we determine whether the agreement between Singh and Uber qualifies as a "contract[] of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." 9 U.S.C. § 1. Of course, there is no dispute as to whether Uber drivers like Singh are seamen or railroad employees. Rather, the dispute centers on § 1's residual clause-the "any other class of workers" portion-with Uber arguing that the agreement between it and Singh does not qualify as a "contract of employment," Appellee Resp. Br. 19- 20, and, even if it did, Singh does not belong to a class of workers engaged in interstate commerce because such drivers transport passengers, and not goods, and they do so "only locally," Appellee Resp. Br. 20-26. New Prime eliminated Uber's "contract of employment" argument, see New Prime, 139 S.Ct. at 541 ("Congress used the term 'contracts of employment' in a broad sense to capture any contract for the performance of work by workers." (emphasis in original)), so we are left with its transportation-of-goods and "engaged in interstate commerce" arguments.

         II. Jurisdiction and Standard of Review

         The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1332(d) and 1453, and we have jurisdiction under 28 U.S.C. § 1291. We review the District Court's order compelling arbitration de novo, since it presents a question of law. Reading Health Sys. v. Bear Stearns & Co., 900 F.3d 87, 100 n. 61 (3d Cir. 2018). We apply the same standard as the District Court, so "we are first obliged to determine which standard should have been applied." Guidotti, 716 F.3d at 772.

         A. The Framework for Deciding Which Standard

         Recall that the two options are the motion to dismiss standard under Rule 12(b)(6) and the summary judgment standard under Rule 56, and that we set forth a framework for determining which should apply to a motion to compel arbitration in Guidotti. The centerpiece of that framework is whether the existence of a valid agreement to arbitrate is apparent from the face of the complaint or incorporated documents. Id. at 774-76.

         This is so because it represents a balancing of the competing purposes of the FAA by fostering "efficient and speedy dispute resolution" tempered by the "important aim" of "enforc[ing] . . . private agreements" and the "significant role courts play in interpreting the validity and scope of contract provisions . . . ." Id. at 773 (internal quotation marks and citations omitted). Notably, juxtaposed with Congress's "declaration of a liberal federal policy favoring arbitration agreements," id. (internal quotation marks and citation omitted), § 4 of the FAA establishes that a court must be "satisfied that the making of the agreement for arbitration or failure to comply therewith is not in issue" before "mak[ing] an order directing the parties to proceed to arbitration . . . ." 9 U.S.C. § 4. Thus, we determined that the interest in speedy resolution needs no tempering where "the affirmative defense of arbitrability of claims is apparent on the face of a complaint" (or incorporated documents). Id. at 773-74 (internal quotation marks and citation omitted). However, we recognized that "a more deliberate pace is required" where the motion "does not have as its predicate a complaint with the requisite clarity" as to whether "the parties agreed to arbitrate." Id. at 774 (internal quotation marks and citation omitted).

         A similar balancing is required with respect to the issue presented here. Indeed, like the agreement-to-arbitrate issue posed in § 4 of the FAA, the applicability of the residual clause of § 1 is not merely "presumed to be [a] question[] for judicial determination." See id. at 773 (citation omitted). Rather, New Prime establishes that a court must be satisfied that this clause does not apply before making an order that the parties proceed to arbitration pursuant to §§ 3 and 4 of the FAA. We therefore determine that a "restricted inquiry" may be necessary to resolve a motion to compel arbitration that presents an issue regarding the applicability of the residual clause of § 1.

         Specifically, where the issue of whether the residual clause of § 1 of the FAA applies arises in a motion to compel arbitration, the motion to dismiss standard applies if the complaint and incorporated documents provide a sufficient factual basis for deciding the issue. But where those documents do not, or the plaintiff responds to the motion with additional facts that place the issue in dispute, "the parties should be entitled to discovery on the question of arbitrability before a court entertains further briefing . . .," with an application of the summary judgment standard to follow. Id. at 776 (alteration in original) (internal quotation marks and citation omitted).

         B. Standard Applied by the District Court

         Here, the District Court's view was that the residual clause of § 1 of the FAA does not extend to transportation workers who transport passengers. So, to decide the § 1 residual clause inquiry, the fact that Uber drivers transport passengers need only have been apparent from the face of the Amended Complaint, from an exhibit attached to the Amended Complaint, as a matter of public record, or from documents incorporated or explicitly relied upon in the Amended Complaint. See Guidotti, 716 F.3d at 772. Setting aside the affidavit submitted by Uber as not qualifying as any of these, the Amended Complaint and the Rasier Agreement each independently establish that Uber drivers transport passengers. See, e.g., Amended Compl. ¶ 18, ECF No. 7 ("Defendant offers customers the ability to hail a car service driver via a mobile application." (emphasis added)); Rasier Agreement, App. 42 (characterizing Uber drivers as "providers of . . . peer-to-peer . . . passenger transportation services . . .") (emphasis added)). Along those lines, ...


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