Charles Adler v. Gruma Corporation

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 23-3177

CHARLES L. ADLER; GRANT ADLER;

CM ADLER, LLC,

Appellants

v.

GRUMA CORPORATION, DBA Mission

Foods; GUERRERO MEXICAN FOOD

PRODUCTS, Etc.

_____________________________________

On Appeal from the United States District Court

for the District of New Jersey

(District Court No. 3:22-cv-06598)

District Judge: Honorable Robert Kirsch

_____________________________________

Argued November 6, 2024

(Filed: April 16, 2025)

Before: KRAUSE, SCIRICA, and RENDELL, Circuit

Judges.

Stephen J. Brown

David H. Chen

Susan E. Galvao

Bleakley Platt & Schmidt

One N Lexington Avenue

White Plains, NY 10601

Hannah M. Kieschnick [ARGUED]

Public Justice

475 14th Street

Suite 610

Oakland, CA 94612

Shelby H. Leighton

Public Justice

1620 L Street NW

Suite 630

Washington, DC 20036

Counsel for Appellants

Christopher B. Fontenelli

Richard J. Reibstein [ARGUED]

Troutman Pepper Locke

200 Vesey Street

Brookfield Place, 20th Floor

New York, NY 10281

Counsel for Appellees

_________

OPINION OF THE COURT

_________

2

RENDELL, Circuit Judge.

Plaintiffs Charles and Grant Adler, through their

business entity, Plaintiff CM Adler LLC, distributed tortillas

and other food products of Defendant Gruma Corporation to

grocery stores in the central New Jersey area pursuant to a

“Store Door Distributor Agreement” (SDDA). When

Defendant terminated the relationship, Plaintiffs brought this

lawsuit. �e District Court dismissed the case, concluding that

under the SDDA, Texas law governed and the case should

proceed to arbitration.

Plaintiffs urge the District Court should have first

considered the applicability of the Federal Arbitration Act

(FAA) and conclude that it did not apply to their contract

because it was a “contract[] of employment” and, as

distributors, they belong to a “class of workers engaged in . . .

interstate commerce.” 9 U.S.C. § 1. Plaintiffs also dispute the

District Court’s decision to apply Texas rather than New Jersey

law and raise objections to its interpretation of the contract as

well as its decision to bind two non-signatories under an

estoppel theory.

We agree with Plaintiffs that the District Court’s choice-

of-law analysis was flawed because it failed to consider the

impact of three New Jersey public policies on its arbitrability

ruling. Before considering that aspect of the District Court’s

ruling, however, and based on our opinion in Harper v.

Amazon.com Servs., Inc., 12 F.4th 287 (3d Cir. 2021), we will

address the applicability of the FAA. Because the record on

that issue is fully developed, and the question it presents is a

purely legal one, we can conclude on appeal that the FAA does

not apply to the SDDA. We will then remand for the District

Court to consider the arbitrability analysis anew under state

3

law. We will also instruct the District Court on remand to

reevaluate, if necessary, whether the individual Plaintiffs, who

did not sign the arbitration agreement, are bound by its terms.

I.

Plaintiffs allege that in March 2014, CM Adler LLC

entered into the SDDA with Defendant Gruma Corporation to

distribute Defendant’s tortillas and other food products to

stores in Trenton and surrounding areas of central New Jersey.

�e SDDA was signed on behalf of CM Adler LLC by non-

party Mary Adler. Plaintiffs Charles and Grant Adler, not

themselves signatories to the contract, performed the LLC’s

work for the next eight years, until Defendant terminated

Plaintiffs’ distributorship “without cause” in June 2022. Appx

033, ¶ 10.

Plaintiffs then brought this lawsuit. �ey alleged

Defendant’s termination was retaliatory because Plaintiffs had

begun organizing with other distributors to discuss their legal

rights. Plaintiffs alleged that Defendant’s actions violated state

and federal labor laws, including failing to pay minimum

wages and making unlawful deductions. �ey urged that their

relationship was governed by these labor laws based on the

degree of control Defendant exerted over Plaintiffs’ day-to-day

work. Plaintiffs also urged that the SDDA was in substance a

“franchise” agreement subject to New Jersey’s Franchise

Practices Act, N.J. Stat. § 56:10-1 et seq., and that, therefore,

termination without cause was forbidden. Appx 069–072.

Defendant moved to dismiss and compel arbitration

based on a provision in the SDDA, which stated that, with

certain exceptions not relevant here:

4

[A]ll . . . claims and causes of action arising out

of or relating to this Agreement (including,

without limitation, matters relating to this

Subsection 15(i) regarding arbitration, matters

relating to performance, breach, interpretation,

meaning, construction, or enforceability of all or

any part of this Agreement, and all claims for

rescission or fraud in the inducement of this

Agreement) shall be resolved by arbitration

through J·A·M·S/Endispute (“JAMS”) as

provided in Subsection 15(i)(iii) [sic] below.

Appx 096, § 15.i.ii.

Defendant’s motion invoked both the FAA, 9 U.S.C. § 1

et seq., and the Texas Arbitration Act (TAA), Tex. Civ. Prac. &

Rem. Code, ch. 171. As support for the application of Texas

law, Defendant pointed to the choice-of-law provision in the

SDDA, which states:

�is Agreement shall be governed by and

construed in accordance with the laws of the

State of Texas. �e Federal Arbitration Act, 9

U.S.C. § 1 et seq. shall also apply as needed to

uphold the validity or enforceability of the

arbitration provisions of this Agreement.

Appx 098, § 15.k. Defendant also attached a declaration listing

its contacts with Texas, including that Texas was the location

of its headquarters and the state where it performed many of its

business operations.

Plaintiffs opposed arbitration. �ey contended the FAA

does not apply due to its exemption for “contracts of

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employment of seamen, railroad employees, or any other class

of workers engaged in foreign or interstate commerce.” 9

U.S.C. § 1. Charles Adler submitted a declaration recounting

Plaintiffs’ transportation work, including “receiv[ing]

shipments of Gruma product,” “load[ing] the Gruma product

on to . . . trucks,” and “transport[ing] the product to the Gruma

accounts.” Appx 123–24, ¶ 24. Plaintiffs also urged that,

notwithstanding the parties’ selection of Texas law, New Jersey

law should apply to bar arbitration based on various aspects of

New Jersey public policy.

�e District Court granted Defendant’s motion and

compelled arbitration. Adler v. Gruma Corp., No. 22-cv-6598,

2023 WL 7490006, at *10 (D.N.J. Nov. 13, 2023). It did not

address whether the FAA applied or evaluate Plaintiffs’

exemption argument. 1 It found the parties had contracted for

Texas law, under which the arbitration agreement was

enforceable, and rejected Plaintiffs’ bid to apply New Jersey

law instead. Id. at *6–7. In conducting the choice-of-law

analysis, the District Court focused on the parties’ respective

contacts with Texas and New Jersey but did not weigh the New

1

In its opinion, the District Court included a footnote stating:

Plaintiffs also argue that they should be exempt

from arbitration under the FAA because they are

interstate transportation workers under the

exception found in 9 U.S.C. § 1. As noted above,

the parties have entered into a valid arbitration

agreement which contains a delegation clause;

therefore, issues pertaining to arbitrability must

be decided by an arbitrator.

Adler, 2023 WL 7490006, at *10 n.8 (citation omitted).

6

Jersey policies Plaintiffs urged would undermine the

arbitration agreement. Id. at *3–6.

Next, the District Court decided that Charles and Grant

Adler, who did not sign the contract, were estopped from

challenging its arbitration provision because they “acted as

parties to” the contract when they performed the LLC’s work.

