Ivan Arnold v. HomeAway, Incorporated
Opinion
Plaintiffs Ivan Arnold and Deirdre Seim filed separate lawsuits against Defendant HomeAway, Inc. 1 In each case, HomeAway sought to compel arbitration. Concluding that both Seim and Arnold are bound to arbitrate threshold arbitrability questions, we REVERSE the judgment of the district court in Arnold's case and AFFIRM the judgment in Seim's. We REMAND both cases with instructions to compel arbitration.
I
HomeAway owns and operates several websites that facilitate short-term "vacation"
*549 rentals. HomeAway's sites connect homeowners and property managers with travelers who book their properties online. Arnold and Seim are both HomeAway subscribers who list properties on HomeAway's websites.
Arnold filed a putative class-action complaint alleging, chiefly, that HomeAway's February 2016 imposition of service fees for travelers was contrary to its prior representations and resulted in a variety of state-law violations. HomeAway argues that its April 2016 Terms and Conditions govern Arnold's action. As relevant here, the April 2016 Terms contain the following provisions:
Any and all Claims will be resolved by binding arbitration, rather than in court , except [the user] may assert Claims on an individual basis in small claims court if they qualify. This includes any Claims [the user] assert[s] against [HomeAway], [its] subsidiaries, users or any companies offering products or services through [HomeAway] (which are beneficiaries of this arbitration agreement). This also includes any Claims that arose before [the user] accepted these Terms, regardless of whether prior versions of the Terms required arbitration.
There is no judge or jury in arbitration, and court review of an arbitration award is limited. However, an arbitrator can award on an individual basis the same damages and relief as a court (including statutory damages, attorneys' fees and costs), and must follow and enforce these Terms as a court would.
Arbitrations will be conducted by the American Arbitration Association (AAA) under its rules, including the AAA Consumer Rules.
HomeAway moved to compel arbitration in reliance on these provisions. HomeAway argued that, pursuant to the April 2016 Terms and the AAA Rules referenced therein, the parties had agreed to arbitrate threshold questions including "the existence, scope, or validity of the arbitration agreement." Arnold opposed the motion to compel, arguing that the September 2015 Terms and Conditions, which do not contain arbitration requirements, governed. He also claimed that, even if the April 2016 Terms applied, HomeAway's authority to modify any terms or conditions without providing notice rendered the arbitration provision illusory and unenforceable under Texas law.
The district court denied HomeAway's motion to compel arbitration. The court found that the April 2016 Terms applied because Arnold renewed a subscription for one of his HomeAway accounts in May 2016. However, the court held that, under Texas law, the arbitration provision was illusory because HomeAway had reserved the unilateral right to avoid arbitration at any point without notice. The court did not address HomeAway's contention that the April 2016 Terms contained a delegation clause requiring Arnold to arbitrate threshold questions regarding the arbitration provision. HomeAway filed a timely notice of appeal, as is authorized by the Federal Arbitration Act (FAA).
See
Although it resulted in a different outcome, the history of Seim's case is substantially similar. Seim also challenges HomeAway's imposition of traveler fees. HomeAway moved to compel arbitration under the February 2016 Terms and Conditions, which contained the same arbitration provision the April 2016 Terms did. As in Arnold's case, the district court did not address HomeAway's contention that a purported delegation clause required Seim to arbitrate threshold questions about the arbitration provision. However, the district *550 court, applying Kentucky law, granted HomeAway's motion to compel arbitration. The court concluded that when Seim renewed a subscription for one of her properties and agreed to the February 2016 Terms, she agreed to arbitrate all claims against HomeAway, including any claims predating the February 2016 Terms. The district court entered a final judgment of dismissal, and Seim timely appealed.
II
We review a ruling on a motion to compel arbitration de novo.
Kubala v. Supreme Prod. Servs.
,
A
In Arnold's case, our analysis will proceed as follows: First, we consider whether Arnold is challenging the formation of his contract with HomeAway or the validity of that contract. Second, we address the putative delegation provision. Finally, we consider the breadth of Arnold's challenge to the arbitration provision. This inquiry leads us to conclude that Arnold is bound to arbitrate threshold questions relating to the arbitration provision.
When a party seeks to compel arbitration based on a contract, the first, and perhaps most obvious, question for the court is whether there is a contract between the parties at all.
See
Kubala
,
Arnold contends that the arbitration provision in the April 2016 Terms is illusory under Texas law.
3
On its surface, an illusoriness challenge would appear to be in the nature of an existence challenge; illusory promises imply lack of adequate consideration, which affects contract formation.
See, e.g.
, RESTATEMENT (SECOND) OF CONTRACTS § 77 cmt. a (1981) ("Where the apparent assurance of performance is illusory, it is not consideration for a return promise."); 3 WILLISTON ON CONTRACTS § 7:11 (4th ed.) ("Where no consideration
*551
exists, and is required, the lack of consideration results in no contract being formed."). However, Arnold does not dispute the existence of a contract with HomeAway governed by the April 2016 Terms. Instead, he argues that the arbitration provision is an illusory promise on HomeAway's part and that, under Texas law, this renders the arbitration provision unenforceable.
See, e.g.
,
J.M. Davidson, Inc. v. Webster
,
In
Lefoldt for Natchez Regional Medical Center Liquidation Trust v. Horne, L.L.P.
