Court of Appeal:
Contention Rejected That Drivers Signed Arbitration Agreements and Government Officials, Acting as Proxies, Are Bound by Those Agreements; Opinion Says FAA Is Not Preemptive, Equitable Estoppel Isn’t Applicable
By a MetNews Staff Writer
The First District Court of Appeal held Friday that arbitration agreements between Uber, Lyft and most of their respective drivers do not bind the state, rejecting the app-based transportation companies’ contention that the state is acting as the surrogate of those drivers in suing over benefits they were denied by classifying them as independent contractors rather than employees.
Under Proposition 22, approved by 59 percent of those voting in the Nov. 3, 2020 general election, the drivers are independent contractors, and the validity of that measure was upheld, for the most part, on March 13 by the First District Court of Appeal. The California Supreme Court granted review on June 28, and the state and the labor commissioner, in pursuing actions under the Unfair Competition Law and the Labor Code, are banking on the high court proclaiming the initiative to be unconstitutional.
Although the plaintiffs seek civil penalties and injunctive relief, Uber and Lyft only called for arbitration of claims brought on behalf of the drivers, such as unpaid wages and unreimbursed business expenses.
Uber argued in its opening brief:
“For these claims, Plaintiffs are stepping into the drivers’ shoes, asserting the drivers’ claims, and any relief Plaintiffs may recover will be paid to the drivers.
“Because Plaintiffs are seeking to recover drivers’ relief on their behalf, they may not circumvent the drivers’ contractual agreements with Uber requiring such claims to be arbitrated.”
Lyft asserted that the “drivers are the real parties in interest for the individual monetary remedies sought on their behalf.”
The defendants asked that claims seeking payments to the drivers be sent to arbitration and that litigation of nonarbitrable claims be stayed pending the outcome of arbitration. But in Friday’s opinion, Court of Appeal Justice Jon B. Streeter of Div. Four said that San Francisco Superior Court Judge Ethan P. Schulman correctly determined that the arbitration provisions in contracts with the drivers are irrelevant.
“The trial court correctly concluded there is no basis to compel arbitration here because the People and the Labor Commissioner are not parties to the arbitration agreements Uber and Lyft entered into with their drivers,” Streeter wrote.
He added that “[t]he public officials who brought these actions do not derive their authority from individual drivers but from their independent statutory authority to bring civil enforcement actions.”
Federal Arbitration Act
The defendants argued that the Federal Arbitration Act (“FAA”), which mandates that arbitration agreements be enforced, preempts state laws contravening those policies. Streeter responded:
“The United States Supreme Court has emphasized that, while the FAA embodies a strong federal policy in favor of enforcing parties’ agreements to arbitrate, that policy is founded on the parties’ consent, and there is no policy in favor of requiring arbitration of disputes the parties have not agreed to arbitrate….
“We reject Uber’s and Lyft’s suggestion that the People and the Labor Commissioner should be bound because they allegedly are mere proxies for Uber’s and Lyft’s drivers.”
Uber and Lyft also maintained that equitable estoppel applies. As Uber put it in its opening brief:
“Plaintiffs are equitably estopped from denying the enforceability of the Arbitration Provision because their claims are predicated on drivers’ contractual relationships with Uber.”
It pointed to the 2011 Court of Appeal opinion by this district’s Div. Three in JSM Tuscany, LLC v. Superior Court. Justice H. Walter Croskey acknowledged that, generally, a nonsignatory to an arbitration agreement cannot compel arbitration pursuant to that agreement but said that “[o]ne pertinent exception is based on the doctrine of equitable estoppel.”
He wrote that California courts, applying federal law, have said that “a signatory plaintiff who sues on a written contract containing an arbitration clause may be estopped from denying arbitration if he sues nonsignatories as related or affiliated persons with the signatory entity.”
“The trial court correctly concluded equitable estoppel does not apply here because the People’s and the Labor Commissioners claims are not founded on Uber’s and Lyft’s contracts with their drivers. Instead, as the court recognized, the People and the Labor Commissioner are seeking to enforce the UCL and the Labor Code and are not seeking to enforce or take advantage of any portion of Uber’s and Lyft’s contracts with their drivers.”
The case is In re Uber Technologies Wage and Hour Cases, 2023 S.O.S. 3601.
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