Adler, 2023 WL 7490006, at *8. It then construed the

arbitration provision to contain a “delegation clause,” whereby

the arbitrator, rather than a court, should interpret the scope of

the arbitration provision. Id. It thus declined to determine

which of Plaintiffs’ claims “ar[ose] out of or relat[ed] to” the

contract. Id.; Appx 096. Finally, the District Court dismissed

the case so it could proceed to arbitration under Texas law.

Plaintiffs then filed the instant appeal.

II.

�e District Court had jurisdiction under 28 U.S.C.

§§ 1331, 1367(a), and 1332(a). We have jurisdiction under 28

U.S.C. § 1291.

We review the grant of a motion to compel arbitration

de novo, applying the same standard that “should have been

applied” in the District Court. Singh v. Uber Techs. Inc. (Sing

I), 939 F.3d 210, 217 (3d Cir. 2019). If the motion can be

decided “based on the face of a complaint, and documents

relied upon in the complaint, ” a motion-to-dismiss standard

should be used; otherwise, the summary judgment standard

should be applied. Guidotti v. Legal Helpers Debt Resol., LLC,

716 F.3d 764, 776 (3d Cir. 2013) (quotation marks omitted).

�e District Court here stated it would employ the motion-to-

dismiss standard, but its opinion cites facts from the parties’

7

declarations submitted in connection with the motion. Adler,

2023 WL 7490006, at *2, *4 & n.4. We therefore will use the

summary judgment standard and ask whether Defendant, as the

moving party, has “show[n] that there is no genuine dispute as

to any material fact and [Defendant] is entitled to” an order

compelling arbitration “as a matter of law.” Guidotti, 716 F.3d

at 772 (quoting Fed. R. Civ. P. 56(a)).

We review the District Court’s decision to sua sponte

conclude that the contract contained a “delegation clause” for

abuse of discretion. See United States v. Dowdell, 70 F.4th 134,

140 (3d Cir. 2023) (existence of waiver and decision to excuse

waiver reviewed for abuse of discretion). �e interpretation of

unambiguous contractual language is reviewed de novo. Sköld

v. Galderma Lab’ys L.P., 917 F.3d 186, 191 n.9 (3d Cir. 2019).

III.

�e District Court was presented with a fairly

straightforward question: whether the parties had an

enforceable agreement to arbitrate and under what law.

However, the answer to that question lies in the sometimes not

so straightforward principles of federalism, choice of law, and

contract interpretation. See Harper, 12 F.4th at 294.

A. Sources of Arbitration Law

When a district court is presented with a request to

enforce an agreement to arbitrate, it must determine whether

that agreement is enforceable under applicable law. Harper, 12

F.4th at 295. Based on the principles of federalism set out in

Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), federal courts will

enforce both federal and state arbitration law, Bernhardt v.

Polygraphic Co. of Am., 350 U.S. 198, 202–03 (1956), but will

8

give precedence to federal law where the two conflict, Volt Info.

Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ.,

489 U.S. 468, 477 (1989). Here, the potentially applicable

federal law is the FAA, whose “ ‘principal purpose’ . . . is to

‘ensure that private arbitration agreements are enforced

according to their terms.’ ” AT&T Mobility LLC v. Concepcion,

563 U.S. 333, 344 (2011) (alterations omitted) (quoting Volt,

489 U.S. at 478). �e FAA declares most written arbitration

agreements “valid, irrevocable, and enforceable, save upon

such grounds as exist at law or in equity for the revocation of

any contract,” and enacts procedures for sending parties to

arbitration and staying pending litigation. See 9 U.S.C. §§ 2–4.

But the FAA does not apply to all contracts, since it exempts,

as relevant here, “contracts of employment of seamen, railroad

employees, or any other class of workers engaged in foreign or

interstate commerce” (the “§ 1 exemption”). 9 U.S.C. § 1.

Where the request is to enforce an arbitration agreement

under state law, and a question arises as to which state’s law

applies, the court will use the choice-of-law rules of the forum

state, even where the parties have contracted for application of

a particular state’s law. Harper, 12 F.4th at 295 (citing Collins

v. Mary Kay, Inc., 874 F.3d 176, 183 (3d Cir. 2017)). It may

also need to consider whether the FAA preempts any state laws

that would otherwise govern. If the parties’ contract is within

the scope of the FAA, state laws that conflict with the FAA or

would “stand as an obstacle to the accomplishment of the

FAA’s objectives” will be preempted. Concepcion, 563 U.S. at

343. �us, where the FAA would require the court to enforce

the agreement, a state law that would prevent its enforcement

will usually be preempted. See Southland Corp. v. Keating, 465

U.S. 1, 15–16 (1984) (holding preempted a California

franchise statute to the extent it would preclude enforcement of

9

an agreement to arbitrate). But pro-arbitration state laws—i.e.

laws that would enforce the agreement—generally remain in

force. Harper, 12 F.4th at 293–94. And, of course, if the parties’

agreement is outside the scope of the FAA altogether, the FAA

will not preempt any state laws that may apply to it, including

laws that may render the agreement unenforceable. Cf. Lewis

v. Cir. City Stores, Inc., 500 F.3d 1140, 1152 (10th Cir. 2007)

(“[W]hen the FAA applies to an arbitration agreement, the

FAA preempts conflicting state law . . . .” (emphasis added)).

Importantly, under both federal and state arbitration law,

the starting place is typically the parties’ agreement, and that

will usually dictate whether, and under what law, arbitration

should take place. See Harper, 12 F.4th at 294. “[P]arties are

generally free to structure their arbitration agreements as they

see fit,” and where they “have agreed to abide by state rules of

arbitration, enforcing those rules according to the terms of the

agreement is fully consistent with the goals of the FAA.” Volt,

489 U.S. at 479. �e forum state here, New Jersey, generally

allows parties to choose the state’s law that will govern their

contracts, but choice-of-law principles may override that

selection under certain circumstances. See Arafa v. Health

Express Corp., 233 A.3d 495, 506 (N.J. 2020) (conducting a

choice-of-law analysis before deciding to apply New Jersey

arbitration law as selected by the parties); Grandvue Manor,

LLC v. Cornerstone Contracting Corp., 272 A.3d 36, 44 (N.J.

Super. Ct. App. Div. 2022) (conducting a choice-of-law

analysis before enforcing parties’ selection of New York

arbitration law).

10

B. When a Party Seeks Enforcement Under

Either Federal or State Arbitration Law

Defendant’s motion to compel arbitration urged that the

District Court had authority to issue such an order under either

the FAA or Texas law, both of which favor arbitration. Plaintiffs

countered that the FAA did not apply, and the Court should

decline to enforce the parties’ selection of Texas law pursuant

to New Jersey’s choice-of-law rules because three New Jersey

policies disfavored arbitration: (1) a policy against forum-

selection clauses in franchise agreements; (2) a policy

requiring arbitration provisions in employment contracts to be

clear about the difference between arbitration and litigation;

and (3) a policy requiring arbitration provisions in employment

contracts to be clear about their coverage of statutory claims.

In Harper, we advised, where arbitration is sought

under both the FAA and state law, and the parties contest the

FAA’s applicability under 9 U.S.C. § 1, district courts must

follow a three-part inquiry:

At step one, . . . a court must consider whether

[the § 1 exemption applies]. . . . If that analysis

leads to murky answers, a court moves to step

two and assumes [the] § 1 [exemption] applies,

taking the FAA out of the agreement. But the

court then considers whether the contract still

requires arbitration under any applicable state

law. . . . If the arbitration clause is also

unenforceable under state law, then the court

reaches step three, and must return to federal law

and decide whether § 1 applies . . . .

