A recent court ruling has significant implications for consumers using third-party delivery services and the businesses they partner with. On August 19, 2024, the Court of Appeal of the State of California, Second Appellate District, Division Eight, upheld a decision denying The Kroger Co.'s motion to compel arbitration in a case filed by Payam Mahram in Los Angeles County Superior Court.
The lawsuit began when Payam Mahram used Instacart to purchase groceries from Ralphs, operated by The Kroger Co. Mahram alleged that Ralphs engaged in false advertising and unfair competition by raising prices after he applied a coupon to his Instacart purchase. In response, Ralphs sought to compel arbitration based on an agreement between Mahram and Instacart. However, the court found that this arbitration agreement did not extend to Ralphs.
Mahram's legal team argued that while he had agreed to arbitrate disputes with Instacart upon signing up for their service, this agreement did not cover disputes with third parties like Ralphs. The court concurred, noting that the terms of service explicitly stated that arbitration was only applicable between Mahram and Instacart. "For residents of the United States," the terms read, "you agree to resolve through binding arbitration... any dispute... arising at any time out of or relating to... your relationship or transactions with Instacart as a consumer."
The court also addressed whether it was appropriate for them or an arbitrator to decide if Ralphs could enforce the arbitration agreement as a third-party beneficiary. They concluded it was within their jurisdiction because there was no "unmistakable clarity" that Mahram had agreed to arbitrate such issues with anyone other than Instacart.
In its ruling, the court emphasized that Ralphs was not a third-party beneficiary of the Mahram-Instacart contract. Citing Goonewardene v. ADP, LLC (2019), they explained that for Ralphs to be considered a third-party beneficiary, it must have been a motivating purpose behind the contract between Mahram and Instacart. However, the primary intent was for Mahram to receive groceries conveniently while allowing Instacart to profit from facilitating these transactions—not specifically benefiting Ralphs.
Ultimately, the court affirmed the lower court's decision denying Ralphs' motion to compel arbitration. This outcome underscores that businesses cannot automatically enforce arbitration agreements between consumers and third-party service providers unless explicitly included in those agreements.
Representing Payam Mahram were attorneys Todd M. Friedman, Adrian R. Bacon, and Meghan E. George from the Law Offices of Todd M. Friedman. Jacob M. Harper, James H. Moon, and Peter K. Bae from Davis Wright Tremaine represented The Kroger Co., doing business as Ralphs Grocery Company. The case was presided over by Judge Elihu M. Berle under Case ID No: 22STCV10339.