Category: Arbitration Issues

By Gerald L. Maatman, Jr., Tiffany Alberty, and Brett Bohan

Duane Morris Takeaways: On April 14, 2026, in Brant, et al v. Parking Revenue Recovery Services, Inc., Case No. 1:25-CV-01771 (D. Colo. Apr. 14, 2026), Judge Gordon P. Gallagher of the U.S. District Court for the District of Colorado granted Defendant Parking Revenue Recovery Services, Inc.’s motion to compel arbitration. Plaintiffs, a group of parking lot customers who brought a putative class action, argued that they never agreed to arbitrate and that any arbitration clause was unconscionable. The Court rejected both arguments, finding that by parking in the lots, Plaintiffs assented to the terms posted on conspicuous signs — including a binding arbitration clause — and that the clause was not unconscionable. This ruling reinforces that businesses can form enforceable contracts, including arbitration agreements, through conspicuously posted signage, and that consumers who fail to read posted terms are nonetheless bound by them.

Case Background

Plaintiffs Brian Brant, Brooke Fitz, Robert Caldwell, and Mayenssi Montiel each parked at various parking garages managed by Defendant Parking Revenue Recovery Services, Inc. (“PRRS”) in Denver and Little Rock between 2023 and 2025. (ECF 36 at 1-2) At each of these lots, PRRS posted large red signs at the entrances, exits, and pay stations. (Id. at 2-14) The signs stated, in relevant part, “This is a Contract,” instructed customers to “Read these terms PRIOR to parking,” and included a capitalized, boldfaced “ARBITRATION” heading explaining that “[b]y parking on this Facility, you hereby agree that the sole remedy for all unresolved disputes is binding arbitration, and specifically waive the right to jury trial, class action and/or class arbitration”. (Id.)

Each of the Plaintiffs claimed they did not see the signs. (Id. at 7, 12, and 14.) Some faulted the location, lighting, and number of signs, while others argued there were no gates or speed bumps to slow drivers down enough to read the posted terms. (Id.)

The Court’s Order

The Court granted PRRS’s motion to compel arbitration, addressing both of Plaintiffs’ arguments against enforcement. (Id. at 16-21.)

First, as to whether a valid agreement to arbitrate existed, the Court noted that two other courts in Colorado had recently addressed the same issue with the same defendant. (Id. at 16.) Adopting the analysis of Chief Judge Daniel D. Domenico in Butler v. Asura Technologies USA, Inc., the Court held that a contract was formed when Plaintiffs manifested assent to the implied terms of the parking agreement by choosing to park in the lots. (Id. at 17.) The Court emphasized that the fundamental exchange — temporary use of a parking spot in exchange for a promise to pay — was sufficient to establish contract formation, and that the operator of a parking lot may modify or add to the basic terms by posting signs. (Id.) The Court analogized the posted signage to online “clickwrap” contracts, noting that users of such contracts are regularly bound by terms they never actually read. (Id. at 19.) Accordingly, whether Plaintiffs chose to read the signs was irrelevant because they agreed to the posted terms when they decided to park their cars on PRRS’s lots. (Id. at 18.)

The Court also rejected Plaintiffs’ argument that the arbitration clause was insufficiently specific because it lacked details regarding the scope, rules, or effect of any arbitration ruling. (Id. at 19.) Citing the Supreme Court of Colorado’s long-standing precedent in Guthrie v. Barda, 533 P.2d 487 (Colo. 1975), the Court held that a clause stating disputes “shall be submitted to binding arbitration” is sufficient and enforceable, even without additional procedural details. (Id.)

Second, the Court addressed Plaintiffs’ unconscionability defense. Applying the seven-factor test under Colorado law, the Court acknowledged that the first factor — a standardized agreement between parties with unequal bargaining power — may point toward unconscionability but noted that consumer contracts of adhesion are ubiquitous in modern commerce. (Id. at 20.) The remaining factors, however, weighed against a finding of unconscionability: Plaintiffs had the opportunity to review the terms before parking, the arbitration provision was written in large font against a contrasting red background and arbitration is a commercially reasonable method of dispute resolution. (Id.) The Court concluded bluntly that “if Plaintiffs did not wish to agree to the terms, they could have parked somewhere else.” (Id. at 21.)

The Court ordered the case stayed and administratively closed pending the conclusion of arbitration. (Id. at 22.)

Implications For Employers And Businesses

The Court’s decision in Brant v. Parking Revenue Recovery Services, Inc. affirms that conspicuously posted signage can create binding arbitration agreements with consumers, even in the absence of a signed written contract, a clickthrough mechanism, or any affirmative acknowledgment. For businesses that rely on physical signage to communicate contractual terms — including parking operators, event venues, and service providers — this decision provides a roadmap for drafting and displaying enforceable arbitration clauses. Specifically, businesses should ensure that their signs are prominently displayed, use clear language and contrasting formatting, and explicitly state that use of the premises constitutes acceptance of the posted terms, including arbitration. The decision also reinforces that a consumer’s failure to read posted terms does not relieve them of their contractual obligations, further underscoring the importance of adequate notice over actual knowledge.

