Yilkal Bekele v. Lyft, Inc.

This case is about the

enforceability of an arbitration clause alleged to be

unconscionable under Massachusetts law.

Yilkal Bekele, the plaintiff, drove for Lyft, Inc., the

defendant, starting in mid-2014. Bekele tapped "I accept" on his

iPhone 4 when presented with Lyft's Terms of Service Agreement

("TOS Agreement"), which contains a provision requiring that all

disputes between the parties be resolved by one-on-one

arbitration. Bekele later brought a putative class action in

Massachusetts Superior Court against Lyft alleging that the

company misclassifies its drivers as independent contractors under

that Commonwealth's wage law. After removing the case to federal

court, Lyft moved to dismiss in favor of arbitration of Bekele's

claim in his individual capacity, invoking the clause in the TOS

Agreement that required arbitration and that precluded class,

collective, or representative proceedings. Concluding that the

parties had a valid and enforceable agreement to arbitrate, the

district court granted the motion and dismissed the case in favor

of individual arbitration. See Bekele v. Lyft, Inc., 199 F. Supp.

3d 284, 314 (D. Mass. 2016). We affirm.

I.

A. Factual Background

The following undisputed facts are drawn from the

complaint and the parties' submissions to the district court. See,

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e.g., Justiniano v. Soc. Sec. Admin., 876 F.3d 14, 17 (1st Cir.

2017).

Lyft operates a ride-hailing service. Customers use its

mobile-phone application ("the App") to request rides. The App

then matches each ride request with a Lyft driver in the area.

Before Bekele started driving for Lyft in Boston in the

summer of 2014, he downloaded the App on his iPhone 4 and completed

the registration process that Lyft requires of customers and

drivers before they use Lyft's service. When Bekele registered,

users were presented, at one step, with a screen titled "Lyft Terms

of Service," which displayed sixteen lines of text from the TOS

Agreement in grey ink on a white background. The text explained,

"[t]his following user agreement describes the terms and

conditions on which Lyft, Inc. offers you access to the Lyft

platform," and "[t]his Agreement is a legally binding agreement

made between you . . . and Lyft, Inc." Beneath that text, a

turquoise-colored "I accept" button appeared.

The TOS Agreement's specific provisions were outlined in

the text that followed these initial sixteen lines. Users could

scroll through the entire text of the TOS Agreement on this screen,

but scrolling was not required before accepting. Tapping "I

accept" allowed the user to proceed to the next stage of the

registration process. But a user who did not accept the terms

could not finish registering. The sixth paragraph of the agreement

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explained this, as well as the process by which Lyft could modify

the TOS Agreement:

IF YOU DO NOT AGREE TO BE BOUND BY THE TERMS

AND CONDITIONS OF THIS AGREEMENT, PLEASE DO

NOT USE OR ACCESS LYFT OR REGISTER FOR THE

SERVICES PROVIDED ON LYFT. We may amend this

Agreement at any time by posting the amended

terms on the Lyft Platform. If We post amended

terms on the Lyft platform, You may not use

the Services without accepting them. Except

as stated below, all amended terms shall

automatically be effective after they are

posted on the Lyft Platform. This Agreement

may not be otherwise amended except in writing

signed by You and Lyft.

The arbitration clause appeared about two-thirds of the

way through the TOS Agreement.1 We reproduce the clause with its

original bold, capitalized heading and capitalized conclusion:

AGREEMENT TO ARBITRATE ALL DISPUTES AND LEGAL CLAIMS

You and We agree that any legal disputes or

claims arising out of or related to the

Agreement (including but not limited to the

use of the Lyft Platform and/or the Services,

or the interpretation, enforceability,

revocability, or validity of the Agreement, or

the arbitrability of any dispute), that cannot

be resolved informally shall be submitted to

binding arbitration in the state in which the

Agreement was performed. The arbitration

shall be conducted by the American Arbitration

Association under its Commercial Arbitration

Rules (a copy of which can be obtained here

[the word here is a hyperlink to the

Commercial Arbitration Rules]), or as

1 The TOS Agreement is about eighteen pages long, printed

on standard paper, and Bekele estimates that it would be fifty-five

pages on an iPhone 4. The arbitration clause was on page twelve

of the printed version of the Agreement and at around page forty

of the iPhone 4 version.

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otherwise mutually agreed by you and we. Any

judgment on the award rendered by the

arbitrator may be entered in any court having

jurisdiction thereof. Claims shall be brought

within the time required by applicable law.