11

Harper, 12 F.4th at 296. �e parties here dispute whether,

under Harper, courts must always start with the FAA, or

whether they may “jump” to independent state law to compel

arbitration (i.e., Harper’s step two). We need not settle this

issue, however. Under either reading, the District Court erred

in relying on cases interpreting the FAA despite not having

determined that the FAA applied. See Adler, 2023 WL

7490006, at *7 (citing In re FirstMerit Bank, N.A., 52 S.W.3d

749 (Tex. 2001), as an authority on Texas arbitral law when, in

fact, the case applies the FAA). Without deciding whether

courts may “jump” to Harper’s step two, we will analyze these

issues anew, beginning with the parties’ dispute over whether

the FAA applies. �at question may be answered cleanly on the

present undisputed record, and it has the potential to obviate

the need for a murkier choice-of-law analysis—because, if the

FAA does apply, it would require us to “ ‘rigorously enforce’

[the] arbitration agreement[] according to [its] terms,” Am.

Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 233 (2013), and

preempt any contrary New Jersey policies, Concepcion, 563

U.S. at 343. 2

�e District Court’s opinion suggests it believed it

should bypass the determination as to the applicability of the

FAA because the SDDA contained a “delegation clause”—i.e.,

an agreement to delegate matters of arbitrability to an

arbitrator. See Adler, 2023 WL 7490006, at *10 n.8 (declining

to decide whether the FAA applied because “issues pertaining

to arbitrability must be decided by an arbitrator”). But,

notwithstanding the presence of a delegation clause, a court

2

Since Plaintiffs concede that the relevant New Jersey policies

would be preempted, see Reply Br. 8, we need not decide that

issue.

12

still may not send a dispute to arbitration without first

determining that there is an agreement to arbitrate that is

enforceable under applicable law. See New Prime Inc. v.

Oliveira, 586 U.S. 105, 111 (2019). �at is because “[a]

delegation clause is merely a specialized type of arbitration

agreement,” which a court must evaluate in the same manner

as it would “any other” arbitration agreement. See id. at 112 (in

part quoting Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 70

(2010)). Accordingly, New Prime instructs that there is an

“antecedent” statutory inquiry that the court should address

before enforcing a delegation clause. Id. It addressed the

question: whether the court must “leave disputes over the

application of [FAA] § 1’s exception for the arbitrator to

resolve?” Id. at 108. �e Court said no. Id. at 111. �at principle

is squarely implicated here.

We will thus proceed to address that issue.

IV.

�e FAA applies to most written agreements to arbitrate,

but exempts “contracts of employment of seamen, railroad

employees, or any other class of workers engaged in foreign or

interstate commerce” (the “§ 1 exemption”). 9 U.S.C. § 1.

Plaintiffs contend the SDDA was such a contract.

A. Standard for the § 1 Exemption

�e FAA’s exemption for “any . . . class of workers

engaged in . . . [interstate] commerce” is limited to

“transportation workers,” Circuit City Stores, Inc. v. Adams,

532 U.S. 105, 118–19 (2001)—i.e., those workers who are

“actively ‘engaged in transportation’ of . . . goods across

borders,” Sw. Airlines Co. v. Saxon, 596 U.S. 450, 458 (2022)

13

(quoting Circuit City, 532 U.S. at 121). �at inquiry turns on

“the actual work” such workers “typically” perform. Id. at 456.

In assessing the nature of the employees’ work, the court may

look beyond individual employees to the “class” of workers,

thus considering such evidentiary sources as “the contents of

the parties’ agreement(s), information regarding the industry in

which the class of workers is engaged, information regarding

the work performed by those workers, and various texts—i.e.,

other laws, dictionaries, and documents—that discuss the

parties and the work.” Singh I, 939 F.3d at 227–28. But “[a]

transportation worker need not work in the transportation

industry” to fit the exemption. Bissonnette v. LePage Bakeries

Park St., LLC, 601 U.S. 246, 256 (2024); see also Brock v.

Flowers Foods, Inc., 121 F.4th 753, 761 (10th Cir. 2024)

(finding food distributors to be transportation workers).

Instead, the focus is “what [the worker] does [for the

employer], not what [the employer] does generally.” Saxon,

596 U.S. at 456.

In addition, a worker whose “work is ‘so closely related’

to interstate commerce ‘as to be in practical effect part of it’ ”

is an interstate transportation worker, even if that worker does

not personally cross state lines. Singh v. Uber Techs., Inc.

(Singh II), 67 F.4th 550, 558 (3d Cir. 2023) (quoting Singh I,

939 F.3d at 220). What matters is whether the work “is a

‘constituent part’ of the interstate movement of goods or people

rather than a ‘part of an independent and contingent intrastate

transaction.’ ” Id. (quoting Immediato v. Postmates, Inc., 54

F.4th 67, 77 (1st Cir. 2022)). “[R]are engagement” with

interstate commerce is not enough; instead, “interstate

movement of goods or passengers [must be] a central part of

the job description of the class” of workers. Id. at 557

(quotation marks omitted). And the exemption does not cover

14

“workers who engage in primarily local economic activity with

only tangential interstate connections.” Id. at 558. “Food

delivery drivers, for example, can be distinguished from

Amazon delivery drivers, as the former deliver food only after

it has left the stream of interstate commerce. Similarly,

Chicago taxi drivers provide independent local service which

is not an integral part of interstate transportation.” Id. at 558–

59 (citations and quotation marks omitted) (citing Rittmann v.

Amazon.com, Inc., 971 F.3d 904, 916 (9th Cir. 2020); Wallace

v. Grubhub Holdings, Inc., 970 F.3d 798, 802–03 (7th Cir.

2020); United States v. Yellow Cab Co., 332 U.S. 218, 233

(1947)).

By way of illustration, in Saxon, the employee’s

primary duty was to manage other workers in the loading and

unloading of cargo planes, although the employee would

“frequently” move the cargo herself as well. Saxon, 596 U.S.

at 456. �e Supreme Court reasoned that, regardless of her

other duties, those who “physically load and unload cargo on

and off planes traveling in interstate commerce are, as a

practical matter, part of the interstate transportation of goods.”

Id. at 457. By contrast, in Singh, the plaintiffs, who drove for

Uber, were predominantly local, intrastate transporters. See

Singh II, 67 F.4th at 555 (quoting the district court’s finding

that “2% of all rides” were interstate and “likely occur[red] due

to the happenstance of geography”). �ese drivers’

“[i]ncidental border crossings [were] insufficient” to meet the

exemption given that the bulk of their work was “not typically

involved with the channels of interstate commerce.” Id. at 559.

And while Uber drivers would sometimes take passengers to

and from the airport, these did not count as interstate trips

because there was no “single ticket that includes both flight and

rideshare”; the latter was an “independent local service.” Singh

15

II, 67 F.4th at 562 (in part quoting Yellow Cab, 332 U.S. at 232–

33).

B. Application to the Present Undisputed Facts

We turn to the parties’ declarations to see if the

exemption “fits” based on the undisputed facts. 3 Defendant

shipped tortillas and other food products from Pennsylvania

into New Jersey and then tasked Plaintiffs with distributing

them to Defendant’s customers in Trenton and surrounding

areas. To that end, Plaintiffs received Defendant’s products at

their New Jersey warehouse, loaded the products onto trucks,

drove them to their buyers, unloaded and shelved the products,

and maintained the clients’ accounts. Transporting Defendant’s

goods constituted “[a] large component” of Plaintiffs’ day-to-

day work. Appx 124, ¶ 25. Defendant oversaw this work and

“coordinate[d] . . . the purchase and distribution of its

products” from its Texas headquarters, Appx 112, ¶ 6, and with

an “Area Manager” in New Jersey, Appx 122, ¶ 14. Plaintiffs

were Defendant’s exclusive distributors in the territory and

3

While neither the District Court nor the parties discuss this

aspect, we take the parties to not dispute the facts in their

declarations. �e District Court cited these facts

interchangeably with those in the complaint—without

objection then or before us on appeal—and no party asked for

discovery to controvert the other side’s account. See Fed. R.