By Gerald L. Maatman, Jr., Eden Anderson, Rebecca Bjork, Olga Romadin

Duane Morris Takeaways: On January 28, 2026, in Avery, et al. v. TEKsystems, Inc., 2026 U.S. App. LEXIS 2091, Case No. 24-5810 (9th Cir. Jan 27, 2026), the Ninth Circuit issued an order affirming a district court’s denial of an employer’s motion to compel arbitration. TEK, an IT staffing company, appealed a decision by the district court that declined to enforce arbitration under an agreement it had rolled out after a class certification ruling by a group of recruiters alleging unpaid overtime. The Ninth Circuit found that TEK had issued misleading communications with the arbitration agreement, and had inverted the class opt-out proceedings by requiring putative class members to opt out of the agreement to remain in the litigation. The decision highlights the impact that the choice of language employers utilize in communicating about arbitration agreements has on future litigation and underscores the authority of district courts in procedural considerations when an entire arbitration agreement is challenged.

Case Background

Four plaintiffs brought a putative class action in 2022, alleging that the defendant, a staffing agency specializing in placing IT professionals on temporary assignments, had violated California wage and hour laws by misclassifying recruiters as exempt from overtime and failing to provide meal and rest breaks. Id. at 6. Following nearly two years of litigation and a ruling by the District Court for the Northern District of California granting class certification, TEK implemented a new mandatory arbitration agreement that was automatically applicable to putative members of the class action via a series of emails sent around the holiday season. Id. at 6-8. The emails contained language referring to “exorbitant fees” of class action litigation and disparaged them as “wasteful” and “inefficient.”  Id. at 3. The new arbitration agreement precluded class members from participating in the class automatically and required individuals wishing to remain in the class to either resign their positions or to affirmatively opt out of the arbitration agreement. Id. at 12. TEK then moved to compel arbitration.

The District Court denied the motion. It found that the new arbitration agreement was implemented in a manner that was misleading and that the “unilateral” communication of the new arbitration agreement “threatened the fairness of litigation“ and subverted Rule 23’s opt-out procedure by turning it into an opt-in proceeding.  Id. at 5.

On appeal, TEK argued that the district court had erred in denying its motion to compel arbitration because it had no authority to invalidate a binding arbitration agreement under Federal Rule of Civil Procedure 23(d). TEK’s argument was rooted in its reading of Rule 23(d) as limiting a district court’s authority to impose conditions on defendants, and also argued that under the Federal Arbitration Act (FAA) a procedural rule could not be used to invalidate an arbitration agreement.

The Ninth Circuit’s Decision

A unanimous panel of the Ninth Circuit affirmed the district court’s decision declining to enforce the motion to compel arbitration.

The Court of Appeals found that under Rule 23(d), the district court had the authority to decline to compel arbitration to ensure fairness, and that the district court had applied the rule correctly. Examining the U.S. Supreme Court’s decision in Gulf Oil Co. v. Bernard, 452 U.S. 89 (1981), the Ninth Circuit found that the district court’s broad authority under Rule 23(d) was applicable to collective actions, that it had a “duty” to exercise its authority to regulate the opt-in process, and thus the district court could refuse to enforce the arbitration agreement in dispute because it had found that TEK had “subverted” the opt-out process by requiring putative members to opt in instead. Id. at 20. The Ninth Circuit determined that Rule 83(b), which permitted a judge to “regulate practice” in the absence of controlling law, and wrote that when read in tandem with Rule 23(d), a district court had the authority to make appropriate decisions with regard to the parties, including in disputes over arbitration. Id. at 24-25.

The Ninth Circuit reviewed the emails that TEK had sent to implement the new arbitration agreement and found that the “disparaging” language used by the company to describe class action litigation was misleading, inaccurate, and confusing, and as a result had had a “harmful” effect on class membership, particularly since it was sent at the end of December 2023 and went into effect in January 2024. Id. at 27-29.

Finally, the Ninth Circuit opined that the arbitration agreement’s delegation provision, which delegated issues of arbitrability to an arbitrator, did not bar a district court from ruling on the enforceability of the arbitration agreement because plaintiffs had challenged the validity of the entire arbitration agreement, including the delegation clause, and under the Supreme Court’s ruling in Coinbase, Inc. v. Suski, 602 U.S. 143 (2024), the whole contract could be considered by the district court as part of the dispute. Id. at 31.

Implications For Class Action Defendants

When implementing a new arbitration agreement, employers should be mindful of the language and timing of their communications on such agreements so as not to appear to be attempting to influence recipients and running afoul of additional scrutiny in litigation.

By Gerald L. Maatman, Jr., Shannon Noelle, and Anna Sheridan

Duane Morris Takeaways: On January 7, 2026, in Valli et al. v. Avis Budget Group Inc. et al., Case No. 24-3025 (3d Cir. Jan. 7, 2026), the Third Circuit issued a mandate vacating an order from the District Court for the District of New Jersey denying a rental car company’s motion to compel arbitration and remanding the action for the District Court to address properly presented challenges to enforceability of the arbitration provisions that it did not reach in its decision.  Avis appealed an order from the District Court denying its motion to compel arbitration of the claims of a certified class of renters presenting legal challenges to imposition of fees associated with traffic or parking fines incurred during the rental period.  The Third Circuit found that Avis did not waive its right to compel arbitration by participating in litigation for years with the named Plaintiffs (whose rental agreements did not contain arbitration provisions) as Avis asserted its arbitration rights as an affirmative defense in its answers, raised the issue in opposition to class certification, and promptly field to a motion to compel after its Rule 23(f) petition challenging class certification was denied.  This decision underscores that where named plaintiffs are not subject to arbitration provisions, but class members may have such constraints, pre-certification conduct preserving arbitration rights is essential to avoid waiver post-certification when arbitration rights are ripe.   

