On The Case

On the verge of $2.65 billion Uber deal, Postmates faces mass arbitration reckoning

The food delivery service Postmates announced earlier this month that Uber would acquire the company for $2.65 billion, a 10% premium on Postmates’ last valuation of $2.4 billion. But Uber might want to keep an eye out for wage-and-hour claims by more than 15,000 Postmates couriers who have filed demands at the American Arbitration Association.

Postmates, as I’ll explain, contends that its couriers’ mass arbitration demands are improper under the couriers’ contracts, which bar class proceedings. The company also says that the plaintiffs firm behind the mass arbitration campaign, Keller Lenkner, has no real intention of litigating thousands of arbitration cases but is using mass filings as leverage to extract a settlement.

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But so far, the company’s lawyers at Gibson, Dunn & Crutcher have failed to convince federal judges or AAA officials to block Keller Lenkner from filing arbitration demands en masse. On Monday, U.S. District Judge Mary Rowland of Chicago dealt the latest setback to the company, ruling that Postmates must proceed with AAA arbitration cases brought by 200 couriers in Illinois.

On Wednesday, meanwhile, U.S. District Judge Philip Gutierrez of Los Angeles will hear telephonic oral arguments about whether a new California law puts Postmates on the hook for arbitration fees and costs for about 10,000 drivers. In April, Judge Gutierrez denied  Postmates’ motion for a temporary restraining order barring the drivers from participating in what it called “de facto class arbitration.”

Postmates, as I told you last fall, is already under a court order from U.S. District Judge Saundra Brown Armstrong of Oakland that compels the company to arbitrate with more than 5,000 couriers. And in June, San Francisco Superior Court Judge Anne-Christine Massullo denied preliminary approval of an $11.5 million class action settlement in which Postmates sought to resolve couriers’ wage and cost claims. (Yes, that’s right: After requiring its drivers to waive the right to sue in a class action, Postmates attempted to use a class action to settle claims by those same drivers once it was hit with mass arbitration demands.)

“Postmates believes that arbitration is a fair and efficient way to resolve disputes, and stands ready and willing to defend legitimate arbitration demands,” said Postmates counsel Theane Evangelis of Gibson Dunn in an email statement. “But Keller Lenkner’s tactics violate the parties’ agreement to arbitrate individually.”

It’s important to remember that the company still has cards to play. Postmates has appealed Judge Armstrong’s order compelling arbitration to the 9th U.S. Circuit Court of Appeals, which is scheduled to hear oral arguments in September. The company can also attempt to revive the proposed state-court class action settlement before Judge Massullo, who encouraged additional negotiations to improve the terms of the deal for couriers. Significantly, Postmates has managed to stave off, for now, orders to pay tens of millions of dollars in AAA fees to launch drivers’ arbitrations. Keller Lenkner sought such orders from both Judge Armstrong in Oakland and Judge Rowland in Chicago, but both judges denied the motions, holding that AAA fees are a matter for AAA to handle.

But at the moment, Postmates is losing the fight to block its couriers from arbitrating en masse – and it’s losing based on U.S. Supreme Court decisions that were supposed to benefit corporations. Postmates’ lawyers, as I mentioned, have asserted that it’s up to federal judges, rather than the AAA, to determine whether couriers must file individualized demands for arbitration rather than mass demands. The Postmates agreement with couriers broadly delegates arbitrability decisions to arbitrators, but carves out an exception for federal courts to hear claims challenging the waiver of couriers’ rights to classwide proceedings. Postmates contends that the carve-out encompasses the corporation’s insistence that couriers are defying their contract by bringing classwide arbitration.

Judge Rowland, in Monday’s ruling, cited the Supreme Court’s decisions in 2018’s Epic Systems v. Lewis and 2019’s Archer and White v. Henry Schein to conclude that arbitration contracts mean what they say. Postmates’ contract, she said, leaves no room for interpretation on the narrow scope of the exception to the clause delegating arbitrability determinations to the arbitrator. Postmates had argued that AAA refused to appoint an arbitrator to decide whether Keller Lenkner’s mass demands amount to a prohibited classwide proceeding. Judge Rowland said she was “frustrated for the hundreds of couriers and for Postmates that they have been unable to have the merits of the claims heard,” Postmates was bound by the language of the contract it drafted.

Tomorrow’s oral argument before Judge Gutierrez could raise the stakes considerably. Last year, in response to stall tactics by gig economy companies facing mass arbitration demands, California passed SB 707, which penalizes corporations that balk at paying fees to launch arbitration by workers subject to mandatory arbitration provisions. When a company’s arbitration fees are more than 30 days overdue, workers are entitled to move for a court order requiring the company to pay workers’ legal fees and costs. That's what Postmates couriers are seeking from Judge Gutierrez. If they prevail, Postmates will be responsible not just for its share of the cost of arbitrating workers’ demands but their share as well, presumably regardless of the outcome of the arbitration.

Postmates argues that the California law is pre-empted by the Federal Arbitration Act and is a violation of the Contracts Clauses of the U.S. and California constitutions. Judge Gutierrez noted those arguments when he denied the company’s motion for a restraining order to block couriers’ mass arbitration demand, but did not reach any conclusions about the merits of Postmates’ position on the California statute.

“The walls are closing in on Postmates,” said plaintiffs lawyer Travis Lenkner. “It keeps recycling the same losing arguments, and courts keep ordering it to comply with the arbitration agreement it drafted.” Postmates has agreed to pay AAA fees and launch proceedings for 50 drivers. Its refusal to begin cases for thousands of other Keller Lenkner clients, Lenkner said, “only highlights the strength of their underlying claims.”

The Uber deal to acquire Postmates raises an intriguing question: Will Postmates settle with Keller Lenkner’s courier clients? Postmates, which was reportedly preparing for an IPO in July before it reached an agreement with Uber, has been litigating flat-out against Keller Lenkner. But Uber may have different ideas. It was the target of Keller Lenkner’s first mass arbitration campaign but on the eve of its IPO, Uber announcing that it was setting aside at least $146 million to resolve claims by thousands of drivers who demanded arbitration.

That could be relevant history as Postmates heads into potentially decisive hearings before Judge Gutierrez and the 9th Circuit.