A twist to this procedure was introduced in the context of section 1 of the Federal Arbitration Act, 9 U.S.C. § 1, and whether the plaintiff was exempt from the Federal Arbitration Act (FAA) because the plaintiff was a “transportation worker.” In those circumstances, the court may deny the motion, subject to renewal after discovery regarding whether the plaintiff was part of a “class of workers engaged in foreign or interstate commerce.” This fact-specific inquiry may depend on the nature of the work performed not only by the particular plaintiff but also by the “class of workers” to which he or she belonged. On the renewed motion, the court would determine if section 1 applied and, if so, whether the state law applicable to the arbitration agreement would require arbitration. The New Jersey Supreme Court recognized this procedure recently in Arafa v. Health Express Corp., 243 N.J. 147 (2020), holding that the New Jersey Revised Uniform Arbitration Act (NJRUAA), N.J. Rev. Stat. § 2A:23B-1 et. seq., was the default statute governing any arbitration agreement in New Jersey absent any other mandated law.
Into this puzzle the defendant in Harper v. Amazon.com Services, No. 19-21735 (FLW), 2020 U.S. Dist. LEXIS 133238 (D.N.J. July 28, 2020), rev’d, 2021 U.S. App. LEXIS 26959 (3d Cir. Sept. 8, 2021), filed a motion to compel arbitration of a claim by a “flex” delivery driver for overtime and related matters. Consistent with the practice noted above, including Singh v. Uber Technologies, Inc., 939 F.3d 210 (3d Cir. 2019) (remanding for discovery), the district court denied the motion subject to renewal after limited discovery.
On appeal, Amazon argued that discovery was not required and that the district court’s initial inquiry should have been what law applied to the arbitration agreement assuming that the section 1 exemption applied to the plaintiff. The general contract choice of law was Washington State; the arbitration clause said that the FAA or other federal law applied to the arbitration clause; and New Jersey’s choice of law rules (to be applied by a court in New Jersey) required application of the NJRUAA as the default. Since Washington State also had adopted the revised uniform arbitration model law, there should be no actual conflict, so the matter would be fairly simple—i.e., it was moot unless there were precedential court decisions on a relevant point (see below). (The plaintiff raised the issue of whether the clause properly waived the right to a court determination, as required in New Jersey by Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014), but there was a waiver phrase, and it is hard to see the Atalese argument as a serious one.)
The Third Circuit in Harper reversed in a split decision. The majority held that a proper respect for the “balance of authority between the several States and the United States [in a diversity case]” required a decision on state law “claims, including state arbitrability,” even where the FAA “may apply.” Thus, the determination of arbitrability under state law, including a conflict of law analysis, “is a threshold inquiry, ensuring prompt review of state law claims, particularly before turning to sort through a comparatively complex federal question [of the section 1 exemption].” As the majority noted, “a court can only determine whether state law provides grounds for arbitration by deciding what state law applies using the rules of the forum state.” Noting a conflict among the circuits looking at similar Amazon contracts as to whether the choice of the FAA as governing the arbitration should be severable (see 2021 U.S. App. LEXIS at *11 n.6), the majority saw a legitimate issue as to whether the parties intended that there would be no arbitration if the FAA did not apply. Hence, the state law issues should be decided by the district court in the first instance. The dissent argued that this was a new direction, contrary to the opinions in Palcko v. Airborne Express, Inc., 372 F.3d 588, 596 (3d Cir. 2004), instructing the court to proceed as if the FAA “had never been enacted,” and Guidotti.
On remand, the issue may not be as easy as one might assume. In New Jersey, relying on Palcko, the N.J. Supreme Court held that if the FAA does not apply, because of the section 1 exemption, the court must proceed as if the FAA did not exist and must apply the state default arbitration law. As noted above, however, the Amazon Flex contract had a Washington choice of law clause, with the additional caveat that Washington law did not apply to the arbitration clause, which designated the FAA or other federal law. A choice of law analysis in the Harper case might conclude that, in the absence of the FAA, New Jersey’s default act would apply to the arbitration, under New Jersey’s choice of law rules, given that the contract was made and performed in New Jersey. Thus, the district court might well follow Palcko and Arafa and compel arbitration under the NJRUAA.
The Ninth Circuit, however, in a case brought in Washington State by a Washington employee, Rittmann v. Amazon.com, Inc., 971 F.3d 904, 920 (9th Cir. 2020), interpreted the same clause under Washington law as not allowing severance of the inapplicable FAA clause, interpreted the “not-Washington law” clause to mean no law applied to the arbitration, and refused to compel arbitration. This might be an interesting subject in a choice of law class in law school—how can no law apply?—especially if the result would be to annul the parties’ primary intent to arbitrate their disputes. Significantly, the New Jersey Supreme Court in Flanzman v. Jenny Craig, Inc., 244 N.J. 119, 141 (2020), recently upheld the principle that the parties’ primary objective of resolving their disputes by arbitration should be honored; and the same principle was highlighted in the Harper majority’s final paragraph: “After all, the parties’ primary agreement is to arbitrate their disputes, so courts should explore both contractual routes to effectuate that agreement. . . .”
Harper is interesting from a pedagogical point of view as well. A “concurrence” by the author of the majority opinion, a rare if not unprecedented step, argued that it was time to reevaluate the 1925 FAA, which the author described as (my words) outdated, departed from its original purpose, and past its prime. Do not hold your breath for Congress to take up this suggestion. In the meantime, we await the district court’s briefing schedule to flesh out the knotty issues now on its doorstep.