Case Background

The named Plaintiff Dawn Valli filed a putative class action in September 2014 challenging Avis’ imposition of fees associated with a speeding traffic violation caught by a traffic camera that Avis paid and then charged Plaintiff Valli the $150 traffic fine it covered as well as a $30 administrative fee.  Case No. 24-3025, ECF No. 53-3, at 3.  The notice that Avis sent to Plaintiff Valli warned that Avis would charge $180 to Ms. Valli’s credit card if she did not make timely payment.  Id. at 4.  Plaintiff Valli brought an action on behalf of herself and other putative class members asserting state law claims including violations of the New Jersey Consumer Fraud Act and unjust enrichment on the theory that Avis deprived renters of an opportunity to contest the traffic violations by paying fines before notifying renters of the infractions and allowing them the ability to contest the fines.  Id. 

Avis moved to dismiss the complaint several times for failure to state a claim.  Id. at 4-5.  On April 1, 2016, Avis updated its rental agreement to include a mandatory arbitration provision for disputes arising out of the rental agreement and rental of its vehicles.  Id. at 5.  After Avis filed a renewed motion to dismiss (which did not mention the arbitration agreement as it only applied prospectively), the District Court denied the motion on May 10, 2017.  Id. at 6.  On May 25, 2017, Avis answered the First Amended Complaint (“FAC”) asserting its arbitration rights as an affirmative defense.  Id.  In June 2018, Avis allowed Ms. Valli to file a second amended complaint (“SAC”) adding another named Plaintiff.  Id. at 7.  Avis again invoked its arbitration rights as an affirmative defense in its answer.  Id.

In July 2019, the two named Plaintiffs moved to certify a class of renters that were required to reimburse Avis for traffic, parking, tolls, or other violations and associated administrative fees.  Id. at 8.   In support of the motion for class certification, Plaintiffs defined the class period for the first time as September 30, 2008, through the present.  Id.  In opposition to class certification, Avis argued that the named Plaintiffs—who were not subject to its 2016 arbitration provisions—could not adequately represent the interest of renters that must arbitrate their claims.  Id.  Avis also argued that, at the motion to dismiss stage, such arguments were not ripe as it was unclear how the named Plaintiffs would define the class and whether it would include renters bound by arbitration agreements.  Id.  Oral argument on class certification occurred two years later, but Avis asserted the argument that the arbitration provisions defeated class certification.  Id. at 8-9.  Plaintiffs countered that Avis waived the argument by not having raised it earlier and choosing to participate in the litigation.  Id. at 9.  The District Court ordered supplemental briefing on the issue.  Id.  In its supplemental brief filed on September 15, 2022, Avis reiterated that nearly half the members of the putative class signed arbitration agreements and the named Plaintiffs (who had not) could not fairly represent the interests of those putative class members.  Id.  Avis filed another brief approximately two weeks later, arguing that it had preserved its arbitration rights by raising arbitration as an affirmative defense in its answers to both the FAC and SAC.  Id.  Avis also emphasized that Plaintiffs’ July 2019 class certification motion was the first time they identified arbitration-bound renters as putative class members.  Id.

In October 2023, the District Court certified a subclass of individuals that rented an Avis vehicle from September 30, 2008, through the present and whose rented vehicle was the subject of an alleged parking, traffic, tolls, or other violation, where the class member was charged for such fine, penalty, and court costs, and/or associated administrative fee.  Id. at 10.  Avis filed a Rule 23(f) petition challenging certification of the class that was denied in November 2023.  Id. at 10-11.  Three months later, in February 2024, Avis moved to compel individual arbitration of the relevant class members’ claims.  Id. at 11.  Avis disputed that it waived its right to enforce its arbitration agreements arguing that any earlier motion to compel would have been directed at unnamed class members and would have therefore been futile before class certification.  Id.  On September 30, 2024, the District Court denied Avis’ motion to compel arbitration and faulted Avis for failing to formally seek to enforce arbitration until after the class had been certified.  Avis appealed that decision to the Third Circuit.

The Third Circuit’s Decision

The Third Circuit found that Avis’ pre-certification litigation conduct was indeed relevant to the waiver issue, but this conduct indicated that the company had adequately preserved its arbitration rights. 

The Third Circuit found that “[c]entral to th[e] case” was the “interplay between” the doctrine of waiver and futility.  Id. at 12.  The Third Circuit resolved the parties’ dispute as to whether Avis’ pre-certification conduct was relevant to the issue of waiver by answering this question in the affirmative.  Id. at 14.  In support of that finding, the Third Circuit found it notable that Avis “knew” of its prospective right to enforce arbitration “even if it lacked a present ability to enforce it pre-certification.”  Id. at 19.  The Third Circuit reasoned that the purpose of the waiver doctrine is to prevent “gamesmanship” or permitting a defendant to litigate aggressively for a merits advantage so that it can pivot to arbitration “the moment it becomes advantageous to do so, all without consequence.”  Id. at 20.  Yet, the Third Circuit found that the doctrine of futility “excuses the failure to file a formal motion to compel as to the unnamed class members” because to do so would be futile given that a District Court lacks jurisdiction to grant such a request.  Id.  The Third Circuit next addressed what a party must do to preserve future arbitration rights it cannot presently enforce.  Id. at 21.  The Third Circuit held that to implicitly waive arbitration rights, a party must litigate in a way that is inconsistent with a desire to arbitrate. 