Civ. P. 56(d) (specifying circumstances under which summary

judgment may be denied for discovery). Defendant also

conceded it was “not in a position . . . to dispute” Charles

Adler’s declaration. Tr. Oral Arg. 22:25-23:1. We thus take the

facts in the parties’ declarations as undisputed and examine

whether they give rise to the § 1 exemption.

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were prohibited from selling competing products. �us,

Plaintiffs reason, Defendant used distributors like them to

move products to customers across the state line, making them

“direct and necessary” to the interstate movement of goods.

Appellants’ Br. 21. And because Plaintiffs worked directly and

exclusively for Defendant rather than as “independent” local

resellers, they argue their delivery trips formed a “ ‘constituent

part’ of the interstate movement of [Defendant’s] goods” rather

than separate “intrastate transaction[s].” See Singh II, 67 F.4th

at 558.

Both before the District Court and on appeal, Defendant

offered little substantive argument that these facts do not

establish Plaintiffs as part of a class of transportation workers

engaged in interstate commerce. In particular, Defendant does

not dispute Plaintiffs’ contention that distributors who work

directly with an interstate manufacturer and move the

manufacturer’s goods along “the last mile of [their] interstate

journeys” qualify as interstate transportation workers despite

not personally crossing state lines. See Brock, 121 F.4th at 768

(quoting Rittmann, 971 F.3d at 916); Singh II, 67 F.4th at 558

(“Amazon delivery drivers who ‘locally transport[ed] goods on

the last legs of interstate journeys,’ fell under [the] § 1

[exemption] because their work occurred ‘within the flow of

interstate commerce.’ ” (quoting Waithaka v. Amazon.com,

Inc., 966 F.3d 10, 13 (1st Cir. 2020))).

Instead, Defendant’s principal contention is that

Plaintiffs did not spend a sufficient portion of their time on

transportation, since their other responsibilities included

“sell[ing], market[ing], and servic[ing] [Defendant’s]

products; servic[ing] and maintain[ing] [Defendant’s]

accounts; plac[ing] product orders; put[ting] the product on

supermarket shelves and displays; remov[ing] stale products;

17

keep[ing] up the relationships with the accounts; and sell[ing]

displays and present[ing] sale items to [Defendant’s]

accounts.” Appellee’s Br. 41. But Defendant points to no facts

to controvert Plaintiffs’ assertion that “a large component” of

their work for Defendant “involved the transportation of goods

and product.” Appx 124, ¶ 25. And while Defendant’s brief

includes a passing reference to a need for discovery, Defendant

did not seek discovery before the District Court and does not

suggest what discovery it would conduct or how the results of

such discovery might contradict Plaintiffs’ assertion that

transportation was “a large component” of their work.

Moreover, many of what Defendant calls Plaintiffs’

non-transportation activities are really just the mechanics of

how Plaintiffs moved products manufactured in Pennsylvania

to stores in New Jersey. For example, “plac[ing] [a] product[]

order[]” or “put[ting] the product on supermarket shelves” are

steps in the transportation process, like loading or unloading a

truck. Appellee’s Br. 41. �ese responsibilities are not unlike

those of the ramp supervisor in Saxon who managed and

trained other ramp workers in addition to handling cargo

herself. See 596 U.S. at 454. Accordingly, we perceive no

genuine dispute that Plaintiffs were transportation workers

engaged in interstate commerce.

Defendant also urges that, if Plaintiffs are correct that

their contract was a “franchise agreement,” it could not also be

a “contract of employment.” We disagree. In New Prime, the

Supreme Court embraced a broad interpretation of the concept

of a “contract of employment,” concluding that a contract of

employment for purposes of the FAA is any “agreement to

perform work,” regardless of whether it is for an employee or

an independent contractor. 586 U.S. at 110, 114. Depending on

its terms, a franchise agreement may be an agreement to

18

perform work. New Jersey’s definition of a “franchise” is any

“written arrangement . . . in which a person grants to another

person a license to use a trade name, trade mark, service mark,

or related characteristics, and in which there is a community of

interest in the marketing of goods or services.” N.J. Stat.

§ 56:10-3. A franchisor may contract for a franchisee to

“perform work” for the franchisor while using the franchisor’s

trademarks. Cf. Brock, 121 F.4th at 757, 767, 770 (finding the

§ 1 exemption applicable to a “direct-store-delivery”

distributorship agreement that, like the one here, included

terms for the protection of the seller’s “professional image”);

Brock v. Flowers Food, Inc., 673 F. Supp. 3d 1180, 1182 (D.

Colo. 2023) (describing the drivers as “independent distributor

franchisees”). Here, clearly, the SDDA and undisputed facts

show Plaintiffs contracted with Defendant to “perform work”

by distributing Defendant’s food products.

For these reasons, the FAA does not apply to the parties’

agreement to arbitrate.

V.

Because the FAA does not apply, the remaining

arbitration issues must be evaluated under state law. Harper,

12 F.4th at 296. �at begins with the forum state and its choice-

of-law rules. Id. at 295. New Jersey follows different choice-

of-law analyses depending on whether the contract selects a

specific state’s law. See Arafa, 233 A.3d at 506.

�e SDDA specified that Texas law would apply to the

parties’ “Agreement,” and the District Court interpreted that to

mean Texas law governed whether the arbitration provision of

the agreement was enforceable. On appeal, Plaintiffs disagree

with that contract interpretation. �ey urge the parties only

19

agreed that Texas law would govern their substantive

obligations under the contract, not whether the arbitration

provision of that contract was enforceable. 4

As noted above, the choice-of-law provision contains

two sentences: “�is Agreement shall be governed by and

construed in accordance with the laws of the State of Texas.

The Federal Arbitration Act, 9 U.S.C. § 1 et seq. shall also

apply as needed to uphold the validity or enforceability of the

arbitration provisions of this Agreement.” Appx 098, § 15.k

(emphasis added). �e first sentence by its terms applies to the

entire agreement, which does include the arbitration provision.

But even assuming, as Plaintiffs argue, that the first sentence

standing alone does not adopt Texas law as to matters of

arbitrability, the second sentence is more specific and bolsters

the argument that Texas arbitration law was contemplated.

Unless the words “also” and “as needed” are mere surplusage,

the parties must have anticipated that Texas law was to apply

to the arbitration provision, but, if necessary, the FAA would

“also” apply “as needed”—specifically, “as needed to uphold

the validity or enforceability of the arbitration provision[].” Id.

So, there is a clear directive that the FAA was not intended as

the sole source of arbitration law. Rather, it was intended to

prevent any doubt about the validity or enforceability of the

arbitration provision under Texas law. Read together, the

unambiguous meaning of the provision is that Texas law shall

apply to the SDDA’s arbitration provision, and if needed, the

4

Plaintiffs raise this specific issue for the first time on appeal,

having only disputed the choice of Texas versus New Jersey

law before the District Court. Nonetheless, we will address it

as it involves a matter of law that is easily resolved lest it be

raised again on remand.

20

FAA may “also apply” to uphold the enforceability of this

specific provision. Cf. Carter v. Exxon Co. USA, a Div. of

Exxon Corp., 177 F.3d 197, 206 (3d Cir. 1999) (interpreting

contract to avoid superfluity); Grandvue Manor, 272 A.3d at

44 (interpreting a contractual selection of New York law to

govern whether an arbitration provision was enforceable).

�e SDDA’s language contrasts with the choice-of-law

provision in Rittmann v. Amazon.com, Inc., 971 F.3d 904 (9th

Cir. 2020), which specified that the contract would be

“governed by the law of the state of Washington . . . except for”

the contract’s arbitration provision. Id. at 920 (emphasis

added). �e Ninth Circuit read the transitional phrase “except

for” to exclude Washington law on matters of arbitrability. Id.

Here, the transitional term “also” indicates Texas law will

extend even to those parts of the contract where the FAA may

also play a role.

