This blog has occasionally advised corporate counsel to review their company’s arbitration agreements for scope and clarity. This is another such warning. Simply put, buttoned-up contracts containing arbitration provisions (including class action waivers) prevent class action exposure. But as Sixt Rent A Car just found out, less carefully drafted provisions result in class action litigation in court. And as Judge Newsom warned in a concurrence to his own opinion, companies had best not rely on a substantive canon of interpretation that arbitration is favored because that canon is inconsistent with the textual approach to interpretation favored by the current Supreme Court majority.
Customers who make hotel, airline, and car rental reservations on Orbitz.com agree to contracts that require arbitration of disputes related to “any services or products provided.” The dispute in Calderon v. Sixt Rent A Car, LLC, however, involved services provided by a company that did business through Orbitz.com. The plaintiff rented a car from Sixt Rent A Car through Orbitz.com. He had no complaints about his interactions with Orbitz. Rather, when he returned the car to Sixt, it claimed he had damaged it, an allegation the plaintiff disputed. The plaintiff filed a class action against Sixt alleging breach of contract and violation of consumer protection statutes. He did not sue Orbitz, but Sixt sought to rely on the Orbitz arbitration contract to compel arbitration. The district court denied the motion to compel arbitration because the suit concerned Sixt’s practices, not Orbitz’s. It reasoned that the “services” and “products” provided by Sixt were not covered by the arbitration clause in the Orbitz contract. The Eleventh Circuit affirmed, reasoning that the Orbitz contract defined “services” to encompass only Orbitz’s services, not related services by Sixt.
The majority also rejected Sixt’s attempt to invoke the Moses H. Cone canon of construction that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” It held that this canon emanated from the Federal Arbitration Act and thus applied only to agreements within the coverage of the act. But the FAA only applies to controversies that arise out of the contract containing the arbitration agreement, and the court had decided that the dispute with Sixt didn’t arise out of the Orbitz contract. Thus, the strong pro-arbitration canon equally didn’t apply.
Judge Newsom issued an interesting concurrence to his own opinion. He called the Moses H. Cone rule of construction “among the most dubious of the so-called ‘substantive’ interpretive canons.” He said it was divorced from the text of the FAA and therefore was “just made up.” He pointed out that the courts that first used it transplanted it from an altogether different statute, section 203(d) of the Taft-Hartley Act of 1947. He also criticized the canon as an “aggressively purposivist reading of the FAA.” Although Congress had put arbitration agreements on equal footing with other contracts, the courts, including the Supreme Court in Moses H. Cone, had improperly put them on a pedestal. As a substitute canon of interpretation, the Moses H. Cone rule “[had] little (if anything) to do with a text’s ordinary meaning” but rather instructed courts to “favor certain substantive policies in interpreting that text.” He noted that then-Professor Amy Coney Barrett had observed in a 2010 law review article that substantive canons “are in significant tension with textualism … insofar as their application can require a judge to adopt something other than the most textually plausible meaning of a statute.” Judge Newsom also expressed the view that such canons not firmly grounded in the written or common law are “on extremely thin ice.” He concluded by agreeing with Justice Kagan that, to one extent or another, “we’re all textualists now.” Given that, he believes the Moses H. Cone canon should be abandoned.
Corporate counsel take note. You would be wise to review your company’s arbitration provisions periodically in light of current company practices. Make sure the text says exactly what you want it to say, because the day of relying on substantive canons in favor of arbitrability may be coming to a close.
Calderon v. Sixt Rent A Car, LLC, No. 20-10989 (11th Cir. July 14, 2021)