The Fait Accompli Exception

Smythe v. Uber Techs., Inc., No. A149891 (D1d3 Jun. 8, 2018)

This is kind of interesting. You might have noticed that ridesharing drivers often have both Lyft and Uber stickers on their cars. Plaintiff here is one of those guys. He’s suing Uber in his capacity as a Lyft driver, alleging that Uber engages in unfair business practices by encouraging people to set up fake Lyft accounts and send its drivers on wild goose chases. But Plaintiff's driver contract with Uber has an arbitration clause in it, so the question is whether his obligation to arbitrate with Uber extends to claims arsing from driving for its competitor.

You don’t need to be Farnsworth to get that the case isn’t arbitrable under the text of the agreement. The clause is broad; it requires arbitration of disputes “arising from or related to” Plaintiff’s driver agreement with Uber. But it’s not so intergalactic that it includes every possible dispute between Plaintiff and Uber, such as a dispute arising from Plaintiff's injury sustained while working for an Uber competitor.

But the arb agreement has a delegation clause. It says, contrary to the general rule, questions about arbitrability go to the arbitrator. So Uber says the court should have compelled arbitration nonetheless, and then it was up to the arbitrator to find that Plaintiff’s claims in his capacity as a Lyft driver don’t arise from or relate to his Uber driver contract and send him back to court accordingly. 

Of course, it seems rather wasteful to pay an arbitrator a couple of grand to entertain motion practice over what is evident from the face of the contract. That said, Uber probably thought it worth a shot, because an arbitrator addressing his or her future employment as an arbitrator has a pretty big financial incentive to find some potential ambiguity to be interpreted in favor of arbitration. Which is why I’ve always believed that delegating the arbitrability question to the same arbitrator who is going to get paid to hear the merits is problematic. (I’ve lost that argument, for now.)

In any event, there’s apparently an exception to the delegation rule, at least in some federal cases, as well as dicta in a 2004 Court of Appeal case and a 1957 decision of the California Supreme Court. Under these cases, even if arb clause clearly and unmistakably delegates arbitrability questions to the arbitrator, courts can still decline to do so when a party’s assertion of arbitrability is “wholly groundless.” And since that was the case here, the superior court didn’t err in denying Uber’s motion to compel arbitration, even if just for the threshold question.

Affirmed.