By Arjan Bir Singh Sodhi
Wednesday’s Florida Supreme Court argument presented a foundational issue on the adoption of arbitration proceedings—more on the question of who decides whether a case is arbitrated, based on the incorporation into a consumer contract of a set of arbitration rules.
The Nov. 3 argument, in Airbnb v. Doe, No. SC 20-1167, explores whether contract provisions are “clear and unmistakable”—the case law standard—in allowing the arbitration tribunal to determine its jurisdiction, and in allowing an assessment of the evidence from the contract that the parties agreed to arbitrate arbitrability.
Both federal and Florida cases back Airbnb, the best-known accommodations rental app, in finding that by incorporating a set of contract rules—in the case, the American Arbitration Association Commercial Arbitration Rules—the parties are agreeing to have an arbitration tribunal decide whether a case is to be arbitrated.
But a Florida appeals court bucked the trend, and in a detailed opinion, found that the click-thru web interface didn’t provide adequate notice to the app users that they were agreeing to arbitration via a link to the rules which stated the arbitrability provision.
In the case, an anonymous Texas couple filed a complaint against Airbnb and the condominium owner who had listed the Florida property on the Airbnb platform. The complaint includes intrusion against the condo owner, and constructive intrusion against Airbnb. The plaintiff rented the condo for three days in 2016 and later learned that the owner had installed hidden cameras and recorded the couple without their knowledge.
The Does filed their complaint in the Manatee County, Fla., circuit court. Airbnb moved to compel to settle the dispute through an arbitration proceeding. Airbnb claimed that the Does are bound to an arbitration proceeding under the signed terms and conditions when they accepted the app’s click-wrap agreement—that is, the legal contract in the Airbnb online software in which the customer indicates acceptance by typing in yes, or selecting a particular icon or link before they may use the service.
The click-wrap agreement included a dispute resolution clause stating that the parties must arbitrate under the rules of the American Arbitration Association, with a link to the rules. The rules contain the provision that the determination of whether the case is arbitrable goes to the arbitrator, not a court.
The Manatee County Circuit Court granted Airbnb’s motion to compel the arbitration. But Florida’s Second District Court of Appeal reversed. John Doe & Jane Doe v. Natt & Airbnb Inc., 299 So. 3d 599 (Fla. 2d DCA 2020) (available at https://bit.ly/3BPYPcu). The appellate court held that reference does not clearly and unmistakably suppress the court’s power to decide the arbitrability. The decision noted that the click-wrap agreement is not clear enough on the issue of who should decide the jurisdiction of the arbitration proceedings. It stated that the reference “was broad, nonspecific, and cursory: the clickwrap agreement simply identified the entirety of a body of procedural rules. The agreement did not quote or specify any particular provision or rule. . . .”
The appeals court also held that AAA Commercial Arbitration Rule 7 on arbitrability is not an exclusive power for the arbitrator.
At Wednesday’s oral argument, Joel S. Perwin, who heads his eponymous Miami law firm, argued on behalf of petitioner Airbnb that the click-wrap clause covered everything, including the arbitrator’s resolution of deciding the arbitrability.
Justice Carlos G. Muñiz asked Perwin to clarify whether parties who accept the contract are expected to understand caselaw and legal language—whether they should understand that the courts have deemed such agreements referring to rule to be a “clear and unmistakable” indication that arbitrability goes to the tribunal.
Perwin replied that he does not expect the parties to read the case law. “I would never suggest that,” he said. But he quickly added that the parties “are required to read the [contract] language.” He cited the “overwhelming weight of the authority” to indicate that the incorporation of the rules is accepted and customary.
Perwin addressed the parties’ sophistication, which was an argument that the Does made against the effectiveness of the click-wrap agreement. He said the Does introduced no evidence that they were not sophisticated, and added that the parties’ sophistication level is not even a relevant factor in the matter.
He said that in applying an objective test—Is the contract clear and unambiguous?–as to whether the agreement applies doesn’t depend on an analysis of the parties’ sophistication. “This language is clear and unambiguous as a matter of law,” he said.
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Thomas Seider, an attorney in the Tampa, Fla., office of Brannock Humphries & Berman, arguing on behalf of the respondents, the Does, opened by noting that arbitration is a matter of consent. He said the question is whether the respondents gave their consent to the arbitration proceedings.
Justice Ricky Polston strongly suggested that while looking at federal law, the AAA rules, and the incorporation by reference of the rules into the contract, that the rules indeed are a part of the contract.
Justice Polston asked why, in reading AAA Rule 7, it wasn’t clear and unmistakable that that arbitrators have the ability to decide the jurisdiction. Focusing on the contract language, Seider argued that the Does only needed to read the rules if they needed to know, for example, about how the arbitration would be conducted, or the costs, not the “condition precedent” question of whether the case was subject to arbitration.
