Arbitration Contract With Instacart Does Not Cover Grocer

Tuesday, September 14, 2021

Page 3

Court of Appeal:

Arbitration Contract With Instacart Does Not Cover Grocer

Wiley Says Clicking Button Agreeing to Terms of Service Constituted Valid Agreement With Delivery Service But Store Is Not Third-Party Beneficiary Entitled to Enforce Arbitration

By Kimber Cooley, Associate Editor

Div. Eight of this district’s Court of Appeal has held that an agreement by a consumer with an online delivery service to arbitrate claims between the parties does not give the grocery store at which goods were purchased the ability to enforce the arbitration provisions as a third-party beneficiary because extending contractual benefits to the grocer was not a motivating purpose behind the contract.

The court also held that the threshold issue of arbitrability is to be determined by the trial court—and not the arbitrator—where there was no evidence that the consumer agreed to arbitrate anything with the grocery store.

The dispute arose after plaintiff Payam Mahram used a mobile application of Instacart to have celery and cucumbers delivered from a local Ralphs store to his home. Mahram later sued The Kroger Co., dba Ralphs Grocery Company, for false advertising and unfair competition, filing a class action complaint on March 24, 2022, alleging the grocer illegally raised its advertised prices after consumers applied a coupon to the purchase.

Provision of Agreement

Ralphs moved to compel arbitration by virtue of Instagram’s terms of service which provide that the company and any consumers using its services agree to arbitrate all claims. The provision states that the interpretation of the agreement will be in accordance with the Federal Arbitration Act and selects ADR Services Inc. as the neutral arbitrator who will have exclusive authority to resolve disputes.

Los Angeles Superior Court Judge Elihu M. Berle denied the defendant’s motion to compel on Sept. 30, 2022 without written comment.

Justice John Shepard Wiley Jr. authored the opinion, filed Tuesday, affirming the denial. Wiley wrote:

“First, contrary to Mahram’s claim, Mahram did contract for arbitration—with Instacart—by signing up for its service. Second, the trial court, rather than the arbitrator, properly decided threshold questions of arbitrability, because the contract did not make unmistakably clear that Mahram had agreed to arbitrate with anyone besides Instacart. Third, the grocery store was not a third-party beneficiary of the Mahram Instacart arbitration contract.”

Presiding Justice Maria E. Stratton and Justice Victor Viramontes joined in the opinion.

Agreement to Arbitrate

Wiley said that “[t]he formation of a contract requires a bargain in which there was a manifestation of mutual assent to the exchange and consideration” and looked to the relationship between the parties to determine if an agreement was reached. He wrote:

“In this case, the manifestation of mutual assent was Instacart’s offer to do business on its advertised terms and Mahram’s acceptance of that offer. These transactors exchanged consideration: Instacart promised to deliver Mahram’s grocery orders, and Mahram promised to pay.”

He noted that online arrangements may be agreed to in ways other than a simple signature and remarked:

“A company and an online consumer create an enforceable contract when the company provides reasonable notice of the terms to which a consumer will be bound and the online consumer takes action—like clicking a button—manifesting assent to the terms.

“Mahram claims there is no evidence he ‘signed’ a contract with Instacart. But Mahram did not contest the proof that the only way to sign up for Instacart is to click through the screen stating that ‘[b]y signing up, you agree to our Terms of Service and Privacy Policy.’ This evidence of assent is undisputed.”

Issue of Arbitrability

The jurist turned to “the threshold question” of whether the arbitrability of the claims asserted by Mahram against Ralphs should be determined by the arbitrator or the trial court. He reasoned:

“Threshold issues of arbitrability in this case were questions for the trial court, not the arbitrator. Courts should not assume that the parties agreed to arbitrate arbitrability unless it is unmistakably clear that they did so…Unmistakable clarity is the preemptive federal test….The Instacart contract did not pass this test.”

He continued:

“Unmistakable clarity is missing here because there is no evidence Mahram agreed to arbitrate anything—including threshold issues of arbitrability—with anyone but Instacart….Instacart’s contract language was that the arbitration agreement ‘applies to and governs any dispute, controversy, or claim between you and Instacart.’ But Mahram had no dispute with Instacart.”

Unpersuaded by the defendant’s assertion that language in Instacart’s terms of service disavowing responsibility for the actions or representations of “retailers” established that third parties were intended beneficiaries of the contract, he opined:

“In passing, Ralphs cites two pages of the Instacart agreement referring to ‘retailers’ and ‘retail partners.’ Ralphs does not develop this point in detail. A glance shows why. On the cited pages, the first mention of a ‘retailer’ reveals this argument is farfetched. This first mention distances Instacart from a ‘retailer’ like Ralphs.”

He concluded that “[t]his language does not make it unmistakably clear that Mahram, in agreeing to a relationship with Instacart, is likewise agreeing to arbitration with a retailer like Ralphs.”

Wiley added:

“[T]he applicable ADR Arbitration Rules incorporated in the Instacart-Mahram contract do not unmistakably delegate arbitrability to an arbitrator. They permit the arbitrator to decide arbitrability only if a court has not already done so.”

Third-Party Beneficiary

The justice cited the 2019 California Supreme Court case of Goonewardene v. ADP, LLC as a “polestar” which “now guides every modern third-party beneficiary case in California.” The opinion by then-Chief Justice Tani G. Cantil-Sakauye explained that an indispensable factor in determining beneficiary status is whether the contracting parties had a “motivating purpose” of providing an advantage to the third party.

Looking to the parties’ intent, Wiley wrote:

“Instacart and the consumers with which it contracted typically would not have central concerns about which grocery store supplies the celery and cucumbers. Nothing in this case suggests Ralphs was anything special either to Instacart or Mahram. The consumers’ central goal was to get groceries without leaving home. From Instacart’s perspective, the main thing is to keep getting the consumer’s payments by pleasing them with the convenient delivery of groceries. Consumers and Instacart all want grocers to do a proper job, but—on this record—grocers are fungible to the consumers and to Instacart.”

He declared:

“Ralphs is not a third party beneficiary of the contract it sought to enforce. Ralphs thus has no standing to compel Mahram to arbitration.”