The District Court had identified two such events:  (1) Avis’ motion of August 18, 2016 that did not mention arbitration; and (2) Avis’ participation in discovery and mediation.  Id. at 26.  Rejecting the first ground for finding waiver, the Third Circuit opined that it was not until two years later that plaintiffs defined the putative class to include post-April 2016 renters thus the motion to dismiss did not waive its arbitration rights.  As to the second ground for finding waiver, the Third Circuit ruled that while Avis did not object to discovery or seek to exclude information concerning arbitration-bound renters, Plaintiffs could identify “only a single instance in which Avis produced information not also relevant to other customers who are not subject to arbitration.”  Id. at 27.  Further, “critically, Avis never sought discovery specifically targeted at arbitration-bound putative class members.”   Id. at 27-28.  The Third Circuit clarified that “discovery and mediation conduct can support a finding of waiver in the appropriate circumstances,” but explained that “discovery directed at non-arbitrable claims does not, by itself, waive the right to arbitrate arbitrable claims.”  Id. at 28.   The Third Circuit also found it significant that Avis “repeatedly put its intent to arbitrate on record” by consistently asserting its arbitration rights in opposing certification and reaffirming its stance two years later during oral argument.  Id. at 29.  The Third Circuit further reasoned that the fact that Avis moved to compel arbitration four months after the District Court’s certification decision was prompt enough and “not unreasonable” particularly as Avis’ Rule 23(f) petition was still pending.  Id.  Ten days after the Third Circuit denied the Rule 23(f) petition, the District Court held a status conference on December 14, 2023, setting a deadline of February 2024 for the motion to compel which Avis met.   Id. at 29-30.

The Third Circuit stopped short of directing the District Court to compel the relevant class members to arbitrate their claims and did not reach the Plaintiff’s claims challenging the enforceability of the arbitration agreements, finding that the District Court relied exclusively on waiver in its decision and remanding the action permitting the District Court to reach the issue of enforceability if properly presented. 

On January 13, 2026, the District of New Jersey issued an order implementing the mandate of the Third Circuit and vacating its September 30, 2024 order denying Avis’ motion to compel arbitration.  A status conference is set for February 2026.

Implications For Class Action Defendants

Where named plaintiffs are not subject to arbitration agreements but defendants suspect that putative class members may be, defendants must act promptly to preserve their arbitration rights even where a motion to compel arbitration is not ripe, by asserting arbitration rights as an affirmative defense in answers to class action complaints and in opposition to class certification (as a basis for lacking commonality, adequate representation, typicality, etc.).  The Third Circuit’s decision in Avis provides a guidepost for proper preservation of arbitration rights that class action defendants are well-advised to heed.

By Gerald L. Maatman, Jr., Eden E. Anderson, and Rebecca S. Bjork

Duane Morris Takeaways: On December 9, 2025, Judge Yvonne Rogers of the U.S. District Court for the Northern District of California held in Williams, et al. v. Moon Active Ltd., Case No. 4:25-CV-01626 (N.D. Cal. Dec. 9, 2025), that when a minor to a contract states her intent to disaffirm “all contracts” with a defendant, such disaffirmance of a contract “as a whole” presents an issue of contract validity for an arbitrator to resolve, and is not a specific challenge to an arbitration clause’s delegation provision that a court must resolve.  Under the Williams decision, if a minor wants a court to rule upon the validity of a delegation provision contained within an arbitration agreement, then the minor must specifically disaffirm the delegation provision and not merely the whole of the contract within which the delegation provision appears. As such, this ruling is a required read for corporate counsel managing litigation risks through arbitration program.

Case Background

D.K., a minor, used the defendant’s Coin Master mobile game, which allowed users to purchase coins to spin a slot machine feature.  When D.K. created an account to play Coin Master, a pop up screen asked her to confirm she was over 18 and that she had read and agreed to Terms and Conditions (Terms) applicable to her usage, with a hyperlink to those Terms also furnished.  The opening paragraph of the Terms mentioned in bold that the Terms included an arbitration clause, and provided a link directly to the section of the Terms containing the arbitration clause.  The arbitration clause included a delegation provision whereby any disputes concerning the enforceability, validity, scope or severability were delegated to the arbitrator to resolve. 

D.K.’s mother filed a class action lawsuit on her behalf asserting claims for negligence, unjust enrichment, and violations of California’s unfair competition law, and her counsel then sent letters to the defendant indicating that D.K. disaffirmed “all contracts” with the company.  Id. at 3.  The defendant moved to compel arbitration. 

The Decision

The court granted the motion to compel arbitration.  The court first addressed whether an arbitration contract had been formed.  Because California law permits a minor to contract in the same manner as an adult subject to the power of disaffirmance, and because conspicuous notice of the arbitration clause was furnished, the court held the Terms were a validly formed contract between the parties. 

As to whether D.K. had disaffirmed the Terms by sending a letter to the defendant disaffirming “all contracts,” the court agreed with the defendant that such issue was a validity challenge to the Terms as a whole that needed to be resolved by the arbitrator pursuant to the delegation clause.  D.K. argued that the delegation clause could not apply since she had disaffirmed the Terms.  In rejecting this argument, the court explained that while courts are permitted to decide specific challenges to delegation clauses, it is arbitrators who, pursuant to delegation clauses, are to determine challenges to the validity of an arbitration agreement as a whole.  The court found that D.K.’s letter, which disaffirmed “all contracts,” was a challenge to the Terms as a whole because the letter did not single out the arbitration clause or its delegation provision.  In so holding, the court distinguished the circumstances that were present in J.R. v. Electronic Arts, 98 Cal.App.5th 1107 (2024) because the minor there has specifically disaffirmed “any” contract rather than “all contracts.”  

