March 04, 2022 Articles

An Infant’s Right to Void an Arbitration Agreement, an Issue of First Impression

It stands to reason that the logic applied to challenges based on mental capacity should apply equally to challenges based on infancy.

By Eric van Ginkel

StockX is an e-commerce platform allowing registered users to buy and sell luxury merchandise, especially rare sneakers. In May 2019, StockX’s computer system was hacked and the personal account information of 6.8 million users of the website was stolen and offered for sale on the dark web.

Eight named plaintiffs, among them two minors, including “I.C.,” brought a nationwide putative class action against StockX in the U.S. District Court for the Eastern District of Michigan at Detroit, for allegedly failing to protect StockX users’ personal account information.

Upon defendant StockX’s motion to dismiss the action and compel arbitration, the plaintiffs argued inter alia that, in light of the infancy doctrine, (a) no enforceable arbitration agreement existed for the minor plaintiffs and (b) the delegation provision, specifically, was invalid and unenforceable as to the minor plaintiffs. The district court rejected the plaintiffs’ arguments and granted StockX’s motion to compel arbitration. By a split decision, a three-judge panel of the U.S. Court of Appeals for the Sixth Circuit affirmed in In re StockX Customer Data Security Breach Litigation, No. 21-1089 (Dec. 2, 2021).

The Case Before the Sixth Circuit Court of Appeals

Affirming the lower court’s decision, the majority of the Sixth Circuit panel held that an arbitration agreement existed and that the delegation provision was valid, so that in the first instance, the (sole) arbitrator, and not the court, had to decide whether the infant plaintiffs could avoid arbitrating their claims.

The delegation provision, which was part of the arbitration agreement set forth in the terms of service on StockX’s website and could be reached through a link, read as follows:

[T]he arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute arising out of or relating to the interpretation, applicability, enforceability or formation of this Agreement to Arbitrate, any part of it, or of the Terms including, but not limited to, any claim that all or any part of this Agreement to Arbitrate or the Terms is void or voidable.

StockX, slip op. at 3.

The Current State of the Law Regarding Delegation Provisions

In its majority opinion, the Sixth Circuit panel first outlined the current state of the law as developed by the U.S. Supreme Court. Inasmuch as arbitration is a matter of contract between the parties, “parties may agree to have an arbitrator decide not only the merits of a particular dispute but also ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.” StockX, slip op. at 5 (quoting Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019)). In addition, the parties may specify “the issues subject to arbitration.” Id. (quoting Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1416 (2019)). Thus, “the ‘parties may delegate threshold arbitrability questions to the arbitrator, so long as the parties’ agreement does so by ‘clear and unmistakable’ evidence.’” Id. (quoting Henry Schein, 139 S. Ct. at 530). Emphasizing the point and also citing precedents in the Sixth Circuit, the panel majority went on to say that “even where a delegation provision purports to require arbitration of formation issues, the severability principle does not apply and courts must decide challenges to the formation or existence of an agreement [to arbitrate] in the first instance. . . .” Id. at 6–7 (emphasis added).

Based on this analysis, the panel majority saw two distinct issues: “First, we resolve any challenge that pertains to the formation or existence of the contract containing the delegation provision. . . . Second, we decide any remaining enforceability or validity challenge only if it would affect the delegation provision alone or the basis of the challenge is directed specifically to the delegation provision.” Id. at 7–8 (citing Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 71–72 (2010)) (internal quotation marks and brackets omitted).

The panel majority then looked at section 4 of the Federal Arbitration Act, which the panel majority summarized as follows: “[I]f the ‘making of the agreement for arbitration . . . is not in issue,’ the court shall direct ‘the parties to proceed to arbitration,’ but ‘[i]f the making of the arbitration agreement . . . be in issue, the court shall proceed summarily to the trial thereof.’” StockX, slip op. at 10 (quoting 9 U.S.C. § 4). The majority found that the plaintiffs had submitted no evidence that would prove that they had not accepted the arbitration agreement, and the majority therefore proceeded to the second question.

Infant Plaintiffs and Their Right to Avoid the Contract

The effect of an infancy defense on an arbitration agreement raised an issue of first impression. Id. at 15 n.7. The two infant plaintiffs invoked their right to void the agreement. The majority found that this is an enforceability issue and, therefore, a matter of arbitrability to be resolved by the arbitrator. Id. at 12.

Generally, the so-called infancy doctrine permits avoidance of any contract throughout minority and for a reasonable time after reaching adulthood, so long as the minor has not ratified the contract as an adult. Cheryl B. Preston, “CyberInfants,” 39 Pepp. L. Rev. 225, 227 (2013). “The disaffirmance of a contract made by an infant nullifies it and renders it void ab initio; and the parties are returned to the same condition as if the contract had never been made.” Comment, “Deeds: By and to Infants: Effect of Disaffirmance,” 22 Mich. L. Rev. 52 (1923).

