Peterson v. Devita

237 N.E.3d 1010

2023 IL App (1st) 230356

Andrew PETERSON, Plaintiff-Appellee,

v.Stefania Francesca DEVITA, Airbnb, Inc., Airbnb Rpg, Inc., Ken Moore Construction, Inc., and Lorie Melhous, Defendants-Appellants.

No. 1-23-0356

Appellate Court of Illinois, First District, Sixth Division.

Filed September 22, 2023

Appeal from the Circuit Court of Cook County. No. 2021 L 12856, The Honorable Moira S. Johnson Judge, presiding.

John C. Ellis and David DeSchepper, of Ellis Legal, P.C., of Chicago, and Raechel Keay Kummer (pro hac vice), of Morgan, Lewis & Bockius LLP, of Washington, D.C., for appellants Airbnb, Inc. and Airbnb RPG, Inc.

No briefs filed for other appellants.

Matthew A. Saltzman, of Sherwood Law Group, LLC, of Chicago, for appellee.

OPINION

JUSTICE HYMAN delivered the judgment of the court, with opinion.

¶ 1 As a condition for doing business, electronic booking agents often bind consumers to a lengthy contract, sometimes labeled "Terms of Service." Usually, these contracts, imposed on a take-it-or-leave-it basis, contain a mandatory arbitration provision. Their legal ramifications can be severe. Just how severe is illustrated in this case.

¶ 2 Plaintiff Andrew Peterson was permanently injured when the railing gave way on an elevated porch deck of a home booked by a friend through Airbnb, Inc. (Airbnb) Peterson sued Airbnb, among others, alleging negligence. Airbnb moved to stay the proceedings and compel arbitration, arguing that Peterson accepted Airbnb’s terms of service by creating an Airbnb account several years earlier, though he never used the site. The contract mandated that claims and disputes "arising out of or relating to" use of its platform be arbitrated and an arbitrator must decide the threshold issue of arbitrability. Peterson argued his friend booked the property, so Peterson was not obligated to arbitrate. The trial court ruled in Peterson’s favor.

¶ 3 In this interlocutory appeal, Airbnb contends the trial court erred because (i) Peterson agreed to mandatory arbitration when he created an Airbnb account and accepted its terms of service and (ii) neither the trial court nor this court has authority to rule on arbitrability, which the arbitration agreement delegates to an arbitrator. Alternatively, Airbnb contends that if we address the arbitrability issue, we should find that Peterson’s claims (i) fall within the scope of the arbitration provision or (ii) are barred by principles of agency and equitable estoppel.

¶ 4 We affirm. First, under the caselaw, the threshold question of arbitrability presents a legal issue for the courts to decide. Next, because Peterson had nothing to do with booking the property on Airbnb, his injuries did not arise from his use of the Airbnb platform, so the arbitration provision does not apply to him. Similarly, the principles of agency and equitable estoppel do not apply either.

¶ 5 Background

¶ 6 Airbnb provides an online "community marketplace" for people to list and book accommodations worldwide. A host with a property to book creates a listing on Airbnb’s website. A guest wanting to book a property signs up and uses Airbnb’s marketplace to communicate directly with a host to request a booking. If the host accepts, the host and guest enter an agreement. Airbnb does not own, manage, or operate the properties. Instead, Airbnb facilitates the booking between a property host and a guest. To reserve property through Airbnb, a user must create an account and profile and accept Airbnb’s terms of service. Andrew Peterson created an Airbnb account in January 2017 and accepted the terms of service and its updated terms in September 2018 and September 2019. The terms provide in part:

"You and Airbnb mutually agree that any dispute, claim or controversy arising out of or relating to these Terms or the applicability, breach, termination, validity, enforcement or interpretation thereof, or to the use of the Airbnb Platform, the Host Services, the Group Payment Service, or the Collective Content (collectively, ‘Disputes’) will be settled by binding individual arbitration (the ‘Arbi-tration Agreement’) *** If there is a dispute about whether this Arbitration Agreement can be enforced or applies to our Dispute, you and Airbnb agree that the arbitrator will decide the issue."

¶ 7 A choice of law provision applies the laws of California, where Airbnb has its headquarters.

¶ 8 In May 2020, a friend of Peterson’s, Ian Bannon, used Airbnb’s website to book a property in Galena. (Bannon is not a defendant.) Bannon agreed to Airbnb’s terms of service when he created an Airbnb account. In making the reservation, Bannon indicated nine guests. Bannon did not list Peterson as a guest on the reservation.

¶ 9 While staying at the Galena property, Bannon hosted a party that Peterson attended. As Peterson stood on an elevated porch deck, its railing gave way. Peterson fell hard, sustaining serious injuries, including an open ankle fracture that necessitated a below-the-knee amputation of his left leg.