You and we agree that any claim, action or

proceeding arising out of or related to the

Agreement must be brought in your individual

capacity, and not as a plaintiff or class

member in any purported class, collective, or

representative proceeding. The arbitrator may

not consolidate more than one person's claims,

and may not otherwise preside over any form of

a representative, collective, or class

proceeding. YOU ACKNOWLEDGE AND AGREE THAT

YOU AND LYFT ARE EACH WAIVING THE RIGHT TO A

TRIAL BY JURY OR TO PARTICIPATE AS A PLAINTIFF

OR CLASS MEMBER IN ANY PURPORTED CLASS ACTION

OR REPRESENTATIVE PROCEEDING.

Bekele tapped "I accept" on the TOS Agreement on May 19,

2014 at 11:45 am; on September 24, 2014 at 10:07 am; and again on

October 11, 2014 at 12:25 pm. The record is silent on why Bekele

accepted the agreement three times. See Bekele, 199 F. Supp. 3d

at 289 n.2. The parties agree that the TOS Agreement in effect on

October 11, 2014 controls this case. Id. at 289.

B. Procedural History

Bekele's complaint on behalf of a class of Massachusetts

Lyft drivers alleges that Lyft violated the Massachusetts Wage Act

by classifying drivers as independent contractors rather than as

employees, see Mass. Gen. Laws ch. 149 § 148B, and by requiring

drivers to bear expenses such as gas and car maintenance, see id.

§ 148.

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Lyft moved to dismiss the complaint and to compel

individual arbitration under the Federal Arbitration Act ("FAA").

The parties later agreed to treat Lyft's motion as a motion for

partial summary judgment. See Bekele, 199 F. Supp. 3d at 288.

Relevantly, the FAA provides that

a written provision in any . . . contract

. . . to settle by arbitration a controversy

thereafter arising out of such contract . . .

shall be valid, irrevocable, and enforceable,

save upon such grounds as exist at law or in

equity for the revocation of any contract.

9 U.S.C. § 2. State contract law supplies the principles for

determining validity, revocability, and enforceability. See

Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87 (1996).

In opposing Lyft's motion, Bekele argued that no valid

contract to arbitrate had been formed under Massachusetts law. He

also argued that, even if a valid contract had been formed, it

would be unenforceable under the FAA's savings clause for two

reasons: (1) because its class-waiver provision violates the right

to engage in concerted action granted by the National Labor

Relations Act (NLRA), and (2) because any agreement to arbitrate

was procedurally and substantively unconscionable under

Massachusetts law.

On substantive unconscionability, an issue we take up in

greater detail in the analysis, Bekele challenged the arbitration

clause's selection of the American Arbitration Association (AAA)

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Commercial Rules. In October 2014, when the parties' agreement

was signed, these Rules required that parties like Bekele and Lyft

split equally the arbitration's costs.2 Limited exceptions to this

cost-splitting arrangement existed, but Bekele argued that, under

the 2014 Rules, he would have been charged $3,750 -- half of the

$7,500 initial arbitration fee -- to have an arbitrator decide the

threshold issue of fee apportionment. He argued that these fees

were unaffordably high for Lyft drivers like him and that the

inclusion of the Rules requiring fee-splitting was therefore

unconscionably oppressive. Lyft responded that the mere reference

to the AAA Rules in the agreement could not be unconscionable.

Significantly, it also bound itself to pay the full costs of any

arbitration with Bekele.

Ultimately, the district court dismissed the case in

favor of individual arbitration. See Bekele, 199 F. Supp. 3d at

293-94, 314.

Bekele appealed. His initial brief, filed in January

2017, focused on the NLRA question. It also argued that the

agreement was unconscionable, but it did not raise the formation

issue. Before Lyft had filed its response, the Supreme Court

2 In a supplemental filing after oral argument in this

court, Lyft noted that, in October 2017, the AAA changed the fee

schedule applicable to claims like Bekele's that are about work.

The now-applicable fee schedule limits Bekele's arbitration costs

to $300. See Am. Arbitration Ass'n, Commercial Arbitration Rules

and Mediation Procedures, Rule R-1, at 10 (2017).

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granted certiorari in Lewis v. Epic Systems Corp., 823 F.3d 1147

(7th Cir. 2016), cert. granted, 137 S. Ct. 809 (mem.) (2017), to

decide whether class-action waivers in arbitration agreements

violate the NLRA. On Lyft's motion, we then ordered this appeal

held in abeyance pending the Supreme Court's decision.

