Arnold v. Homeaway, Inc.

Decision Date15 May 2018
Docket NumberNos. 17-50088 & 17-50102,s. 17-50088 & 17-50102
Citation890 F.3d 546
Parties Ivan ARNOLD, an individual, on behalf of himself and all others similarly situated, Plaintiff–Appellee v. HOMEAWAY, INCORPORATED, Defendant–Appellant and Deirdre Seim, Individually, and on behalf of all others similarly situated, Plaintiff–Appellant v. Homeaway, Incorporated, a Delaware Corporation, Defendant–Appellee
CourtU.S. Court of Appeals — Fifth Circuit

Michael Andrew Bowse, Keith Joseph Wesley, Esq., Litigation Counsel, Browne George Ross, L.L.P., Los Angeles, CA, Daniel Henry Byrne, Esq., Fritz, Byrne, Head & Gilstrap, P.L.L.C., Austin, TX, for PlaintiffAppellee Ivan Arnold.

Jasper D. Ward, IV, Jones Ward, P.L.C., Louisville, KY, for PlaintiffAppellant Deirdre Seim.

Bryan Michael Killian, Stephanie Beth Schuster, Esq., Morgan, Lewis & Bockius, L.L.P., Washington, DC, John Warren Rissier, Morgan, Lewis & Bockius, L.L.P., Los Angeles, CA, David Dean Shank, Esq., Jane Webre, Scott, Douglass & McConnico, L.L.P., Austin, TX, for DefendantAppellant.

Before KING, DENNIS, and COSTA, Circuit Judges.

JAMES L. DENNIS, Circuit Judge:

Plaintiffs Ivan Arnold and Deirdre Seim filed separate lawsuits against Defendant HomeAway, Inc.1 In each case, HomeAway sought to compel arbitration. Concluding that both Seim and Arnold are bound to arbitrate threshold arbitrability questions, we REVERSE the judgment of the district court in Arnold's case and AFFIRM the judgment in Seim's. We REMAND both cases with instructions to compel arbitration.

I

HomeAway owns and operates several websites that facilitate short-term "vacation" rentals. HomeAway's sites connect homeowners and property managers with travelers who book their properties online. Arnold and Seim are both HomeAway subscribers who list properties on HomeAway's websites.

Arnold filed a putative class-action complaint alleging, chiefly, that HomeAway's February 2016 imposition of service fees for travelers was contrary to its prior representations and resulted in a variety of state-law violations. HomeAway argues that its April 2016 Terms and Conditions govern Arnold's action. As relevant here, the April 2016 Terms contain the following provisions:

Any and all Claims will be resolved by binding arbitration, rather than in court , except [the user] may assert Claims on an individual basis in small claims court if they qualify. This includes any Claims [the user] assert[s] against [HomeAway], [its] subsidiaries, users or any companies offering products or services through [HomeAway] (which are beneficiaries of this arbitration agreement). This also includes any Claims that arose before [the user] accepted these Terms, regardless of whether prior versions of the Terms required arbitration.
There is no judge or jury in arbitration, and court review of an arbitration award is limited. However, an arbitrator can award on an individual basis the same damages and relief as a court (including statutory damages, attorneys'fees and costs), and must follow and enforce these Terms as a court would.
Arbitrations will be conducted by the American Arbitration Association (AAA) under its rules, including the AAA Consumer Rules.

HomeAway moved to compel arbitration in reliance on these provisions. HomeAway argued that, pursuant to the April 2016 Terms and the AAA Rules referenced therein, the parties had agreed to arbitrate threshold questions including "the existence, scope, or validity of the arbitration agreement." Arnold opposed the motion to compel, arguing that the September 2015 Terms and Conditions, which do not contain arbitration requirements, governed. He also claimed that, even if the April 2016 Terms applied, HomeAway's authority to modify any terms or conditions without providing notice rendered the arbitration provision illusory and unenforceable under Texas law.

The district court denied HomeAway's motion to compel arbitration. The court found that the April 2016 Terms applied because Arnold renewed a subscription for one of his HomeAway accounts in May 2016. However, the court held that, under Texas law, the arbitration provision was illusory because HomeAway had reserved the unilateral right to avoid arbitration at any point without notice. The court did not address HomeAway's contention that the April 2016 Terms contained a delegation clause requiring Arnold to arbitrate threshold questions regarding the arbitration provision. HomeAway filed a timely notice of appeal, as is authorized by the Federal Arbitration Act (FAA). See 9 U.S.C. § 16(a)(1)(B).

