“Arbitration agreements may be less fun than a night out with friends.” So said the Sixth Circuit in a recent case involving Domino’s Pizza. Blanton v. Domino’s Pizza Franchising LLC, No. 19-2388 (6th Cir. June 17, 2020) (click here for a copy of the decision).
In this case, a Domino’s worker filed an antitrust claim against the company, challenging the company’s non-solicitation restrictions, which prevent Domino’s franchisees from hiring workers from other Domino’s franchisees. The arbitration agreement, which incorporated the AAA’s rules, was between the worker and the local franchisee, not the franchisor Domino’s. Must this dispute against the non-signatory Domino’s be arbitrated?
Ultimately, the Sixth Circuit held that the incorporation of the AAA’s rules satisfied the “clear and unmistakable” evidence standard such that an arbitrator would decide whether the antitrust claim against the non-signatory Domino’s must be arbitrated.
My two cents: I am troubled by the delegation of arbitrability to an arbitrator. Did the Domino’s worker here “clearly and unmistakably” understand that he would arbitrate whether he agreed to arbitrate? The landmark 2015 CFPB study and report to Congress found that most people do not understand the significance or impact of an arbitration agreement to begin with. It is a pure fiction to find that someone agreed to arbitrate whether they agreed to arbitrate. Moreover, the Sixth Circuit determined that the Domino’s worker here agreed to arbitrate whether he agreed to arbitrate based on the incorporation by reference of the AAA’s rules. To me, the court’s ruling seems absurd. But this ship of delegation of arbitrability has long sailed, and most courts would reach the same conclusion. Courts today routinely enforce delegation clauses and arbitrators decide their own jurisdiction.
Moving on from my two-cent soapbox, the Sixth Circuit decision is notable for its detailed, thoughtful analysis of delegation. Below are a few interesting points regarding delegation made by the court:
- The court observed there is a split of authority whether state law or federal law governs the issue of whether parties “clearly and unmistakably” agreed to arbitrate arbitrability. According to the Sixth Circuit, federal law governs the issue, although a minority of courts say state law governs.
- This case involves a worker, a signatory to the arbitration agreement, who is opposing arbitration. The court indicated that delegation would not occur if the party opposing arbitration was a non-signatory.
- In a footnote the court questioned whether Domino’s, as a non-signatory, had the right to enforce the delegation agreement, whereby the arbitrator determines arbitrability. However, because the parties had not raised this antecedent question, the court did not address it. This footnote may give future parties a tiny window of an argument to avoid delegation in circumstances where a non-signatory is trying to rely on a delegation clause to compel arbitration. (Hat tip to Richard Faulkner, who recently reminded me that this issue of a non-signatory exists in the Henry Schein case the Supreme Court agreed to hear this week, but the Supreme Court granted cert in Schein on another question involving carve-outs and delegation.)