�e principal precedent Plaintiffs rely on is

Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52

(1995). But that case was quite unique—it had nothing to do

with which state’s arbitration law should be applied. Instead, it

had to do with the authority of arbitrators to award punitive

damages in an arbitration conducted under the FAA, where the

parties had chosen New York law to govern the contract

generally. Id. at 56. New York law permitted punitive damages

to be awarded only by a court, and the issue was whether the

parties’ agreement to the application of New York state law

generally went so far as to limit the arbitrator’s remedial

authority—based on a New York law that did not even outlaw

punitive damages but allocated remedies to certain tribunals.

Id. �e Court, not surprisingly, said no. Id. at 63.

21

Plaintiffs cite Oberwager v. McKechnie Ltd., 351 F.

App’x 708 (3d Cir. 2009) (not precedential), for the proposition

that an arbitration provision must evidence a “clear intent” that

the chosen state’s arbitration law is to apply. See id. at 710

(quoting Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287,

293 (3d Cir. 2001), abrogated on other grounds by Hall St.

Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008)). But

Oberwager and the other cases requiring “clear intent” are

addressing a different issue: whether a provision selecting a

particular state’s law should be read as “opt[ing] out” of the

FAA and replacing the FAA’s procedures with state procedures.

See id. Here, we have already decided that the FAA does not

apply. And we can easily conclude that the parties agreed that

Texas law should govern the arbitrability of their dispute.

�erefore, the District Court did not err in finding that

the parties agreed to the application of Texas law regarding the

enforceability of arbitration agreements.

VI.

Because we agree with the District Court that the parties

contracted for Texas arbitration law to apply, we turn to

whether the New Jersey federal court should have rejected that

provision under its choice-of-law rules. As explained below,

we conclude that the District Court erred in its analysis, and we

will vacate its order and remand for the District Court to apply

the analytical framework set out in this Opinion.

A. Enforcement of Contractual Choice-of-Law

Clauses in New Jersey

“Ordinarily, when parties to a contract have agreed to

be governed by the laws of a particular state, New Jersey courts

22

will uphold the contractual choice if it does not violate New

Jersey’s public policy.” Instructional Sys., Inc. v. Computer

Curriculum Corp., 614 A.2d 124, 133 (N.J. 1992). But, as

relevant here, the choice-of-law clause may be invalidated on

policy grounds if three elements are met: (1) New Jersey has a

“materially greater interest” in the “determination of the

particular issue” in dispute; (2) application of Texas law

conflicts with a “fundamental” New Jersey policy; and (3) New

Jersey law would apply “in the absence of an effective choice

of law by the parties.” Id. (quoting Restatement (Second) of

Conflict of Laws § 187(b) (1969) [hereinafter Restatement

§ 187(b)]). Neither party disputes the third element, namely

that New Jersey law is the relevant law that would govern the

arbitrability dispute absent the parties’ selection of Texas, so

the focus is on the first two elements: whether New Jersey has

a “materially greater interest” in the arbitrability dispute and

whether any relevant “fundamental” policies of New Jersey

would be harmed by application of Texas law.

In moving to compel arbitration, Defendant provided a

certification from its Vice President of Retail Sales detailing

connections between its business and Texas. According to that

declaration, Defendant maintained a headquarters in Texas,

managed its business affairs there, and coordinated and paid

distributors such as Plaintiffs from that location, among other

activities. �e District Court took these facts as true in ruling

on Defendant’s motion, and, lacking Plaintiffs’ objection, we

will do the same.

Plaintiffs responded with three New Jersey policies that,

in their view, prohibited enforcement of the choice-of-law

clause on the issue of arbitrability. We describe them without

vouching for their correctness as statements of New Jersey law

or applicability here:

23

First, Plaintiffs contended the parties’ contract was a

“franchise agreement” subject to New Jersey’s Franchise

Practices Act, under which a mandatory arbitration clause

would be presumptively invalid. N.J. Stat. § 56:10-7.3(a)(3)

(“It shall be a violation of the [Act] for a motor vehicle

franchisor to require a motor vehicle franchisee to agree to a

term or condition in a franchise . . . which . . . [r]equires that

disputes between the motor vehicle franchisor and motor

vehicle franchisee be submitted to arbitration.”). Plaintiffs

reasoned that the prohibition extends to all franchise

agreements covered by the Act, not just motor vehicle

franchises. In doing so, they relied on Kubis & Perszyk Assocs.,

Inc. v. Sun Microsystems, Inc., 680 A.2d 618 (N.J. 1996), in

which the Supreme Court of New Jersey concluded as much

when addressing the prohibition on forum-selection clauses

found in the same statutory section. Id. at 626. �us, Plaintiffs

argued, enforcing the SDDA’s arbitration clause under Texas

law would violate this New Jersey policy.

Second, Plaintiffs urged that New Jersey requires

arbitration agreements that waive a constitutional right, like the

right to a civil jury trial enshrined in the New Jersey

Constitution, art. I, to contain “clear and unambiguous

language that the plaintiff is waiving her right to sue or go to

court to secure relief.” Atalese v. U.S. Legal Servs. Grp., L.P.,

99 A.3d 306, 309, 315 (N.J. 2014). In Plaintiffs’ view, that rule

applied to the SDDA because it was effectively an employment

contract, given the level of control Defendant exerted over

Plaintiffs’ day-to-day work. Plaintiffs interpreted the SDDA’s

arbitration provision as not sufficiently clear about the

difference between arbitration and court proceedings.

Third, also related to New Jersey’s requirements for the

waiver of rights, Plaintiffs contended that to waive a statutory

24

right, New Jersey requires an arbitration provision to “reflect

[an] employee’s general understanding of the type of claims”

it covers, including whether it covers “statutory claims arising

out of the employment relationship or its termination.” Moon

v. Breathless Inc., 868 F.3d 209, 214 (3d Cir. 2017) (quoting

Garfinkel v. Morristown Obstetrics & Gynecology Assocs.,

P.A., 773 A.2d 665, 672 (N.J. 2001)). Plaintiffs viewed the

SDDA’s specification of claims “relating to” the contract as

ambiguous about its coverage of statutory claims. �us

Plaintiffs argued to the District Court that enforcing the

arbitration clause under Texas law as to their franchise and

labor law claims would violate New Jersey public policy.

B. District Court’s Reasoning

In deciding to enforce the choice-of-law clause, the

District Court did not consider the policies just described in its

analysis. On the “materially greater interest” prong, the District

Court focused on the parties’ geographic contacts with New

Jersey and Texas, and determined that each state had an

interest, and New Jersey had no “greater interest” in the

arbitration issue. Adler, 2023 WL 7490006, at *5. In particular,

the District Court noted Defendant’s Texas activities—its

headquarters, management, and distributorship operations—

and reasoned these ties gave Texas “an interest in enforcing its

company’s rights,” while Plaintiffs’ geographic ties (“[t]he fact

that Plaintiffs are residents of New Jersey and performed work

under the SDDA in New Jersey”) did not “necessarily establish

that New Jersey has a materially greater interest than Texas.”

Id. And it rejected Plaintiffs’ “focus[] on whether the parties’

contractually chosen law violates New Jersey’s public policy.”

Id. �us, its opinion makes no mention of whether New

Jersey’s alleged policies against arbitrating certain types of

25

disputes might give New Jersey an “interest” that would be

materially greater. See id. at *5–6.

�e District Court relied, inter alia, on several cases

from the District of New Jersey, illustrative of which is

Rosenberg v. Hotel Connections, Inc., No. 21-cv-4876, 2022

WL 7534445 (D.N.J. Oct. 13, 2022). �at case, like this one,

confronted the issue of whether a New Jersey court would

enforce an arbitration agreement under a foreign state’s law (as

chosen by the parties) over an objection that the language failed

the clarity requirement of New Jersey’s Atalese decision. 2022

WL 7534445 at *3. �e Rosenberg court, with little analysis,

concluded New Jersey lacked a “materially greater interest”

due to the fact that: (1) the parties had agreed to apply New

York law, (2) the defendant “service[d] clients in New York,”

and, (3) “[m]ost importantly,” the defendant “was incorporated

in New York at the time of the execution of the” agreement. Id.

at *5. Based on the reasoning of this case and similar

precedents, the District Court here found Defendant’s Texas

connections significant enough to require the application of

Texas law. See Adler, 2023 WL 7490006, at *5.

