Last week, the Eleventh Circuit issued a notable opinion for anyone drafting an arbitration clause. Calderon v. Sixt Rent A Car, LLC, No. 20-10989 (11th Cir. July 14, 2021) (click here for a copy of the decision). The court’s close parsing of the arbitration clause reveals some potential drafting pitfalls, and the court also does something unusual with the well-established Moses H. Cone presumption that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” The court ripped the Moses H. Cone presumption to shreds.
The case involved a car rental dispute where the consumer arranged for the rental through Orbitz.com. At first glance, it would appear that the scope of the arbitration clause covered the claims at issue. Orbitz’s arbitration agreement covered “any Claims you assert against us [Orbitz], our subsidiaries, travel suppliers or any companies offering products or services through us, including Suppliers, (which are the beneficiaries of this arbitration agreement).” The rental car company, which offers services through Orbitz, would appear to be covered by this broad language. However, the Eleventh Circuit closely parsed other language in the arbitration agreement in a thoughtful manner to find ambiguity and give a narrow reading to the scope of the arbitration clause. For example, the court construed other language in the agreement concerning “services or products” to refer solely to services or products offered directly by Orbitz. Also, other language required that disputes must first be brought to an “arbitration claim manager” at Orbitz’s legal department, and this manager would have 60 days to attempt to resolve the dispute informally. The court reasoned that it is unlikely that a claim against the rental car company would first have to go through Orbitz’s legal department, since Orbitz would have no authority to resolve such a dispute. Ultimately, the Eleventh Circuit found that the claims against the rental car company were not covered under Orbitz’s arbitration clause.
In sum, the language of the arbitration agreement at first glance appears to cover the dispute at hand (any claims against “any companies offering products or services through us”), but the court construed other language in the agreement as creating an ambiguity. It seems that Orbitz could have cleared up the ambiguity with some better drafting, such as by providing that the 60-day attempt at informal resolution would apply broadly to all claims, including those asserted against third-party service providers.
But notice, if there is ambiguity regarding the scope of the clause, the well-established presumption from the Supreme Court’s Moses H. Cone case should kick in. According to the 1983 Supreme Court decision in Moses H. Cone Memorial Hospital v. Mercury Construction Co., “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” I believe another court faced with this exact fact pattern and applying the Moses H. Cone presumption would reach the opposite conclusion and compel arbitration, which is contrary to what the Eleventh Circuit does here. The Eleventh Circuit cleverly reasoned that this Moses H. Cone presumption only applies to arbitration agreements within the scope of the FAA, and the FAA in turn only applies to disputes that arise out of a contract pursuant to section 2 of the FAA. The Eleventh Circuit reasoned that the claims against the rental car company do not arise out of the contract with Orbitz, and so they fall outside the scope of the FAA. Hence, the Moses H. Cone does not apply here.
If the Eleventh Circuit would apply this contract limitation from section 2 in other settings, such as cases involving tort claims or civil rights claims or statutory claims, the court would find that many claims are simply not arbitrable under the FAA, which I believe is the original intent of the FAA. There are claims that do not arise out of a party’s contract and can be asserted without reference to a contract, and under a close textual reading of the FAA, such claims should not be covered by the FAA. 9 U.S.C. § 2 (FAA’s coverage is limited to written provisions in a contract “to settle by arbitration a controversy thereafter arising out of such contract”). Of course, such a textual reading of the FAA would undermine the last 40 plus years of Supreme Court precedent, like the Mitsubishi or Gilmer cases. But I believe this textual reading is correct.
Furthermore, a judge from the Eleventh Circuit panel issued a concurring opinion in which he shreds the legitimacy of the Moses H. Cone presumption, pointing out – correctly – that this presumption has no basis in the text of the FAA, and that this presumption is borrowed from labor law arbitration. It’s been a while since I have seen such a strong judicial critique of FAA precedent, and such a close textual analysis of the FAA could tear down other FAA doctrines.