Implications of the Decision

The Williams decision highlights the importance of the wording used when a minor seeks to disaffirm an arbitration agreement. 

Under Williams, for a court to address the validity of a delegation provision within an arbitration agreement, the minor must specifically disaffirm the delegation provision itself and not generally disavow “all contracts.” 

By Gerald L. Maatman, Jr., Andrew Quay, and Eden Anderson

Duane Morris Takeaways:  A Second Circuit panel of Judges Gerard Lynch, Michael Park, and Beth Robinson reversed the Southern District of New York in Frazier v. X Corp., Case No. 24-1948 (2d Cir. Sept. 2, 2025), holding that X’s (formerly Twitter) refusal to pay ongoing arbitral fees did not amount to a “failure, neglect, or refusal … to arbitrate” that the district court was empowered to remedy under the Federal Arbitration Act (“FAA”).  The Second Circuit explained that under 9 U.S.C. § 4, district courts may only address a narrow category of disputes limited to whether arbitration must occur between particular parties over particular issues.  The decision follows related precedent set by the Third, Fifth, Ninth, and Eleventh Circuits and makes clear that a party’s decision not to abide by the procedural determinations of an arbitrator or arbitral body does not empower a district court to intervene and review.

The decision is an important primer for corporate counsel in handling disputes over ongoing arbitral proceedings.

Case Background

Plaintiff-Petitioners, seven former employees of Twitter, signed arbitration agreements committing them to resolve any employment-related disputes in binding individual arbitration.  The employees filed arbitration demands following their termination, believing that they had been denied severance and had been illegally discriminated against, among other claims.  After making certain payments of arbitral fees, Twitter asserted that the arbitration agreements required that the fees be apportioned equally between it and the former employees.  The agreements called for a pro-rata split of arbitral fees but incorporate by reference Judicial Arbitration and Mediation Services’ (“JAMS”) rules and policies, which required Twitter to pay all but the case initiation fees.  The employees sued to compel arbitration under 9 U.S.C. § 4, arguing that by refusing to pay the fees allocated to it by the arbitral body, Twitter was “refus[ing] to arbitrate” in accordance with the arbitration agreements.

At issue before the Second Circuit was whether Twitter’s refusal to pay ongoing arbitral fees constituted an outright refusal to arbitrate that the district court was empowered to remedy under 9 U.S.C. § 4.  The former employees took the position that by incorporating the arbitral body’s rules in the arbitration agreements, Twitter agreed to be bound by the arbitral body’s initial determination that Twitter was responsible for the disputed fees.  Therefore, the former employees argued, the district court could compel Twitter to pay the disputed fees under 9 U.S.C. § 4.

The Decision

The Second Circuit rejected the former employees’ argument.

It held that a party’s decision not to abide by the procedural determinations of an arbitrator or arbitral body is an intra-arbitration delinquency that arbitral bodies are empowered to manage.  Therefore, the former employees could not use 9 U.S.C. § 4 as a vehicle to seek judicial review of the arbitral body’s decision not to proceed with the arbitration process.

Implications Of The Decision

The Frazier decision marks another federal circuit keeping the courts out of disputes in ongoing arbitral proceedings over a party’s payment of fees or compliance with arbitral policies. Corporate counsel must consider the limited scope of permitted review under 9 U.S.C. § 4 when facing disputes in ongoing arbitral proceedings, whether over payment of fees or otherwise.

By Alex W. Karasik and Gregory S. Slotnick

Duane Morris Takeaways: On August 14, 2025, in Flores v. N.Y. Football Giants, Inc., No. 23-1185, 2025 U.S. App. LEXIS 20688 (2d Cir. Aug. 14, 2025), the U.S. Court of Appeals for the Second Circuit affirmed a decision from the Southern District of New York denying a motion to compel arbitration of claims of plaintiff Brian Flores (“Flores”) asserting race discrimination filed by the National Football League (“NFL”) and six of its member clubs.  In closely examining the arbitration provision at issue (and agreed upon by the parties), the Second Circuit found that the NFL’s internal arbitration framework, which provided the NFL Commissioner with unilateral control over arbitrator selection, substantive process of proceedings, and other discretionary decision-making powers, provided for arbitration “in name only” and fell short of requirements set forth in the Federal Arbitration Act (“FAA”).

According to the Second Circuit, the NFL Commissioner’s complete control over the NFL’s internal arbitrations pursuant to the NFL Constitution makes the process, “inherently biased” and leaves it outside the protections of the FAA.  The Second Circuit sternly concluded that, “[u]ltimately, the NFL’s arbitration provision is fundamentally unlike any traditional arbitration provision protected by the FAA,” and the agreement between Flores and the NFL to arbitrate his claims, “is plainly unenforceable under the most basic principles of the effective vindication doctrine,” requiring arbitration guarantee that Flores can “vindicate [his] statutory cause of action in [an] arbitral forum.”  Id. at *5.   As a result, Flores’s racial discrimination lawsuit will proceed in federal court and the NFL will likely need to go back to the drawing board to update its internal arbitration provisions so they comply with arbitration mandates under the FAA and prior court decisions.  All employers seeking to prepare and enforce arbitration provisions should heed the Second Circuit’s concerns with the NFL’s arbitration language and process to ensure their agreements comply with the FAA.

