The Tenth Circuit Rules on Interstate Commerce for the Purposes of the Federal Arbitration Act

Since 2016, Angelo Brock had distributed baked goods in Colorado for Flowers Baking (Flowers). The goods come to Mr. Brock from out of state. The relationship soured, and Mr. Brock sued on behalf of himself and others similarly situated, alleging violations of state and federal labor laws. Flowers moved to compel individual arbitration, but the District Court denied the motion. Last November, in Brock v. Flower Foods, Inc., the Tenth Circuit affirmed.

Flowers, the second largest baking company in the United States, delivers 85% of its goods through independent distributors. The distributors buy baked goods from Flowers and then resell and deliver the goods to stores along their routes. When Mr. Brock sued on behalf of a purported class of Flowers distributors, Flowers moved to compel arbitration under the Federal Arbitration Act (FAA) and Colorado’s arbitration act “to the extent that Colorado law is not inconsistent with the FAA.”

The District Court denied the motion, finding that Mr. Brock and his class were engaged in interstate commerce and thus fell within the transportation workers exception to the scope of the FAA under § 1 of that act.  The District Court also refused to compel arbitration under Colorado’s arbitration act because doing so would be “inconsistent” with the FAA.

On appeal, the Tenth Circuit began with the question of whether Flowers’ distributors are within FAA § 1’s carve-out for “any other class of workers engaged in foreign or interstate commerce.” Until recently, that limitation of the scope of the FAA was held to apply only to categories of workers akin to railway workers and seaman. Recently, SCOTUS has interpreted the exception more broadly to include workers who load cargo onto planes (Southwest Airlines v. Saxon). More recently still, SCOTUS held in Bissonnette v. LePage Bakeries that the scope of the § 1 exception was not limited to “transportation workers” in the transportation industry.*  It could include people in the baking industry who, like plaintiffs here, are engaged in the distribution of baked goods. However, while SCOTUS reversed the Second Circuit’s holding that § 1 does not apply workers outside of the “transportation industry,”it did not settle the issue of whether distributors are covered by the § 1 exemption. Chief Justice Roberts, writing for the majority, concluded as follows:

We express no opinion on any alternative grounds in favor of arbitration raised below, including that petitioners are not transportation workers and that petitioners are not “engaged in foreign or interstate commerce” within the meaning of §1 because they deliver baked goods only in Connecticut.

The Tenth Circuit waded into this controversy with all the verve of a Mammalians Nurturable kid goat (and diagrams). First, the First and the Ninth Circuits have both concluded that last-mile delivery truck drivers are engaged in interstate commerce.  However, food-delivery or ride-share drivers are more akin to local taxi services engaged in only intrastate commerce. Navigating between these two lines of cases, the Court considered three factors: “(1) the buyer-seller relationship between Flowers and Mr. Brock, (2) the buyer-seller relationship between Mr. Brock and Mr. Brock’s customers, and (3) the buyer-seller relationship, if any, between Flowers and Mr. Brock’s customers,” with the third factor being decisive.

Image by DALL-E

The Court takes us through the details of Mr. Brock’s distribution agreement with Flowers, which suffices to show that that Mr. Brock’s business was vital to the interstate commerce in which Flowers was engaged, bringing this case more in line that the last-mile delivery line of cases than the ride-share driver cases. As a result, Mr. Brock was engaged in interstate commerce, rendering him exempt from the application of the FAA. Mr. Brock is merely the last-mile driver in a transaction that is, in its essence between Flowers and its out-of-state customers. In so concluding, the Tenth Circuit approved of the District Court’s decision not to follow a Fifth Circuit decision that had ruled that last-mile drivers were not engaged in interstate commerce for the purposes of § 1 of the FAA.

I note that treating distribution agreements as employment contracts  creates some tension with the majority treatment of distribution agreements under the UCC. Most jurisdictions threat distributions as contracts for the sale of goods, even though they are really hybrid transactions, and the  service component of the contract might well predominate. That said, it is not unheard of for the law to treat the same transaction differently in different legal contexts.

It seems that Flowers attempted to argue that its contract with Mr. Brock was not covered under § 1 because it was a contract between two corporate entities. Flowers did not raise that issue below, and the Tenth Circuit refused to consider it, as its precedents preclude the consideration of forfeited arguments unless the matter is a pure question of law and the disposition is clear. Here, the Tenth Circuit has never ruled on whether contracts between corporate entities are covered under § 1, and therefore the disposition would be far from clear.

I was very interested in the District Court’s resolution of Flowers’ claim that arbitration should proceed under the Colorado arbitration act notwithstanding the District Court’s determination that Mr. Brock was exempt from arbitration under § 1 of the FAA. The District Court ruled that arbitration under Colorado’s act was foreclosed because permitting the arbitration to proceed based on that state act would be “inconsistent” with the FAA. The determination seems to be limited to the facts of this case. The arbitration agreement at issue in this case seems to have contradictory terms. It first provides that disputes “shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act.” It also allows for arbitration under the Colorado act “to the extent Colorado law is not inconsistent with the FAA.”

The simple solution is to resolve the ambiguity against the drafter, presumably Flowers, and to conclude that the Colorado act cannot apply because the FAA is to be the exclusive mechanism for dispute resolution. Otherwise, I am not sure why it is inconsistent with the FAA if the Colorado arbitration act permits for arbitration in some situations when the FAA does not. This entire case is made possible because of SCOTUS’s ruling in Saxon. But there, as Tamar Meshel (right) noted in a 2023 blog post here, the plaintiff in Saxon ended up arbitrating her claims under Illinois’ arbitration act. Perhaps the difference turns on the language of the arbitration clause at issue here, but I would like to see a more searching investigation of what it means for a state arbitration act to be “inconsistent” with the FAA.

Unfortunately, the Tenth Circuit concluded that it lacked jurisdiction to consider that issue on appeal. Section 16(a)(1) of the FAA permits interlocutory appeals of orders “denying a petition under section 4 of [the FAA] to order arbitration.” But the Tenth Circuit reads that section narrowly and will not exercise pendant jurisdiction to hear interlocutory appeals of orders denying petitions for state arbitration.

* This is an updated post. Thanks to a reader who alerted me to an error in my characterization of SCOTUS’s holding in Bissonnette.