Justice John D. Couriel was skeptical. “The trouble with the argument is that none of this is in the contract,” he said. Seider replied that if the consumer gets to the rule, then the party would understand that the arbitrator decides. But even then, Seider noted, the language itself was “permissive but not mandatory.”
Couriel pressed Seider on the language. Seider said that the AAA Rule 7 language—”The arbitrator shall have the power to rule on his or her own jurisdiction”—did not exclude a decision by a court on arbitrability.
Justice Alan Lawson asked about the agreement language and whether it satisfied the “clear and unmistakable” standard for a delegation, which derives from First Options of Chicago Inc. v. Kaplan, 514 U.S. 938 (1995 (available at http://bit.ly/2WEXGnF). He said it is “basic contract interpretation,” and “you apply the basic rules” on whether the contract reflects what the parties agreed to—in this instance, whether there was a “clear and unmistakable” parties’ agreement on the arbitrator deciding arbitrability. He asked “whether the rules count” in determining what the parties agreed to under the contract.
Seider agreed that the rules count in reading the contract, and Lawson asked whether the rules’ language is clear and unmistakable evidence. Lawson said that in analyzing the contract, look at the whole agreement, leaving the rules to return to the first part of the contract, “the more conspicuous part”: The first page which incorporates the AAA rules. With that, said Lawson, “it just seems pretty straightforward” that the parties agreed to arbitrate.
Seider said that “the clear and unmistakable standard is not supposed to require these inferential leaps” with cross-referenced rules, which he said are recognized by the U.S. Supreme Court as arcane. He said people do not understand the concept of arbitrability.
Justice Jorge Labarga was more sympathetic to the respondents’ argument. He said that consent must be waived for arbitration, adding, “And what I’m hearing here today is that the agreement–they can attach as many attachments as they want to online, you can have 100,000 pages, and in there, in a footnote, someplace they can say, ‘Oh, by the way the arbitrator gets to decide whether this goes to arbitration or not,’ and that is OK as long . . . as it is a part of the text of the package.”
Seider quickly agreed that burying provisions in the agreement will become the norm. Justice Lawson asked about the need for conspicuous language, and Seider conceded that First Options doesn’t discuss that point in defining “clear and unmistakable.”
Justice Couriel asked Seider to clarify if there is a clear statement in the contract on how it will affect people’s rights, and how Airbnb encourages parties to read terms and conditions carefully. He asked if the advisory was “over and above” the First Options requirements.
Seider agreed that Airbnb advises parties to read the terms and conditions. He countered that reading and understanding about 60 pages of procedures and rules are hard to understand and is not clear and unmistakable.
Justice Polston wasn’t convinced, noting that the rules “were there.” Seider said they were, but again stressed that a court arbitrability determination was not excluded by AAA Rule 7.
Justice Carlos G. Muñiz asked Tom Seider to clarify why previous case law has been overwhelmingly against the petitioners. Seider said that early decisions didn’t thoroughly analyze the question of arbitrability. He pointed out a lack of discussion on how contract language can be clear and unmistakable. “The analytical foundation of these cases really isn’t there,” concluded Seider.
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Airbnb attorney Joel Perwin rebutted, noting five points:
1. Every case is decided on its own merits and facts.
2. The test for clear and unmistakable is a matter of federal law. Justice Polston pushed back and agreed that arbitrability is a federal concept, but strongly noted that contract review is state law.
3. Party sophistication is not an issue because “clear and unmistakable” is an objective test. There is no evidence to prove that the Does are not sophisticated enough to understand the click-wrap agreement, Perwin emphasized, but regardless, it is an objective test.
4. Addressing Tom Seider’s argument that Rule 7 is permissive, Perwin noted that the language is clear enough for anyone reading it to understand that the arbitrator has “the power” to decide the matter. That is why the courts have said that when arbitrators are designated to get the power under the contract and nothing is said about the courts, it means the arbitrators have the power to decide alone.
5. The statute and contract should not be interpreted to be unreliable on arbitrability. In the past, courts have been clear on these issues.
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The Nov. 4 oral arguments in Airbnb v. Doe, which were televised and streamed on several web outlets including Facebook, are archived on YouTube at https://bit.ly/3EJ0rqa. The full Florida Supreme Court docket on the case, with links to documents, is available at https://bit.ly/3GYoZxe.
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The author, a CPR 2021 Fall Intern, is an LLM candidate at the Straus Institute for Dispute Resolution, at Malibu, Calif.’s Pepperdine University Caruso School of Law.