Case Background

Since 2008, Flores – the current defensive coordinator of the NFL’s Minnesota Vikings – has been employed as a football coach by a variety of NFL teams, including the New England Patriots (2008-2018), Miami Dolphins (2019-21), Pittsburgh Steelers (2022), and the Minnesota Vikings (2023-Present).  Id. at *5.  The operation and structure of the NFL and the relationship between the NFL, its member clubs, and the clubs’ employees (including NFL coaches), are governed by the NFL Constitution and Bylaws (the “NFL Constitution”).  Id. at *6.  The NFL Constitution “broadly empowers” the NFL Commissioner to manage the league’s affairs, including, but not limited to, the ability to interpret and establish league policy and procedure, discipline relevant parties, hire legal counsel to respond to conduct detrimental to the league, its member clubs or employees, or to professional football, and the full, complete, and final jurisdiction and authority to arbitrate disputes between relevant parties, including between employees and member clubs.  Id.  Flores’s employment agreement with the Patriots included a club-specific arbitration provision, incorporating by reference arbitration language in the NFL Constitution.  Id. at *9-10.

In January 2019, while still under contract as a coach with the Patriots, Flores interviewed to be the head coach of the Denver Broncos.  Id. at *9.  Flores claims the Broncos discriminated against him because of his race in failing to hire him and that the Broncos only offered him an interview as a “sham” to satisfy the Rooney Rule – a long-standing requirement by the NFL that two opportunities to interview for each open coaching position be allotted to prospective candidates who are members of a racial minority group and/or a woman.  Id. 

One month later, in February 2019, Flores was hired as the head coach of the Dolphins.  Id.  In January 2022, Flores was fired following three seasons as head coach of the Dolphins.  Id. at *10.  After the Dolphins fired him, Flores interviewed for head coach positions with both the New York Giants and the Houston Texans, though he was not hired for either position due to what he alleges to be racial discrimination and retaliation.  Id. at *10-11.  In February 2022, Flores was hired as a senior defensive assistant and linebackers coach with the Steelers, signing an employment agreement that, like his agreement with the Patriots, included a club-specific arbitration agreement and incorporated by reference the NFL Constitution.  Id. at *11.  The same month, Flores filed a putative class action against the NFL, the Denver Broncos, New York Giants, and Miami Dolphins alleging claims of race discrimination under 42 U.S.C. § 1981, as well as state and local statutes.  Id. at *6.  In June 2022, the NFL and its relevant member clubs sought to compel Flores to arbitrate his claims pursuant to the employment agreements Flores signed with the Patriots and Steelers, respectfully.  Id. at *7-8.

The District Court found that Flores’s claims against the Broncos and the NFL clearly fell outside his club-specific arbitration agreement with the Patriots.  Id. at *10.  Although the District Court found that the NFL Constitution’s arbitration provision applied to Flores’s claims, the Court refused to enforce it, reasoning that it was illusory and unenforceable under Massachusetts state law because “the NFL and its member clubs have the unilateral ability to modify the terms of the NFL Constitution.”  Id.  As such, the District Court ordered that Flores’s claims against the Broncos and related claims against the NFL be litigated in federal court.  Id.  The NFL’s appeal to the Second Circuit followed.

The Second Circuit’s Decision

The Second Circuit affirmed the District Court’s decision denying the motion to compel Flores to arbitrate his claims against the NFL, the Broncos, the Giants, and the Texans.  Id. at *25-26.  Specifically, the Second Circuit concluded that Flores’s agreement under the NFL Constitution to submit his claims against the Broncos and the NFL to the unilateral substantive and procedural discretion of the NFL Commissioner (the principal executive of one of Flores’s adverse parties) provides for arbitration “in name only” and lacks the protection of the FAA.  Id. at *18.  It also held that Flores’s agreement to submit his claims against the Broncos and the NFL to the unilateral discretion of the NFL Commissioner is unenforceable because the agreement fails to guarantee Flores can “vindicate [his] statutory cause of action in [an] arbitral forum.”  Id.  The decision further confirmed that the District Court did not err or abuse its discretion in denying Defendants’ motion to compel arbitration or in denying Defendants’ motion for reconsideration.  Id. at *2.

The Second Circuit provided background on the FAA and its principles mandating that although the FAA establishes a “liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract,” not every self-described “arbitration agreement” falls within the FAA’s ambit.  Id. at *14.  Under the facts at issue here, the Second Circuit found that while Flores agreed to arbitrate his statutory claims by way of arbitration provisions in the employment agreement he entered with the Patriots, the relevant language granted the NFL Commissioner unilateral discretion over the arbitration process itself.  Id.  The Second Circuit held that such one-sided control undermines the fairness required for a valid arbitration agreement under the FAA because the NFL Constitution’s arbitration provision fails to provide: (i) an independent arbitral forum for bilateral dispute resolution, resulting instead in compelling one party (Flores) to submit disputes to the substantive and procedural authority of the principal executive officer of one of their adverse parties (the NFL); and (ii) the procedure to be used in resolving the dispute, instead allowing the NFL Commissioner to unilaterally dictate arbitral procedure.  Id. at *19-22.   The Second Circuit concluded that “the NFL’s arbitration provision is fundamentally unlike any traditional arbitration provision protected by the FAA,” is not afforded any special deference under the FAA, and that this served as an independent reason to affirm the District Court’s order denying the motion to compel Flores to arbitrate his claims.  Id. at *22.

Moreover, the Second Circuit found Flores’s agreement was “plainly unenforceable” under exceptions to the FAA since the arbitration provision “fails to provide Flores access to an arbitral forum” and in fact waives Flores’s right to pursue statutory remedies.  Id. at *22-24.  It reasoned that requiring Flores to submit statutory claims to the unilateral discretion of the executive of one of his adverse parties (the NFL Commissioner), without an independent arbitral forum, denied Flores arbitration in any meaningful sense of the word, rendering the agreement unenforceable.  Id. at *24.