¶ 10 Peterson filed a 15-count complaint against Airbnb, Inc., and others, asserting claims for negligence, res ipsa loquitur, and construction negligence. He sought damages for his physical injuries and loss of normal enjoyment of life.

¶ 11 Airbnb moved to compel arbitration and stay proceedings, claiming that (i) Peterson consented to the mandatory arbitration provision by accepting its terms of service and (ii) the trial court should stay the proceedings and refer arbitrability to an arbitrator. Alternatively, Airbnb contended the court should compel arbitration because (i) Peterson’s claims come squarely within the scope of the arbitration agreement, (ii) Bannon agreed to the terms of service and acted as Peterson’s agent when booking the property, or (iii) principles of equitable estoppel apply.

¶ 12 Peterson argued that because he has no involvement whatsoever in booking the property, his claims fall outside the arbitration agreement’s scope. Plus, Bannon’s relationship to Peterson fails to satisfy the elements of either agency or equitable estoppel.

¶ 13 After a hearing, the trial court entered an order denying Airbnb’s motion. Airbnb filed a notice of interlocutory appeal, asking this court to vacate the order and compel arbitration.

¶ 14 Analysis

¶ 15 Standard of Review

[1,2] ¶ 16 Under Illinois Supreme Court Rule 307(a)(1) (eff. Nov. 1, 2017), the sole issue concerns whether the movant made a sufficient showing to sustain the order granting or denying the relief. Hollingshead v. A.G. Edwards & Sons, Inc., 396 Ill. App. 3d 1095, 1099, 336 Ill.Dec. 664, 920 N.E.2d 1254 (2009). We review de novo appeals from the denial of a motion to compel arbitration without an evidentiary hearing. Id. In addition, interpreting an arbitration agreement presents a question of law reviewed de novo. QuickClick Loans, LLC v Russell, 407 Ill. App. 3d 46, 52, 347 Ill.Dec. 876, 943 N.E.2d 166 (2011).

¶ 17 Choice of Law

[3,4] ¶ 18 Preliminarily, Airbnb asserts that the choice of law provision in its terms of service specifies California law. That presupposes an enforceable contract binding Peterson. Yet, the central disputed issue involves whether an enforceable contract even exists. Hence, resorting to the choice-of-law provision would be premature. See Life Plans, Inc. v. Security Life of Denver Insurance Co., 800 F.3d 343, 357 (7th Cir. 2015) (court may decline to follow contractual choice-of-law provision "if the contract’s legality is fairly in doubt, for example, if the contract is unconscionable, or if there is some other issue as to the validity of the very formation of the contract"). In the absence of the choice-of-law provision, Illinois law provides that "the validity, construction and obligations of a contract are governed by the law of the place where it is made." Progressive Insurance Co. v. Williams, 379 Ill. App. 3d 541, 546, 318 Ill.Dec. 767, 884 N.E.2d 735 (2008). Thus, we look to Illinois law.

¶ 19 Arbitrability

[5] ¶ 20 When presented with a motion to dismiss or stay an action and compel arbitration, the trial court limits its inquiry to "gateway" issues, including the arbitration clause’s validity and, if valid, whether the dispute falls within its scope. Hartz v. Brehm Preparatory School, Inc., 2021 IL App (5th) 190327, ¶ 42, 451 Ill.Dec. 126, 183 N.E.3d 172; see also United Cable Television Corp. v. Northwest Illinois Cable Corp., 128 Ill. 2d 301, 306, 131 Ill.Dec. 172, 538 N.E.2d 547 (1989) (before issue can properly be referred to arbitrator, particular dispute must be of type parties agreed should be submitted to arbitration).

[6] ¶ 21 As noted, Airbnb contends the trial should have granted its motion to stay and referred the case to arbitration because the arbitration provision requires an arbitrator to decide issues of arbitrability. Before determining that issue, however, we first must address whether the Airbnb terms of service relate to the allegations in Peterson’s complaint.

[7-10] ¶ 22 As the issue involves arbitration, we note that the provisions of the Federal Arbitration Act (9 U.S.C. § 1 et seq. (2018)), and not state law, control the putative terms of service. The Federal Arbitration Act reflects the fundamental principle that arbitration is a matter of contract. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010); 9 U.S.C. § 2 (2018). Moreover, a court should order arbitration "only where the court is satisfied that neither the formation of the parties’ arbitration agreement nor (absent a valid provision specifically committing such disputes to an arbitrator) its enforceability or applicability to the dispute is in issue." (Emphasis in original.) Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287, 299, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010). "Where a party contests either or both matters, ‘the court’ must resolve the disagreement." Id. at 299-300, 130 S.Ct. 2847 (quoting First Options of Chicago,...