While the appeal was stayed, this court decided

Cullinane v. Uber Technologies, Inc., 893 F.3d 53 (1st Cir. 2018),

which held that no valid agreement to arbitrate had been formed

under Massachusetts law between Uber and customers who registered

on Uber's mobile-phone application. Id. at 64.

In May 2018, the Supreme Court held in Epic Systems Corp.

v. Lewis, 138 S. Ct. 1612 (2018), that class and collective action

bars in arbitration agreements are not incompatible with the NLRA

and are therefore enforceable under the FAA. Id. at 1619.

Lyft and Bekele next agreed, in a Joint Status Report,

that, after Epic Systems, Bekele cannot prevail on his argument

that the arbitration agreement violates the NLRA. The parties

proposed that Bekele be allowed to file a supplemental opening

brief arguing that no agreement to arbitrate had been formed under

Cullinane.

We lifted the stay and allowed this supplemental brief.

Bekele filed his supplemental brief, Lyft then responded, and

Bekele replied.

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II.

A. Waiver of Contract Formation Issue

Bekele waived the contract formation issue by not

raising it in his opening brief. It is well settled that "we do

not consider arguments for reversing a decision of a district court

when the argument is not raised in a party's opening brief."

Sparkle Hill, Inc. v. Interstate Mat Corp., 788 F.3d 25, 29 (1st

Cir. 2015). And we are even more reluctant to excuse deliberate

waiver than we are to overlook inadvertent forfeiture. See Sindi

v. El-Moslimany, 896 F.3d 1, 28-29 (1st Cir. 2018) (acknowledging

this); Nat'l Ass'n of Soc. Workers v. Harwood, 69 F.3d 622, 628

(1st Cir. 1995) (same). Here, Bekele sought to appeal the

formation issue only after Epic Systems foreclosed the argument on

which he had chosen to focus in his initial brief.

Bekele argues that unusual features of the briefing here

weigh against applying this waiver rule to his contract-formation

argument. But we find that Bekele has not shown "exceptional

circumstances" that excuse his belated appellate briefing. See,

e.g., Aetna Cas. Sur. Co. v. P & B Autobody, 43 F.3d 1546, 1571

(1st Cir. 1994) (noting that such circumstances can excuse waiver).

Bekele first argues that Lyft would not be prejudiced if

we considered the argument. But (even assuming there would be no

prejudice to Lyft if the argument were considered) lack of

prejudice to the opposing party is not on its own an exceptional

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circumstance justifying forgiveness of a waiver. See Sindi 896

F.3d at 27-28 (listing circumstances that, taken together, justify

forgiveness of waiver). For example, recently, in United States

v. Mayendía-Blanco, 905 F.3d 26, 33 (1st Cir. 2018), we deemed

waived an argument raised for the first time on appeal, in a

criminal defendant's supplemental brief, even though the

supplemental brief was filed before the government's response.

See id. at 31. Lack of prejudice to the government was not a

circumstance that warranted excusing the defendant's failure to

initially raise the argument. See id. at 33.

Nor does our decision in Cullinane, decided between

Bekele's opening and supplemental briefs, amount to an exceptional

circumstance. Cullinane did not "substantial[ly] change" the

applicable law. Mayendía-Blanco, 905 F.3d at 33 (noting that a

"substantial change" in law can justify excusing waiver in an

opening brief); see also, e.g., DSC Commc'ns Corp. v. Next Level

Commc'ns, 107 F.3d 322, 326 (5th Cir. 1997) (recognizing the same

in the civil context). Indeed, Cullinane applied the very same

rule that the district court used in this case: the "reasonably

communicated and accepted" standard. Compare Cullinane, 893 F.3d

at 62, with Bekele, 199 F. Supp. 3d at 295. That standard had

been adopted for online contracts in a 2013 Massachusetts case,

Ajemian v. Yahoo!, Inc., 987 N.E.2d 604 (Mass. App. Ct. 2013),

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cited by both Cullinane and the district court. See Cullinane,

893 F.3d at 62; Bekele, 199 F. Supp. 3d at 295.

Bekele mistakenly reads Cullinane as newly clarifying

that reasonable notice must be determined based on context. But

that was clear before Cullinane. The reasonable notice standard

has governed online contracts across jurisdictions since the early

days of the internet, and the inquiry has always been context- and

fact-specific. See, e.g., Starke v. SquareTrade, Inc., 913 F.3d

279, 289-96 (2d Cir. 2019) (looking at the "design and content of

the relevant interface," id. at 289, and summarizing cases);

Sgouros v. TransUnion Corp., 817 F.3d 1029, 1034–35 (7th Cir. 2016)

("This is a fact-intensive inquiry."); Specht v. Netscape Commc'ns

Corp., 306 F.3d 17, 30-35 (2d Cir. 2002) (Sotomayor, J.)