Relying on the foregoing reasoning, the Second Circuit affirmed the District Court’s order, finding: (i) Flores’s agreement under the NFL Constitution to submit his claims against the Broncos and the NFL to the unilateral substantive and procedural discretion of the NFL Commissioner provides for arbitration “in name only,” thus lacking the protection of the FAA; (ii) Flores’s agreement to submit his claims against the Broncos and the NFL to the unilateral discretion of the NFL Commissioner is unenforceable because the agreement fails to guarantee Flores can “vindicate his statutory cause of action in an arbitral forum,”; and (iii) the same unprotected and unenforceable agreement also cannot be used to compel Flores to arbitrate his claims against the Giants, Texans or related claims against the NFL.  Id. at *25-26.

Implications For Employers

The Second Circuit’s decision means Flores can continue litigating his race discrimination claims against the NFL and its member clubs in the public eye of federal court, despite the NFL’s attempts to force Flores into its internal private arbitration framework.  While the attention-grabbing headline provides Flores a major victory in keeping his race discrimination lawsuit alive, perhaps the most important takeaways are for companies or businesses with an arbitration clause or agreement in effect, as well as employers considering implementing same for employees.  Employers must ensure that any arbitration procedures, including arbitral forum and substantive process, comply with the FAA’s mandates to ensure bilateral and objective arbitration for all involved parties. 

The Second Circuit repeatedly held that although there was no dispute that both Flores and the NFL member teams signed the employment agreement and agreed to the referenced NFL Constitution’s arbitration provision, a process providing one party with unilateral discretionary control over arbitrator selection and substantive procedure amounts to arbitration “in name only,” and lacks the protection of the FAA.  As evidenced by the Second Circuit’s description of the relevant arbitration provision’s shortcomings, businesses seeking to ensure their arbitration agreements are enforceable should have counsel regularly review their existing arbitration language to confirm it is bilateral and objective, thus falling under the FAA’s protection.

By Gerald L. Maatman, Jr., Jennifer A. Riley, Samson C. Huang, and Betty Luu

Duane Morris Takeaway:  On July 7, 2025, in CRST Expedited, Inc. et al. v. The Superior Court of Fresno County, Case No. F088569 Cal. App. July 7, 2025), the California Court of Appeal for the Sixth Appellate District denied an employer’s petition for writ of mandate of a trial court’s decision that a worker’s dismissal of his individual PAGA claims did not bar him from pursuing claims on behalf of other aggrieved employees only. This tactic – known as a headless PAGA action – is the latest innovation of the plaintiffs’ class action bar and another challenge employers face in operating in the Golden Bear State.

Background

Defendant CRST Expedited, Inc. (“CRST Expedited”) employed Plaintiff Espiridion Sanchez (“Plaintiff”) as a tire maintenance technician from 2017 until 2018.  Id. at 5.  On March 22, 2019, Plaintiff provided written notice to the Labor & Workforce Development Agency (“LWDA”) and CRST Expedited asserting claims under the California Private Attorneys General Act (“PAGA”) on behalf of all current and former employees of CRST Expedited and cited nine Labor Code violations.  Id. at 6.  After receiving no response from the LWDA, Plaintiff filed a PAGA action on behalf of himself and other aggrieved employees against CREST Expedited. Id. 

In 2023, the trial court granted CRST Expedited’s motion to compel arbitration of Plaintiff’s individual PAGA claims and dismissal of the non-individual claims in light of the U.S. Supreme Court’s ruling in Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2023) (“Viking River”).  Id. at 8.  In Viking River, the U.S. Supreme Court held that once an employee’s individual PAGA claims are compelled to arbitration, the employee lacks standing to represent other aggrieved employees as to their PAGA claims.  Id.   

The ruling in Viking River was short lived once the California Supreme Court issued its decision in Adolph v. Uber Technologies, Inc., 14 Cal.5th 1104, 1114, 310 Cal.Rptr.3d 668, 532 P.3d 682 (2003), which held that “an order compelling arbitration of the individual [PAGA] claims does not strip the plaintiff of standing as an aggrieved employee to litigate claims on behalf of other employees under PAGA.”  Id. 

Plaintiff sought reconsideration on that basis, and the trial court reinstated the nonindividual PAGA claims.  Id. at 9.

In 2024, the trial court granted Plaintiff’s unopposed motion to dismiss his individual PAGA claims.  Id. at 9.  In response, CRST Expedited sought dismissal of Plaintiff’s nonindividual PAGA claims on the grounds that Plaintiff no longer had standing because he dismissed his individual PAGA claims.  Id. at 9-10.  The trial court disagreed.  Id.

The California Court Of Appeal’s Ruling

The California Court of Appeal addressed whether the PAGA statute allows an aggrieved employee to recover civil penalties for violations of the Labor Code suffered only by other employees. 

To do so, the Court of Appeal conducted a thorough analysis of the statutory interpretation of the PAGA statute, ultimately finding that the PAGA statute is ambiguous.  Id. at 39.  Faced with an ambiguous statute, the Court of Appeal concluded it “must select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute.”  Id.

