Frazier, Jr. v. X Corp

Background

The petitioners were former employees of respondents Twitter, Inc., X Corp., X Holdings I, Inc., and X Holding Corp., which the opinion collectively calls “Twitter.” The petitioners alleged that, after their employment ended, Twitter offered them less severance than their agreements required.

Each petitioner had signed Twitter’s Dispute Resolution Agreement as a condition of accepting employment. That agreement required employment-related claims to be arbitrated individually, incorporated the Judicial Arbitration and Mediation Services (JAMS) employment-arbitration rules, and stated that disputes about arbitration fees would be resolved by the individual arbitrator.

The petitioners filed separate arbitrations with JAMS. JAMS initially required Twitter to pay the ongoing arbitration fees under its employment-arbitration rules and minimum fairness standards. Twitter first participated in the cases, including by paying its share of the initial fees and helping select arbitrators. It later argued that the fees should be split between the parties and refused to pay the ongoing fees. The arbitrations then stopped.

The petitioners sought an order under Section 4 of the Federal Arbitration Act, a federal law allowing a court to require arbitration to proceed as the parties agreed. They ultimately asked the court to require Twitter to pay the ongoing fees until the individual arbitrators had an opportunity to decide the fee issue.

Court’s authority to order interim payment

The court held that it could order Twitter to pay the fees temporarily, even though the individual arbitrators had ultimate authority to decide how the fees should be allocated. The court interpreted the agreement’s statement that fee disputes would be resolved by “the Arbitrator” as applying after an individual arbitrator had been appointed and given an opportunity to rule.

The court rejected Twitter’s argument that no one could require it to pay fees before an individual arbitrator acted. That interpretation, the court reasoned, could allow Twitter to effectively block the arbitrations by refusing to pay required fees and forcing individual employees to advance them.

The court also concluded that the incorporated JAMS rules and minimum standards allowed JAMS to make an initial determination about whether those standards applied. Those standards state that, when an arbitration agreement is required as a condition of employment, the employee may be required to pay only the initial JAMS case-management fee; the company must pay the other arbitration and arbitrator fees. The court found that JAMS’s General Counsel was authorized to act for JAMS and had made the initial determination that the standards applied.

Whether the standards applied

The court independently reached the same conclusion as JAMS. It held that the JAMS rules and minimum standards applied because the employees were required to sign the dispute-resolution agreement as a condition of employment, even though the agreement gave them 30 days to opt out of arbitration.

The court read the phrase “required as a condition of employment” as modifying the required agreement, rather than the arbitration itself. In the court’s view, employees were required to enter the agreement as a condition of employment even if they could later opt out of arbitration. Therefore, the employees could be required to pay only the initial JAMS case-management fee, while Twitter was responsible for the ongoing fees under the standards.

Whether the agreement required equal fee splitting

Twitter relied on the agreement’s provision stating that, if applicable law did not require the company to pay all arbitration fees, the fees would be “apportioned” between the parties. Twitter argued that “apportioned” required a 50/50 split.

The court rejected that interpretation. It held that the word “apportioned” did not specify the size of each party’s share and therefore did not require an equal split. Assigning the initial case-management fee to the petitioners and all other ongoing fees to Twitter was consistent with the agreement and the JAMS standards.

The court did not finally resolve every possible dispute about fee allocation. Under the agreement, the individual arbitrator in each arbitration could later rule differently and reallocate responsibility. The order required Twitter to pay the ongoing fees unless and until that occurred.

Disposition

Judge Jed S. Rakoff granted the petitioners’ motion to compel arbitration and ordered Twitter to pay all ongoing arbitration fees for the petitioners’ claims unless and until the individual arbitrator in each respective arbitration ruled to the contrary.