(describing the screen seen by the user and evaluating all "these

circumstances," id. at 31).

In sum, Bekele waived his contract-formation argument

when he chose not to raise it in his opening brief.

B. Substantive Unconscionability

Bekele also contends that the agreement to arbitrate is

unconscionable and therefore unenforceable. To show

unconscionability under Massachusetts law, Bekele must prove "both

substantive unconscionability (that the terms are oppressive to

one party) and procedural unconscionability (that the

circumstances surrounding the formation of the contract show that

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the aggrieved party had no meaningful choice and was subject to

unfair surprise)." Machado v. System4 LLC (Machado II), 28 N.E.3d

401, 414 (Mass. 2015) (emphasis added) (citations and internal

quotation marks omitted). Reviewing de novo, see Cullinane, 893

F.3d at 60, we put aside Bekele's procedural attack and decide

that, because Bekele cannot show substantive unconscionability,

the agreement is enforceable.

Bekele's principal argument that the agreement is

substantively unconscionable stems from the arbitration clause's

selection of AAA Commercial Rules. As said, in October 2014 when

the parties' agreement was formed, these Rules required Bekele and

Lyft to split equally the arbitration's costs. Bekele argues that

he and other Lyft drivers cannot afford such high fees and that

this arrangement is substantively unconscionable. Under the

precedent of this court and the Massachusetts Supreme Judicial

Court ("SJC"), Lyft's offer before the district court to pay all

fees for an arbitration with Bekele sinks this argument.

In Massachusetts, an arbitration-fee-splitting

arrangement is not substantively unconscionable when the

arbitration fees a plaintiff would owe amount to less than the

damages the plaintiff claims.3 For example, the SJC said in McInnes

3 Machado v. System4 LLC (Machado I), 989 N.E.2d 464 (Mass.

2013) concluded that a state-law rule that high arbitration fees

can render an arbitration agreement unenforceable could "coexist

with the FAA," which preempts states' arbitration-specific

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v. LPL Financial, LLC, 994 N.E.2d 790 (Mass. 2013), that "an

adhesion contract that imposes 'filing and administrative fees

attached to arbitration that are so high as to make access to the

forum impracticable' may . . . be unenforceable." Id. at 798-99

(quoting Am. Express Co. v. Italian Colors Rest., 570 U.S. 228,

236 (2013)). McInnes then enforced the arbitration provision at

issue because "the amount of the arbitration fees would not make

access to the arbitral forum impracticable in view of the

substantial amount in compensatory damages that [the plaintiff]

claims." Id. at 799. Again, in Machado v. System4 LLC (Machado

I), 989 N.E.2d 464 (Mass. 2013) and Machado v. System4 LLC (Machado

II), 28 N.E.3d 401 (Mass. 2015), the SJC concluded that a provision

that required splitting arbitration costs was enforceable and not

substantively unconscionable because the plaintiffs' costs of

arbitration were less than the plaintiffs' potential recovery

under the Wage Act.4 Machado II, 28 N.E.3d at 414 (citing Machado

contract defenses. Id. at 471 (discussing AT&T Mobility LLC v.

Concepcion, 536 U.S. 333 (2011)). Because Bekele's substantive

unconscionability argument cannot succeed on the present facts, we

need not get into this issue.

4 Lyft argues that Machado II adopts a per se rule that

cost-sharing for arbitration of Wage Act claims is not

substantively unconscionable. Not so. Machado II reasoned that

a cost-splitting provision was not substantively unconscionable

because the SJC "made clear in Machado I that the mandates of the

Wage Act would override this provision if the plaintiffs were

successful in arbitration." Machado II, 28 N.E.3d at 414 (citing

Machado I, 989 N.E.2d at 471-72). Machado I had made this clear

by comparing the plaintiffs' costs of arbitration to the

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I, 989 N.E.2d at 471-72). Here, Bekele faces $0 in arbitration

fees, an amount lower than his potential recovery (which he

estimates could be about $1,000). As in McInnes and Machado I and

II, then, the agreement is enforceable.

Bekele contends that Lyft's offer to pay for arbitration

cannot be considered because, under more general principles of

Massachusetts law, unconscionability is determined at the time of

contracting. See Miller v. Cotter, 863 N.E.2d 537, 545 (Mass.