Although it resulted in a different outcome, the history of Seim's case is substantially similar. Seim also challenges HomeAway's imposition of traveler fees. HomeAway moved to compel arbitration under the February 2016 Terms and Conditions, which contained the same arbitration provision the April 2016 Terms did. As in Arnold's case, the district court did not address HomeAway's contention that a purported delegation clause required Seim to arbitrate threshold questions about the arbitration provision. However, the district court, applying Kentucky law, granted HomeAway's motion to compel arbitration. The court concluded that when Seim renewed a subscription for one of her properties and agreed to the February 2016 Terms, she agreed to arbitrate all claims against HomeAway, including any claims predating the February 2016 Terms. The district court entered a final judgment of dismissal, and Seim timely appealed.

II

We review a ruling on a motion to compel arbitration de novo. Kubala v. Supreme Prod. Servs. , 830 F.3d 199, 201 (5th Cir. 2016). The district court's factual findings in support of such ruling are reviewed for clear error. IQ Prods. Co. v. WD-40 Co. , 871 F.3d 344, 348 (5th Cir. 2017).

A

In Arnold's case, our analysis will proceed as follows: First, we consider whether Arnold is challenging the formation of his contract with HomeAway or the validity of that contract. Second, we address the putative delegation provision. Finally, we consider the breadth of Arnold's challenge to the arbitration provision. This inquiry leads us to conclude that Arnold is bound to arbitrate threshold questions relating to the arbitration provision.

When a party seeks to compel arbitration based on a contract, the first, and perhaps most obvious, question for the court is whether there is a contract between the parties at all. See Kubala , 830 F.3d at 201–02. In conducting this inquiry, we distinguish between "validity" or "enforceability" challenges and "formation" or "existence" challenges. See, e.g. , Rent-A-Center, W., Inc. v. Jackson , 561 U.S. 63, 70 n.2, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) ; Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 444 n.1, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). "[W]here the ‘very existence of a contract’ containing the relevant arbitration agreement is called into question, the federal courts have authority and responsibility to decide the matter." Banc One Acceptance Corp. v. Hill , 367 F.3d 426, 429 (5th Cir. 2004) (quoting Will-Drill Res., Inc. v. Samson Res. Co. , 352 F.3d 211, 218 (5th Cir. 2003) ). Though the difference between formation and validity may be unclear at the margins,2 the Supreme Court has suggested that the category of arguments that question the very existence of an agreement include "whether the alleged obligor ever signed the contract, whether the signor lacked authority to commit the alleged principal, and whether the signor lacked the mental capacity to assent." Buckeye Check Cashing , 546 U.S. at 444 n.1, 126 S.Ct. 1204 (citations omitted).

Arnold contends that the arbitration provision in the April 2016 Terms is illusory under Texas law.3 On its surface, an illusoriness challenge would appear to be in the nature of an existence challenge; illusory promises imply lack of adequate consideration, which affects contract formation. See, e.g. , RESTATEMENT (SECOND) OF CONTRACTS § 77 cmt. a (1981) ("Where the apparent assurance of performance is illusory, it is not consideration for a return promise."); 3 WILLISTON ON CONTRACTS § 7:11 (4th ed.) ("Where no consideration exists, and is required, the lack of consideration results in no contract being formed."). However, Arnold does not dispute the existence of a contract with HomeAway governed by the April 2016 Terms. Instead, he argues that the arbitration provision is an illusory promise on HomeAway's part and that, under Texas law, this renders the arbitration provision unenforceable. See, e.g. , J.M. Davidson, Inc. v. Webster , 128 S.W.3d 223, 236 (Tex. 2003). Under our precedent, Arnold's argument is in the nature of a validity challenge.

In Lefoldt for Natchez Regional Medical Center Liquidation Trust v. Horne, L.L.P. , 853 F.3d 804, 813–17 (5th Cir. 2017), we explained that Mississippi's "minutes rule," which requires that contracts with public entities be memorialized in the minutes of the entity's board meetings, sometimes operates as a rule of contract formation and sometimes as a rule of enforceability. With regard to one contract at issue in Lefoldt , the parties did not dispute that there was a contract, but the party resisting arbitration argued that the minutes rule "either foreclose[d] the possibility that there was an agreement to arbitrate or preclude[d] enforcement of the arbitration provision." Id. at 814. We relied on a Mississippi Supreme Court opinion stating, with respect to the minutes rule, that "the entire contract need not be placed on the minutes. Instead, it may be enforced where ‘enough of the terms and conditions of the contract are contained in the minutes for determination of the liabilities and obligations of the contracting parties without the necessity of resorting to other evidence.’ " Id. at 812 (cleaned up). This statement, we held, "unmistakably mean[t] that in some instances, the minutes rule is not a matter of contract formation but instead is a rule preventing consideration of evidence of the terms of the contract other than what is set...

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