The majority in StockX relied on the severability doctrine, which supports recognizing the authority of the arbitral tribunal to decide issues related to fraud in the inducement (Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967)), the effect of a usurious interest rate (Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006)), and unconscionability (Rent-A-Center, 561 U.S. 63). StockX, slip op. at 11.

The majority acknowledged that the Supreme Court has instructed that “‘courts should order arbitration of a dispute only where the court is satisfied that neither the formation of the parties’ arbitration agreement nor (absent a valid provision specifically committing such disputes to an arbitrator) its enforceability or applicability to the dispute is in issue.’” Id. at 6 (quoting Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 299 (2010)) (emphasis added).

The panel majority concluded that the plaintiffs’ infancy argument did not concern the formation or existence of a contract. It held instead that the relevant inquiry is whether the infancy defense amounts to an argument that the agreement was “never concluded.” Id. at 12 (quoting Granite Rock, 561 U.S. at 301) (brackets omitted). The panel posited that under Michigan law, a minor’s contract is not synonymous with a nonexistent contract and that an infant’s contract is valid until disaffirmed. Without any further reasoning, the panel majority concluded that “[t]hus, plaintiffs’ infancy defense is a matter of enforceability covered under the delegation provision.” Id. at 11–12.

The Dissent

In her dissenting opinion, Judge Karen Nelson Moore distinguished a contract’s formation or existence (to be decided by courts), and challenges of a contract’s validity (to be decided by arbitrators), from challenges based on a party’s capacity, for which there is no binding case law. She pointed to Buckeye, 546 U.S. at 444 n.1, in which Justice Scalia explicitly limited the Court’s opinion to the issue of the contract’s validity and, among others, excluded from consideration the issue of a signatory lacking the mental capacity to assent. StockX, slip op. at 17 (Moore, J., dissenting).

Judge Moore noted that the Fifth Circuit had decided that the mental capacity issue was one for the arbitrator, but that both the Tenth Circuit and her own Sixth Circuit had decided that the issue of mental capacity was for the courts to decide. Id. at 18 (Moore, J., dissenting). She found the Tenth Circuit’s reasoning in Spahr v. Secco, 330 F.3d 1266 (10th Cir. 2003), especially persuasive. In the context of a mental-capacity challenge, the Tenth Circuit explained:

Prima Paint submits to arbitrators the resolution of a claim of fraud in the inducement of the entire contract, as contrasted with a claim of fraud in the inducement of the arbitration agreement itself. . . . Courts may apply this rule with ease when a party challenges a contract on the basis that it was induced by fraud because it is conceivable either that (1) he or she was fraudulently induced to agree to a contract containing an arbitration agreement; or (2) he or she was fraudulently induced to agree to the arbitration provision in particular. We cannot say the same when a party raises a mental capacity challenge, as it would be odd indeed if a party claimed that its mental incapacity specifically affected the agreement to arbitrate. We conclude, therefore, that the analytical formula developed in Prima Paint cannot be applied with precision when a party contends that an entire contract containing an arbitration provision is unenforceable because he or she lacked the mental capacity to enter into the contract. Unlike a claim of fraud in the inducement, which can be directed at individual provisions in a contract, a mental capacity challenge can logically be directed only at the entire contract.

StockX, slip op. at 19 (Moore, J., dissenting) (quoting Spahr, 330 F.3d at 1272–73) (internal citations omitted).

It stands to reason that the logic applied to challenges based on mental capacity should apply equally to challenges based on infancy. As Judge Moore pointed out, it would be “odd indeed” to say that infancy specifically affected an individual contractual provision. Id. (quoting Spahr, 330 F.3d at 1273). “Because a challenge based on infancy (just as a mental capacity challenge) can be directed at only the entire contract, and not at specific contractual provisions,” Judge Moore concluded, “it does not make sense to hold that a court may decide an infancy-based challenge solely when a party directs such challenge at a specific provision.” Id. (emphasis in original).

Concluding Thoughts

The majority opinion did not deal with the arguments presented by the dissent. It also did not satisfactorily address the basic question of how an infant logically could have the mental capacity to make a binding arbitration agreement or agree to a delegation provision therein, or why an infant should be permitted to disaffirm all agreements other than an agreement to arbitrate or a delegation provision in an arbitration agreement.

Eric van Ginkel is an independent international arbitrator and mediator with offices in Austin, Texas, and Rotterdam, the Netherlands. 

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