�e District Court alternatively concluded that, even if

New Jersey did have a materially greater interest, compelling

arbitration would not conflict with a fundamental New Jersey

policy. But the District Court evaluated only one potential New

Jersey policy and not the three Plaintiffs had offered. �e

District Court viewed the policy question as whether Plaintiffs

could “assert[] any [New Jersey] statutory claims” in an

arbitral forum. Adler, 2023 WL 7490006, at *6. Since they

concededly could, the District Court reasoned arbitration was

no obstacle to New Jersey’s fundamental policies. Id. �e

District Court did not consider whether, as Plaintiffs claimed,

26

New Jersey had expressed policies against arbitration itself in

franchise or employment contracts.

C. Parties’ Arguments on Appeal

Plaintiffs object to the District Court’s reasoning on

both prongs. On the materially greater interest prong, Plaintiffs

argue the District Court “engaged in an unduly narrow analysis

of the states’ respective interests by focusing solely on the

parties’ contacts with New Jersey and Texas.” Appellants’ Br.

28. In Plaintiffs’ view, the “policy reasons underlying the

state’s conflicting laws” may count as an “interest,” thereby

giving New Jersey a “materially greater interest” despite

Defendant’s presence in Texas. Id. at 37 (quoting Homa v. Am.

Express Co., 558 F.3d 225, 232 (3d Cir. 2009), abrogated on

other grounds by Concepcion, 563 U.S. 333). On the

fundamental policy prong, Plaintiffs fault the District Court for

considering only whether Plaintiffs could vindicate their

substantive rights in an arbitral forum, rather than the three

public policies Plaintiffs had offered.

Defendant mostly does not disagree with Plaintiffs on

the law. In particular, Defendant does not challenge Plaintiff’s

assertion that a state’s policies may count as an “interest”

favoring application of that state’s law under the “materially

greater interest” prong. �us, if, as Plaintiffs say, New Jersey

has a policy against arbitration clauses in contracts like the

SDDA, Defendant has not claimed a court should ignore that

policy in weighing New Jersey’s interests under the first prong.

And Defendant also does not contest Plaintiffs’

characterization that the District Court’s opinion failed to

mention the three policies Plaintiffs had advocated. See

Appellee’s Br. 20 (recounting the factors the District Court

relied on).

27

Defendant urges, however, that the District Court’s

reasoning should be upheld because the policy interests, even

if relevant, are “not enough” to overcome the parties’

agreement to use Texas law. Appellee’s Br. 23 (quoting SKF

USA Inc. v. Okkerse, 992 F. Supp. 2d 432, 441 (E.D. Pa. 2014)).

�us, Defendant insists, because the District Court evaluated

the myriad contacts with Defendant’s Texas operations, its

conclusion that New Jersey lacked a “materially greater

interest” should be affirmed. Id. at 20. Defendant also endorses

the District Court’s reasoning that arbitration would not

conflict with a fundamental New Jersey policy because

Plaintiffs may still bring their state-law claims in an arbitral

forum.

D. New Jersey Contractual Choice-of-Law Rules

Require Consideration of Both Policies and

Geographic Ties

We conclude the District Court’s omission of

consideration of New Jersey’s alleged policies regarding

arbitration undermines its conclusion as to both aspects of the

choice-of-law analysis, and will offer guideposts for its

consideration of these issues on remand.

1. “Materially Greater Interest”

We begin with the “materially greater interest” prong.

To determine which state has a “materially greater interest” in

the application of its law to the issue in question, New Jersey’s

choice-of-law rules ask for more than counting contacts: they

call for an examination into whether New Jersey has expressed

a “policy interest” in enforcing the protections of its own law

regarding an issue over a contrary agreement by the parties.

See Instructional Sys., 614 A.2d at 134–35. Instructional

28

Systems is illustrative of this approach. �e plaintiff there was

a New Jersey-based distributor of a software system sold by

the defendant, a California-based Delaware corporation, and

their contract selected the law of California to govern their

affairs. Id. at 126, 130. When the defendant sought to terminate

the distributorship, a dispute arose as to whether the plaintiff

could obtain the protection of New Jersey’s Franchise Practices

Act despite the contractual selection of California law. Id. at

133. Applying the test from Restatement § 187(b) set out

above, the New Jersey Supreme Court looked to the fact that

“New Jersey has a strong policy in favor of protecting its

franchisees.” Id. at 135. It also noted New Jersey’s “significant

‘contacts’ with the transaction,” including that the plaintiff was

“located” in New Jersey, its employees resided there, and it had

made “franchise-specific investments” there such as its

“assets” and “the goodwill developed for [the defendant] by

New Jersey residents.” Id. Looking more broadly, the Court

observed that the “protection [of the Franchise Practices Act]

may not be waived.” Id. at 134. Yet, if the choice-of-law clause

were enforced, “any large franchisor . . . could with a stroke of

a pen remove the beneficial effect of the franchisee’s state’s

remedial legislation” just by “insert[ing] . . . a choice of law

provision requiring the application of the franchisor’s home

state’s law.” Id. at 134–35 (quotation marks omitted). Based on

these considerations (and while deeming it a “close question”),

the Instructional Systems court declined to enforce the choice-

of-law clause. Id. at 134.

We followed a similar approach in Homa, 558 F.3d 225,

abrogated on other grounds by Concepcion, 563 U.S. 333. �e

question there was whether New Jersey would apply its policy

against certain class-action waivers (which, at the time, was

thought not to conflict with the FAA) despite the parties’

29

selection of Utah law. Id. at 227. Following the test from

Restatement § 187(b), we “ ‘identif[ied] the governmental

policies underlying the law of each state and how those policies

[were] affected by each state’s contacts to the litigation and to

the parties’ so that we c[ould] determine which state ha[d] the

greater interest in resolving the issue of the class-arbitration

waiver’s validity.” Id. at 232 (nested quotation marks omitted)

(quoting Gantes v. Kason Corp., 679 A.2d 106, 109 (N.J.

1996), abrogated by McCarrell v. Hoffmann-La Roche, Inc.,

153 A.3d 207 (N.J. 2017)). �e New Jersey policy in question

existed to allow “consumers[] . . . to effectively pursue their

statutory rights under New Jersey’s consumer protection laws,”

whereas the contrary Utah policy served to “honor[] freedom-

of-contract principles and . . . protect Utah banks from

unwarranted class-action suits.” Id. (alterations omitted). We

then looked at the parties’ contacts with Utah and New Jersey.

On the Utah side, the defendant was a Utah bank, but it was a

“wholly owned subsidiary of . . . a New York corporation” and

the plaintiff would mail his payments to Florida. Id. On the

New Jersey side, the plaintiff resided there, his claims were

based on New Jersey’s Consumer Fraud Act, and New Jersey

had an “interest in protecting its consumers’ ability to enforce

their rights under” that statute. Id. We found the last two

contacts most significant, and thus “predict[ed] that the

Supreme Court of New Jersey would determine that New

Jersey has a materially greater interest than Utah in the

enforceability of a class-arbitration waiver that could operate

to preclude a New Jersey consumer from relief under the [New

Jersey Consumer Fraud Act].” Id. at 232–33. �us Homa, like

Instructional Systems, considered the in-state contracting

parties’ “ability to enforce their rights under” New Jersey law

to be an “interest” weighing in favor of New Jersey having a

“materially greater interest.” Id.