The Court of Appeal began its analysis by examining the legislative intent behind the use of the terms “and” and “or” in a 2003 amendment to the PAGA statute.   Id. at 40.  The 2003 amendment revised the statute to say:  “An aggrieved employee may recover the civil penalty described in subdivision (b) in a civil action filed on behalf of himself or herself and others.” Id. at 40. (emphasis added).  However, a review of the legislative history revealed that the revised language merely corrected a drafting error.   Id.  The Court of Appeal also held that it was unlikely that the original drafters could have anticipated a bifurcation of the individual and nonindividual PAGA claims — as recognized in such as Viking River — when amending the statute.  Id. at 41.

Finding that the analysis of legislative intent was inconclusive, the Court of Appeal analyzed the purpose of the PAGA statute.  Id.  It opined that the primary objective of the PAGA statute is to maximize enforcement of labor laws and deter employer violations.  Id. at 42.  As such, requiring arbitration of individual claims before pursuing non-individual claims would undermine those enforcement efforts.  Id. 

To achieve effective enforcement, the Court of Appeal held that the PAGA statute should be interpreted to allow “PAGA plaintiffs and their counsel the flexibility to choose among bringing a PAGA action that seeks to recover of civil penalties on (1) the LWDA’s individual PAGA claims, (2) the LWDA’s nonindividual PAGA claims, or (3) both.”  Id. at 47.  The Court of Appeal emphasized that this interpretation does not eliminate or weaken the PAGA standing requirements, as a plaintiff must still be an aggrieved employee to bring a headless PAGA action.  Id. at 47-48.

In sum, the Court of Appeal reaffirmed that a broad construction of the statute permits an aggrieved employee to pursue a headless PAGA action.

Implications For Companies

The CRST Expedited decision confirms that aggrieved employees can pursue representative PAGA actions on behalf of other aggrieved employees even if their individual claims are subject to arbitration or dismissed. 

The ruling underscores the importance for employers to reassess their arbitration strategies and compliance practices, as the enforcement of labor laws through the PAGA remains robust despite contractual arbitration clauses. 

It remains to be seen whether the landscape of the headless PAGA action will be turned on its head in light of the California Supreme Court’s decision to review Leeper v. Shipt, Inc.,107 Cal.App.5th 1001, 328 Cal.Rptr.3d 632 (2024), which effectively eliminated the headless PAGA action.  We will continue to follow the developments in PAGA and keep our blog readers informed.     

By Gerald L. Maatman, Jr., Rebecca S. Bjork, and Eden E. Anderson

Duane Morris Takeaway: In 5-Star General Store, et al. v. American Express Co., 2024 U.S. Dist. LEXIS 217246 (D.R.I. Dec. 2, 2024), Judge Mary McElroy of the U.S. District Court for the District Court of Rhode Island held that the defendants could not move to compel arbitration on the issue of whether it was required to pay filing fees to the American Arbitration Association. This ruling presents an unusual twist to arbitration issues typically resolved by federal courts and is a cautionary warning for companies.

Background

The 5-Star General Store case is an antitrust action brought by merchants who resolved certain claims with American Express entities in arbitration relating to the acceptance of the defendants’ credit cards for purchases at their stores. After the final order was issued, the defendants refused to pay their share of the filing fees to the American Arbitration Association, which totaled more than $17 million. The AAA administratively closed the case and the plaintiffs filed a class action relative to those fees. The defendants moved to compel arbitration of the lawsuit’s claims and to strike the plaintiffs’ class allegations.

The Court’s Ruling

The court denied the defendants’ motion to compel arbitration on whether they were required to pay the AAA filing fees and denied the defendants’ motion to strike the plaintiffs’ class allegations. The plaintiffs sought to represent more than 5,000 merchants accepting the defendants’ cards. They argued that the defendants had waived their right to arbitration by failing to pay their share of the arbitration fees because they were in default of the agreement under § 3 of the FAA. First, the court ruled that it, not an arbitrator, had the authority to decide whether the defendants defaulted on the arbitration agreement. Although the court found no controlling case law authority directly on point, it decided to follow the Fifth, Ninth, Tenth and Eleventh Circuits, which have held that courts may decide whether failure to pay arbitration fees constitutes a default under § 3.

Second, the court focused on whether the defendants were in default of the agreement. Relying on Black’s Law Dictionary, which defines “default” as “the omission or failure to perform a legal or contractual duty; esp., the failure to pay a debt when due,” the court found the issue to be clear and concluded that the defendants defaulted on the arbitration agreement. Id. at *12. It also opined that a second arbitration likely would not fare any better than the first and the parties would end up before the court again.

Third, the court rejected the defendants’ claim that the plaintiffs lacked clean hands and therefore should not be allowed to pursue their claims in court. The court reasoned that the plaintiffs did not change their theory of their case sufficiently when filing the instant case to rescind the defendants’ waiver of arbitration. Therefore, the court denied the defendants’ motion to compel arbitration.

Finally, the court also denied the defendants’ motion to strike the plaintiffs’ class allegations because the class was ascertainable by objective means and the class definition was not “fail safe” because it did not contain a legal conclusion that determines eligibility for class membership. Id. at *32-33. The court further considered and rejected the defendants’ claims that the plaintiffs’ requests for injunctive and declaratory relief under Rule 23(b)(2) and 23(c)(4), including certification of issues classes, should be stricken at the pleading stage.

Implications For Companies:

This ruling should serve as a cautionary tale to companies that regularly seek to enforce mandatory arbitration agreements when those agreements require individual arbitration. The defendants’ failure to pay filing fees for thousands of individual arbitrations could lead to a complete waiver of the ability to compel arbitration of the claims in the future.