Bekele v. Lyft, Inc.

• Decision Date: 13 March 2019
• Docket Number: No. 16-2109,16-2109
• Citation: 918 F.3d 181
• Parties: Yilkal BEKELE, Plaintiff, Appellant, v. LYFT, INC., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

918 F.3d 181

Yilkal BEKELE, Plaintiff, Appellant,

v.LYFT, INC., Defendant, Appellee.

No. 16-2109

United States Court of Appeals, First Circuit.

March 13, 2019

Shannon Liss-Riordan, with whom Adelaide H. Pagano and Lichten & Liss-Riordan, P.C., Boston, MA, were on brief, for appellant.

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

Evan M. Tager, with whom Archis A. Parasharami, Matthew A. Waring, and Mayer Brown LLP, Washington, DC, were on brief, for appellee.

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

Before Lynch, Circuit Judge, Souter,^* Associate Justice, and Stahl, Circuit Judge.

LYNCH, Circuit Judge.

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, 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 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 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.

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, 116 S.Ct. 1652, 134 L.Ed.2d 902 (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) 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 granted certiorari in Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016), cert. granted, ––– U.S. ––––, 137 S.Ct. 809, 196 L.Ed.2d 595 (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, ...