30

Defendant contends that reliance on Homa is

“misplaced” because the New Jersey policy at issue there—a

restriction on certain class-action waivers in consumer

contracts—was later held preempted by the FAA in

Concepcion, 563 U.S. 333. Appellee’s Br. at 24 n.9. But since

we have determined the FAA does not apply in this case,

preemption is not an issue. Lewis, 500 F.3d at 1152 (“[W]hen

the FAA applies to an arbitration agreement, the FAA preempts

conflicting state law . . . .” (emphasis added)). We do recognize

that Homa relied, in part, on Gantes, 679 A.2d 106, whose

specific holding (concerning statutes of limitations) has been

overruled. See McCarrell, 153 A.3d at 210. However, we do

not believe the overruling of Gantes affects the continued

validity of the approach taken in Homa—at least insofar as that

approach requires consideration of New Jersey policy interests

regarding the specific issue presented in a contractual choice-

of-law analysis. Homa looked to Gantes only to give content

to the phrase “materially greater interest,” which Restatement

§ 187(b) does not define, by analogy to New Jersey’s

“governmental-interest” test as then articulated by Gantes.

Homa, 558 F.3d at 232. While New Jersey no longer uses the

governmental-interest test for choosing statutes of limitations,

see McCarrell, 153 A.3d at 210, this change is unrelated to

Homa’s conclusion that a state policy preference counts as an

“interest” in deciding which state has a “materially greater

interest.”

For these reasons, it was incorrect for the District Court

to reject Plaintiffs’ “focus[] on whether the parties’

contractually chosen law violates New Jersey’s public policy”

regarding arbitration, Adler, 2023 WL 7490006, at *5, as that

indeed should have been considered as part of the “materially

greater interest” analysis. If Plaintiffs were correct that the

31

SDDA was a franchise agreement and its arbitration provision

violated a statute designed to “protect[] [New Jersey]

franchisees,” an argument could follow that New Jersey would

not allow contracting parties to remove those protections

merely “by providing in their agreement that the laws of

another state will govern.” Instructional Sys., 614 A.2d at 135;

cf. also Restatement § 187, cmt. g (“[A] fundamental policy

may be embodied in a statute which makes one or more kinds

of contracts illegal or which is designed to protect a person

against the oppressive use of superior bargaining power.”).

�at is not to say the outcome would necessarily be that New

Jersey had the greater interest, see Instructional Sys., 614 A.2d

at 134 (calling the question “close”), but it does show that

narrowing the focus to the parties’ geographic ties, and not

focusing on the nature of the specific issue (i.e., arbitration),

missed the real question: whether New Jersey courts would

insist on subjecting an interstate contract to certain

requirements of New Jersey law regarding arbitration designed

for the protection of the in-state contracting parties despite an

agreement to use a different state’s law, see id. at 135.

As noted, Defendant does not disagree that New

Jersey’s policies were relevant, instead merely contending they

were “not enough” to tip the balance on the materially greater

interest prong. Appellee Br. 23 (quoting SKF, 992 F. Supp. 2d

at 441). Defendant quotes SKF for the proposition that “[i]t is

not enough to assert that [one state] has a greater interest

simply because application of [the other state’s] law runs

contrary to a fundamental . . . policy [of the first state].” 992 F.

Supp. 2d at 441. To the extent that statement simply means that

the “materially greater interest” prong won’t turn exclusively

on the policy aspect, we do not disagree. See Restatement

§ 187, cmt. g (“�e forum will not refrain from applying the

32

chosen law merely because this would lead to a different result

than would be obtained under the local law of the state of the

otherwise applicable law.”). Certainly both the geographic ties

and the states’ policies regarding the issue in question are

important considerations, and it could be said that the stronger

a litigant’s ties to New Jersey, the more likely New Jersey is to

extend the protection of its fundamental policies. See id. But

the connection between New Jersey and the arbitration dispute

here was not so remote as to obviate the need for an analysis

into whether the parties’ contacts and the strength of New

Jersey’s policies were such as to give New Jersey the

“materially greater interest” in the arbitration issue.

2. “Fundamental Policy”

We also agree with Plaintiffs that the District Court

erred in its analysis of the “fundamental policy” prong of

Restatement § 187(b), because the District Court disregarded

the three New Jersey policies Plaintiffs had offered and

considered only whether arbitration would “preclude Plaintiffs

from asserting any statutory claims under New Jersey law.”

Adler, 2023 WL 7490006, at *6. If the question is whether

enforcement of Texas law would “violate New Jersey’s public

policy,” Instructional Sys., 614 A.2d at 133, the nature of the

policy itself and its relative importance must be considered.

And the New Jersey Supreme Court has held that a choice of

forum will sometimes violate public policy even where that

forum is capable of “faithfully and fairly apply[ing]” New

Jersey law and “afford[ing] identical relief” to that available in

a New Jersey court. Kubis, 680 A.2d at 628. �erefore,

Plaintiffs’ alleged policies needed to be evaluated to determine

whether they were correct statements of New Jersey law,

whether they applied on the facts of this case (i.e., whether the

SDDA was a franchise agreement, whether its arbitration

33

clause was unclear, etc.), and whether those policies were

sufficiently “fundamental” to justify setting aside the parties’

selection of Texas law. See Restatement § 187, cmt. g.

✻✻✻

For these reasons, the District Court erred in its

reasoning on choice of law. While the issue presents a legal

question that could potentially be decided on appeal, Thabault

v. Chait, 541 F.3d 512, 535 (3d Cir. 2008), we think the better

course is to remand for the District Court to reconsider its

analysis in light of our discussion. We will therefore vacate the

District Court’s order and remand for it to complete the choice-

of-law analysis under the framework discussed above.

VII.

We briefly address two remaining issues Plaintiffs raise

on appeal: (1) whether the District Court erred in its sua sponte

reading of a “delegation clause” in the contract; and (2)

whether the individual, non-signatory Plaintiffs are bound to

arbitrate.

A. Delegation Clause

When Defendant moved to compel arbitration, it

asserted that all of Plaintiffs’ claims were within the scope of

the arbitration provision. Plaintiffs responded that their

statutory claims were outside the scope of the provision

because they did not relate to the SDDA. But the District Court

did not decide that issue. Instead, it pointed to a provision it

interpreted as a “delegation clause,” which would “have the

arbitrator decide whether a given claim must be arbitrated.”

Adler, 2023 WL 7490006, at *8. So it did not rule on whether

34

Plaintiffs’ statutory claims were within the scope of the

arbitration provision.

Plaintiffs argue that by “brief[ing] the merits of

[Plaintiffs’] challenge to the enforceability of the arbitration

provision and ask[ing] the court to enforce the agreement over

that challenge,” Defendant “waived any right it had under the

SDDA to have enforceability issues decided by an arbitrator.”

Appellants’ Br. 47–48. We disagree.

Plaintiffs do not challenge the correctness of the District

Court’s reading of the SDDA, but assert that somehow

Defendant’s failure to raise the delegation clause constitutes

waiver of the provision. While a party can waive a contractual

right to arbitrate, White v. Samsung Elecs. Am., Inc., 61 F.4th

334, 340 (3d Cir. 2023), this rule does not speak to the

propriety of a court’s interpreting contractual language for

itself. Instead, the “waiver” cases Plaintiffs rely on involved, at

most, litigants changing positions: first asking a court to decide

an issue, then reversing course and demanding to arbitrate.

Morgan v. Sundance, Inc., 596 U.S. 411, 415 (2022); United

States ex rel Dorsa v. Miraca Life Scis., Inc., 33 F.4th 352, 357

(6th Cir. 2022); Bodine v. Cook’s Pest Control Inc., 830 F.3d

1320, 1325 (11th Cir. 2016); In re Checking Acct. Overdraft

Litig., 754 F.3d 1290, 1295 (11th Cir. 2014). �ey are of limited

value here.

