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October 27, 2016 Practice Points

Ninth Circuit: Delegation Clauses Are Arbitrable

The appeals court did not deviate from established California law invalidating Private Attorney General Act waivers

by Adam E. Polk

Recently, in Mohamed v. Uber Technologies, Inc., Nos. 15-16178, 15-16181 & 15-16250, 2016 WL 4651409 (9th Cir. Sept. 7, 2016), the Ninth Circuit decided that contractual provisions delegating authority to determine the enforceability of an arbitration clause to an arbitrator—often called "delegation clauses"—are enforceable if clear and the contract is not unconscionable.  In reaching that conclusion, the appeals court did not deviate from established California law invalidating Private Attorney General Act (PAGA) waivers, explaining instead that PAGA waivers can be severed and do invalidate the entire contract in every case.

In Mohammed, the plaintiffs allege that Uber violated the Fair Credit Reporting Act and various state statutes and also misclassified employees as independent contractors.  Uber sought to enforce arbitration clauses from two separate, but similar, agreements.  Both agreements provided that any disputes would be resolved by arbitration, including “disputes arising out of or relating to interpretation or application of this Arbitration Provision, including the enforceability, revocability or validity of the Arbitration Provision or any portion of the Arbitration Provision.”  The district court found that those delegation clauses were ineffective because (1) they were not "clear and unmistakable,” (2) they were unconscionable, and (3) they contained PAGA waivers.  

The Ninth Circuit reversed. To the appeals court, the language “clearly and unmistakably delegated the question of arbitrability to the arbitrator” and there was no other generally applicable contract defense (like fraud) that invalidated the clauses. Moreover, the court explained, the clauses were procedurally fair because they had a meaningful right to opt out; because a party asserting unconscionability must show both procedural and substantive unfairness, a finding that the clauses were procedurally fair ended the analysis. Lastly, to the court, the PAGA waivers included in the arbitration agreement—which were invalid under California law—were severable from the rest of the agreements.

Mohamed thus highlights the importance of a meaningful opt-out right from an arbitration agreement, that a venue provision in a contract that provides a certain court will determine contract disputes does not necessarily render a delegation provision in the same contract ambiguous, and that PAGA waivers can be severed from an arbitration agreement if the agreement contains a severability clause.

Adam E. Polk is with Girard Gibbs in San Francisco, California.

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