Get the Door. It’s Intrastate Delivery

The following sentence, whether paraphrased or quoted, can be found in nearly every brief or motion seeking to compel arbitration in California: "Section 2 [the Federal Arbitration Act ("FAA")] is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. 460 U.S. 1, 24 (1983). And yet, California courts and the 9th U.S. Circuit Court of Appeals invariably exhibit the very judicial hostility to arbitration that this policy was meant to avoid. In recent years, the California Legislature, the California courts, and the 9th Circuit all have made flagrant efforts to nibble at the edges of the FAA. The most notorious example has been the California Supreme Court's ruling in Iskanian v. CLS Transportation Los Angeles, LLC, and more recent examples include California's passage of Assembly Bill 51 (prohibiting mandatory employment arbitration agreements as a condition of employment), the 9th Circuit's three-panel opinion in U.S. Chamber of Commerce v. Bonta (holding that Assembly Bill 51 is enforceable), and the 9th Circuit's decision in Moriana v. Viking River Cruises (holding that representative California Private Attorney General Act claims cannot be arbitrated), the last of which was recently overturned by the United States Supreme Court in Viking River Cruises v. Moriana, 142 S. Ct. 1906 (2022).

It is with that context that the United States Supreme Court has once again accepted the task of reviewing the 9th Circuit's animus against arbitration in Carmona v. Domino's Pizza, LLC. There, the Court of Appeals affirmed a lower court's order denying Domino's motion to compel arbitration against a former employee whose job duties included driving for the company. Citing the "residual clause" of Section 1 of the FAA, the 9th Circuit determined that Dominos' drivers, including Mr. Carmona, were an integral part of and engaged in a "single, unbroken stream of interstate commerce." Thus they would fall within the exception of the "residual clause," which provides that "...nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." 9. U.S.C. 1. Had the 9th Circuit applied other federal cases that dealt with the same issue, as the United States Supreme Court will likely do, it would have found a plethora of support for finding that arbitration should have been compelled in this instance.

An immediate and obvious parallel can be drawn to Wallace v. Grubhub Holdings, Inc. in which the 7th Circuit Court of Appeals recently compelled arbitration sought by Grubhub against its intrastate drivers, holding that no evidence presented supported a finding that the intrastate drivers actively engaged in interstate commerce. See Wallace v. Grubhub Holdings, Inc. 970 F.3d 798 (2020). In dicta, the court reflected, "[b]oth we and our sister circuits have repeatedly emphasized that transportation workers are those who are 'actually engaged in the movement of goods in interstate commerce.' To determine whether a class of workers meets that definition, we consider whether the interstate movement of goods is a central part of the class members' job description. Then, if such a class exists, we ask in turn whether the plaintiff is a member of it. Sometimes that determination is easy to make - as it is for truckers who drive an interstate route. Sometimes that determination is harder - as it is for truckers who drive an intrastate leg of an interstate route. Whether easy or hard, though, the inquiry is always focused on the worker's active engagement in the enterprise of moving goods across interstate lines." (Wallace, supra 970 F.3d at 801-802, internal citations omitted) (collecting cases).

The 9th Circuit, however, seemingly ignored this framework in its ruling in Carmona. Instead, the court focused on the line of commerce from the delivery of the ingredients for Domino's food items from out of state, to their transformation into consumable products at Domino's various establishments, to their intrastate delivery to their customers. But the delivery of pizzas or other food products, the forms of which were completely created in California, is fundamentally unlike "a trucker who drives an intrastate leg of an interstate route." The significant difference is that there is a clear unbroken line of interstate commerce for the trucker who completes an interstate trip. A pizza delivery driver for Dominos or a Grubhub driver (as in the Wallace case) is not a continuing part of this stream. Rather, once the ingredients reach their terminus at a restaurant, whether Dominos or the mom-and-pop sandwich shop down the street, their character is necessarily changed into something completely distinct from that which arrived from out-of-state. Put succinctly and more generally, intrastate movement of the new good, created in-state, is not the same good that came from out-of-state. Therefore, the intrastate nature of the production of a new product and its subsequent delivery creates a new inquiry; one that cannot be simply reconciled with the residual clause of the FAA.

It will once again be for the United States Supreme Court to reign in the 9th Circuit's most recent attempt to limit arbitration between employers and their workers. California employers, particularly those in the food delivery business, will keep a particularly close eye on this decision, which is likely to come during the Court's 2023 session.