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Date: 03-14-2019

Case Style:

Yilkal Bekele v. Lyft, Inc.

Case Number: 16-2109

Judge: Lynch

Court: United States Court of Appeals for the First Circuit on appeal from the District of Massachusetts (Suffolk County)

Plaintiff's Attorney: Shannone Liss-Riordan and Adelaide H. Pagano


Michael Rubin and Altshuler Berzon LLP on brief for Labor Law
Scholars, amici curiae.

Defendant's Attorney: Evan M. Tager, Archis A. Parasharami, Matthew A. Waring


Bryan K. Weir, Thomas R. McCarthy, Cameron T. Norris, Consovoy
McCarthy Park PLLC, Steven P. Lehotsky, Michael B. Schon, and U.S.
Chamber Litigation Center on brief for Chamber of Commerce of the
United States of America, amicus curiae.

Description:





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,
- 4 -
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
- 5 -
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.
- 6 -
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.
- 7 -
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)
- 8 -
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).
- 9 -
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.
- 10 -
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
- 11 -
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),
- 12 -
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
- 13 -
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
- 14 -
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
- 15 -
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.
- 16 -
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.
- 17 -
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
- 18 -
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)).

Outcome: Affirmed.

Plaintiff's Experts:

Defendant's Experts:

Comments:



 
 
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