,
The Texas law at issue here is similar to the minutes rule at issue in
Lefoldt
inasmuch as the existence of the parties' agreement is separate from the enforceability of the arbitration provision.
See
In re AdvancePCS Health LP,
an arbitration provision that is part of a larger underlying contract may be supported by the consideration supporting the underlying contract. ... But such an arbitration provision remains illusory if the contract permits one party to legitimately avoid its promise to arbitrate, such as by unilaterally amending or terminating the arbitration provision and completely escaping arbitration.
Royston, Rayzor, Vickery & Williams, LLP v. Lopez
,
Under the FAA, parties are free to delegate questions to an arbitrator, including questions regarding the validity and scope of the arbitration provision itself.
See
Rent-A-Center
,
Arnold's attempts to otherwise distinguish
Petrofac
are unpersuasive. First, he argues that
Petrofac
and
Cooper v. WestEnd Capital Management
, L.L.C.,
Moreover, as explained by the Supreme Court, the clear-and-unmistakable standard concerns "the parties'
manifestation of intent
, not the agreement's
validity
."
Rent-A-Center
,
*553
Arnold next argues that
Petrofac
and its progeny are distinguishable because he was never provided the AAA rules. But, again, for present purposes, we are concerned with whether the parties manifested intent to arbitrate threshold questions, not whether Arnold's agreement to incorporate the AAA rules was valid.
See
Arnold's final argument is that the text of the April 2016 Terms is distinguishable from the contracts at issue in
Petrofac
and its progeny because those cases did not involve "an arbitration clause that expressly reserved some categories of claims for judicial resolution rather than arbitration." The April 2016 Terms state that "[a]ny and all Claims will be resolved by binding arbitration, rather than in court, except [the user] may assert Claims on an individual basis in small claims court if they qualify." (emphasis omitted). Arnold does not contend that his claims qualify for disposition in small claims court. The mere fact that an arbitration provision does not apply to every possible claim does not render the parties' intent to delegate threshold questions about that provision less clear.
See
Crawford Prof'l Drugs
,
Because the April 2016 Terms expressly incorporate the AAA rules, the parties have clearly and unmistakably demonstrated their intent to delegate.
See
Petrofac
,
The Supreme Court has held that "a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator."
Buckeye Check Cashing
,
In
Rent-A-Center
, the plaintiff filed an employment-discrimination claim against his former employer, who then moved to compel arbitration based on an arbitration agreement containing a purported delegation provision.
Arnold's contention is that the arbitration provision as a whole is unenforceable under Texas law. Because his challenge is not specific to the delegation clause, Arnold must present it to an arbitrator.
See
Rent-A-Center
,
B
Under the preceding principles, the resolution of Seim's appeal is straightforward. Seim states in her opening brief that when one of her subscriptions "came up for renewal in March 2016, ... it came under the February [2016] Terms." She also asserts that she "does not dispute that the arbitration provision applied to [one of her properties], even retroactively."
6
Thus, Seim concedes that the February 2016 Terms "contains an arbitration clause" that "covers some set of claims."
IQ Prods.
,
Because the February 2016 Terms contain the same delegation clause as the April 2016 Terms, they too contain clear and unmistakable evidence of the parties' intent to delegate gateway questions like scope to an arbitrator.
See
Petrofac
,
***
For these reasons, we REVERSE the judgment of the district court in *555 No. 17-50088 and REMAND with instructions to grant the motion to compel arbitration, and we AFFIRM the judgment of the district court in No. 17-50102 and REMAND with instructions to grant the motion to compel arbitration.
Although these appeals are not consolidated, given the similarities between these two cases, which are on appeal from the same district court, we resolve both in a single opinion.
See generally George A. Bermann, The "Gateway" Problem in International Commercial Arbitration , 37 YALE J. INT'L L. 1, 32-36 (2012) (discussing treatment of various validity and/or formation issues).
For reasons made clear below, we find it unnecessary to address the conflicts-of-law question briefed by the parties as, even assuming Arnold is correct in his assertion that Texas law governs, he is bound to arbitrate.
We do not mean to imply that state law is wholly irrelevant to the clear-and-unmistakable analysis. Arnold's contention is that the substance of the threshold itself is governed by Texas law, a proposition squarely refuted by the Supreme Court's explanation in
Kaplan
. See
We note that, to date, no circuit court has adopted Arnold's proposed approach. As the Ninth Circuit observed, "the vast majority of the circuits that hold that incorporation of the AAA rules constitutes clear and unmistakable evidence of the parties' intent [to delegate] do so without explicitly limiting that holding to sophisticated parties or to commercial contracts."
Brennan v. Opus Bank
,
In light of this clear concession, and because her opening brief challenges only the application of the February 2016 Terms to four of her five properties, while repeatedly acknowledging that she agreed to the February 2016 Terms, we will not address the inconsistent arguments raised in her reply brief.
Cf.
Hosp. House, Inc. v. Gilbert
,
Reference
- Full Case Name
- Ivan ARNOLD, an Individual, on Behalf of Himself and All Others Similarly Situated, Plaintiff-Appellee v. HOMEAWAY, INCORPORATED, Defendant-Appellant and Deirdre Seim, Individually, and on Behalf of All Others Similarly Situated, Plaintiff-Appellant v. Homeaway, Incorporated, a Delaware Corporation, Defendant-Appellee
- Cited By
- 76 cases
- Status
- Published