2007). But Massachusetts' specific framework for evaluating feesharing

arrangements allows courts to consider facts developed

during litigation, such as Lyft's offer to pay. In fact, the casespecific

evaluation McInnes and Machado I and II require us to

undertake depends on facts and figures, such as the claims and

potential recovery, unknowable at the time of contracting.

Courts use a similar approach to evaluate arbitration

fees when the claims that would be arbitrated are federal statutory

claims. See Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 90

(2000) (recognizing that "large arbitration costs could preclude

a litigant . . . from effectively vindicating her federal

statutory rights in the arbitral forum" and holding that such costs

could render an arbitration agreement unenforceable as to those

federal claims). Indeed, in that context, this court has enforced

plaintiffs' potential recovery under the Wage Act. Machado I, 989

N.E.2d at 471-72.

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an arbitration agreement under circumstances like those presented

here. In Large v. Conseco Finance Servicing Corp., 292 F.3d 49

(1st Cir. 2002), the plaintiffs sought to avoid arbitration of

their claims under the Federal Truth in Lending Act because

arbitrating would be prohibitively expensive. Id. at 56. After

the other party agreed to pay for the arbitration, the Large court

compelled arbitration and rejected the plaintiffs' request for

discovery on costs. Id. at 56-57. We held that no showing of

prohibitive costs was "possible because [the other party] has

agreed to cover the costs of arbitration." Id. at 56. Numerous

other federal courts have done the same in cases involving offers

to pay for arbitration of federal statutory claims. See, e.g.,

Muriithi v. Shuttle Express, Inc., 712 F.3d 173, 183 n.10 (4th

Cir. 2013); Ragone v. Atl. Video at Manhattan Ctr., 595 F.3d 115,

125 (2d Cir. 2010).

Bekele further argues that, even considering Lyft's

offer, the cost-sharing requirement is substantively

unconscionable. He points to cases holding that fee splitting is

per se unconscionable under California law. See, e.g., Ting v.

AT&T, 319 F.3d 1126, 1151 (9th Cir. 2003); Circuit City Stores v.

Adams, 279 F.3d 889, 892 (9th Cir. 2002). But, as explained,

Massachusetts has taken a case-specific approach to evaluating

fee-splitting arrangements.

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Bekele next urges us to adopt a rule that a

cost-splitting provision is "unenforceable whenever it would have

the 'chilling effect' of deterring a substantial number of

potential litigants from seeking to vindicate their statutory

rights." Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 661

(6th Cir 2003). But this too would conflict with the SJC's caseby-

case approach, which looks not at the contract in the abstract

nor at other potential litigants but at the individual claimant.

Here, Lyft's offer to pay to arbitrate Bekele's claims means that

he cannot show that the arbitration clause's fee-sharing

arrangement renders that provision unenforceable.

Bekele makes one final argument: that the TOS

Agreement's provision allowing Lyft to modify the terms of the

agreement upon notice and acceptance of the new terms is

substantively unconscionable.5 He relies on Ingle v. Circuit City

Stores, Inc., 328 F.3d 1165, 1179 (9th Cir. 2003), a case deeming

"unilateral power to terminate or modify [a contract]

substantively unconscionable" under California law.6 But the Lyft

5 Because we do not get into matters of procedural

unconscionability, we do not consider Bekele's distinct argument

that the specific process by which Lyft amended the terms of the

agreement in October 2014 was procedurally unconscionable.

6 Bekele also points to Floss v. Ryan's Family Steak

Houses, Inc., 211 F.3d 306 (6th Cir. 2000), but that case is not

instructive. It is about fatally indefinite contract terms, not

substantive unconscionability. See id. at 315 ("The purported

arbitration agreement therefore lacks a mutuality of obligation.

Without a mutuality of obligation, the agreement lacks

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TOS Agreement does not allow unilateral modification; it requires

that Lyft give notice to the user and that the user accept the new

terms. In contrast, the modification clause in Ingle allowed the

employer to revise the contract's terms and then notify employees

months after the fact. Id. Other courts have rejected the

argument that provisions like Lyft's -- that require notice to

users and acceptance by users -- are substantively unconscionable.

See Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d

159, 173-74 (5th Cir. 2004) (applying Louisiana law). Bekele

offers no evidence that a Massachusetts court would consider the

mere presence of a provision allowing the parties to modify their

agreement to be oppressive.



* * *



consideration and, accordingly, does not constitute an enforceable

arbitration agreement." (footnote omitted)).

Affirmed.