Adler v. Gruma
Charles Adler, his son Grant, and Charles’s limited liability company, C. M. Adler, LLC, sued Gruma Corporation—one of the largest tortilla producers in the world—to challenge their retaliatory termination and to recover unpaid wages and other payments they were owed under state and federal labor law. After the district court granted Gruma’s motion to compel arbitration, the Adlers appealed to the U.S. Court of Appeals for the Third Circuit. Public Justice represents the Adlers in their appeal.
The Adlers’ case is an important opportunity to ensure that transportation workers can effectively fight back in court when companies exploit them through misclassification. It involves important several important questions about the application of recent Supreme Court precedent on forced arbitration, like making sure courts follow the Supreme Court’s directive to first determine whether the Federal Arbitration Act (FAA) applies before compelling arbitration, and do not apply arbitration-specific rules that treat arbitration agreements more favorably than other contracts. The Adlers’ appeal is fully briefed, and we await the Third Circuit’s decision.
Gruma uses a network of distributors to transport its well-known food products, including Mission Tortillas, across state lines from its manufacturing facilities onto store shelves around the country. The Adlers purchased a distribution route from Gruma in 2014 and delivered Gruma products on the “last mile” of their journey from a Pennsylvania factory to stores in Mercer County, New Jersey. Although Gruma claims that drivers like the Adlers are “independent contractors,” it closely controls almost every aspect of their work—a common scheme used by the world’s largest companies. Frustrated by their pay and working conditions, the Adlers and other distributors met with a lawyer to discuss their rights. Gruma found out and terminated its distribution agreement with C. M. Adler, LLC.
In November 2022, the Adlers sued Gruma in federal court. Bringing claims under federal and New Jersey labor laws as well as New Jersey common law, the Adlers alleged that Gruma misclassified them as independent contractors, owed them unpaid wages and other payments, and terminated them out of retaliation for meeting with an attorney. They also argued in the alternative that C. M. Adler, LLC was a franchisee of Gruma, and Gruma had terminated the distribution agreement in violation of New Jersey franchise protections.
Rather than respond to the Adlers’ claims on the merits, Gruma moved to compel them into arbitration. The Adlers made several arguments to keep their case in court, including that the distribution agreement with Gruma was not subject to the FAA, because the Adlers distributed goods in interstate commerce. Even so, the district court granted Gruma’s motion and compelled arbitration.
Public Justice represents the Adlers on appeal in the Third Circuit. The Adlers advance a number of arguments on appeal, including that the district court’s analysis is contrary to two recent Supreme Court cases: New Prime v. Oliveira and Morgan v. Sundance. Public Justice served as counsel in both of those cases.
First, the Adlers argue that the district court erred in compelling arbitration without first determining whether it had authority to do so, under either the FAA or state law. Instead—and contrary to the Supreme Court’s instruction in New Prime—the court simply assumed it had the authority to send the Adlers’ case to arbitration. Then the court directed the arbitrator to determine whether the distribution agreement with Gruma was exempt from the FAA under its transportation worker exemption.
The Adlers also argue that the district court erred in enforcing a so-called delegation clause because Gruma waived its right to enforce that clause by failing to invoke it. In addition, the Adlers argue that the district court erred in its choice of law analysis, which failed to account for New Jersey’s fundamental interests contrary to Third Circuit precedent.
And finally, the Adlers also argue that the district court erred in concluding that Charles and Grant could be bound by the distribution agreement, because C. M. Adler, LLC—not the individual Adlers—signed the agreement. To reach that conclusion, the district court applied an arbitration-specific rule of “equitable estoppel” contrary to the Supreme Court’s instruction in Morgan that arbitration agreements be held to the same standards as other forms of contracts. As the Supreme Court explained in Morgan, “The federal policy is about treating arbitration contracts like all others, not about fostering arbitration.” By using an easier test for equitable estoppel, the district court’s analysis violated Morgan’s equal-treatment principle.