Courts are permitted to disagree with litigants on

matters of law, In re Mintze, 434 F.3d 222, 228 (3d Cir. 2006),

which, in Texas, would include the interpretation of

unambiguous contracts, Coker v. Coker, 650 S.W.2d 391, 393

(Tex. 1983). We see no reason to depart from that practice in a

court’s consideration of a delegation clause in an arbitration

agreement.

35

It is true courts should normally respect “the principle

of party presentation” by declining to “consider . . . on [their]

own initiative” defenses not raised by the parties, Wood v.

Milyard, 566 U.S. 463, 472 (2012), instead confining their

analysis to “only those issues argued by interested and

motivated litigants,” Dowdell, 70 F.4th at 145. But that

principle is not “absolute,” Wood, 566 U.S. at 473, and we do

not believe it was violated here. �e District Court was

presented with contractual language and asked to interpret it,

which led it to the conclusion that an arbitrator was to decide

matters of arbitrability. We find no abuse of discretion. 5

B. Estoppel

Finally, the individual Plaintiffs (Charles and Grant

Adler) point out that they did not sign the contract and thus

never agreed to arbitrate. �ese Plaintiffs object to the District

Court’s determination that they were bound under an estoppel

theory. 6

5

We note Defendant’s brief does not offer much in the way of

support for the District Court’s exercise of discretion.

Nevertheless, it is Plaintiffs, as the parties seeking reversal,

who must persuade us there was an abuse of that discretion,

and Plaintiffs have not done so. See Hart v. Elec. Arts, Inc., 717

F.3d 141, 148 (3d Cir. 2013) (“To demonstrate an abuse of

discretion, an appellant must show that the District Court’s

decision was arbitrary, fanciful or clearly unreasonable.”

(alterations omitted)).

6

Before the District Court, Plaintiffs offered only a cursory

opposition to Defendant’s estoppel argument. However, the

District Court addressed estoppel on the merits, and, on appeal,

36

Normally, arbitration under Texas law is a matter of

consent: no agreement to arbitrate, no arbitration. Aerotek, Inc.

v. Boyd, 624 S.W.3d 199, 204 (Tex. 2021). 7 But “under certain

circumstances, principles of contract law and agency may bind

a non-signatory to an arbitration agreement.” In re Kellogg

Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex. 2005). �us “a

non-signatory plaintiff seeking the benefits of a contract is

estopped from simultaneously attempting to avoid the

contract’s burdens, such as the obligation to arbitrate disputes.”

Id. at 739. �at can happen if the non-signatory plaintiff’s

“claims are ‘based on a contract’ containing an agreement to

arbitrate.” Id. at 740. “For example, if a non-signatory’s

breach-of-warranty and breach-of-contract claims are based on

certain terms of a written contract, then the non-signatory

cannot avoid an arbitration provision within that contract.” Id.

Defendant does not contend Plaintiffs forfeited the issue

(except as to Plaintiffs’ reliance on Morgan v. Sundance, Inc.,

596 U.S. 411 (2022)). Accordingly, we will address estoppel

on the merits as well.

7

�e District Court applied Texas law to decide whether the

individual Plaintiffs were bound to the contract. While there

was a possible circularity to this reasoning (since presumably,

if the individual Plaintiffs were not bound to the contract, they

were also not bound to its choice-of-law clause), we need not

decide whether it was correct, since Plaintiffs never argued for

application of a different state’s estoppel law. We also do not

address whether, on remand, a revised choice-of-law analysis

might affect the estoppel issue as well. See Erny v. Est. of

Merola, 792 A.2d 1208, 1213 (N.J. 2002) (“Ordinarily, choice-

of-law determinations are made on an issue-by-issue basis,

with each issue receiving separate analysis.”).

37

at 739. A non-signatory may also be bound if it “consistently

and knowingly insist[ed] that others treat it as a party to the

contract during the life of the contract.” ENGlobal U.S., Inc. v.

Gatlin, 449 S.W.3d 269, 275 (Tex. Ct. App. 2014). 8

However, we do not believe the District Court’s analysis

was adequate to justify binding the individual Plaintiffs to a

contract they did not sign. Its reasoning consisted mainly of

noting the prominence of the SDDA in Plaintiffs’ allegations

regarding their work for Defendant. See Adler, 2023 WL

7490006, at *8. But “a non-signatory plaintiff cannot be

compelled to arbitrate on the sole ground that, but for the

contract containing the arbitration provision, it would have no

basis to sue.” Kellogg, 166 S.W.3d at 740. In Kellogg, for

example, a second-tier subcontractor was not bound by an

arbitration clause in the first-tier subcontract, despite having

been hired to supply parts for that contract, because it was not

8

We agree with Defendant that Morgan v. Sundance, Inc., 596

U.S. 411 (2022), did not undermine the foregoing articulation

of Texas estoppel law, and in any event Plaintiffs did not make

that argument to the District Court and have therefore forfeited

it. See Hickey v. Univ. of Pittsburgh, 77 F.4th 184, 191 n.5 (3d

Cir. 2023) (arguments raised for the first time on appeal are

forfeited). While Morgan clarified the FAA is not a font of

“special, arbitration-preferring procedural rules,” 596 U.S. at

418, Texas courts had long recognized that “the presumption

[favoring arbitration] arises only after the party seeking to

compel arbitration proves that a valid arbitration agreement

exists,” and thus refused to apply a pro-arbitration bent to their

estoppel inquiry, Kellogg, 166 S.W.3d at 737. Accordingly, the

authority cited by the District Court did not conflict with

Morgan.

38

“seek[ing], through the claim, to derive a direct benefit from

the contract containing the arbitration provision.” Id. at 741.

Here, the individual Plaintiffs’ claims were based on multiple

theories, including federal and state labor laws and New

Jersey’s Franchise Practices Act. �e District Court needed to

consider not solely whether the individual Plaintiffs performed

work called for by the LLC’s contract, but whether their claims

“s[ought] the benefits of” it, id. at 739, as opposed to the

benefits of “obligations imposed by state law, including

statutes, torts and other common law duties, or federal law,”

ENGlobal, 449 S.W.3d at 275. We also question the District

Court’s conclusion that “the individual Plaintiffs acted as

parties to the SDDA” merely by working for the LLC on

business called for by the SDDA. See Adler, 2023 WL

7490006, at *8. Employees of a business are not necessarily

parties to all of the business’s contracts. See SDDA § 7, Appx

084 (providing for the LLC to hire non-signatory employees).

Moreover, Texas law contemplates a claim-by-claim

estoppel determination rather than wholesale application to an

entire lawsuit. See Kellog, 166 S.W.3d at 741 (analyzing

separate claims separately). Some of Defendant’s estoppel

arguments were specific to certain of Plaintiffs’ claims. For

example, Defendant argued Plaintiffs’ Franchise Practices Act

claim inherently sought the benefits of the SDDA because a

franchise must involve a “written arrangement.” N.J. Stat.

§ 56:10-3. �at argument may not extend (or might apply

differently) to Plaintiffs’ labor law claims. Similarly,

Defendant’s argument that Plaintiffs’ claim for breach of the

covenant of good faith and fair dealing was in reality a contract

claim based on the SDDA would not extend to Plaintiffs’

claims asserting violations of statutes.

39

�e District Court also suggested that the estoppel

inquiry could be delegated to an arbitrator because it “relates

to the parties’ agreement as a whole, not specifically to the

parties’ agreement to arbitrate.” Adler, 2023 WL 7490006, at

*8. While that statement was harmless (as the District Court

proceeded to conduct the analysis itself rather than delegate it),

it was incorrect. If the individual Plaintiffs were not bound to

the arbitration provision, they were necessarily not bound to its

delegation clause. See Aerotek, 624 S.W.3d at 204 (arbitration

is a matter of “consent”); Coinbase, Inc. v. Suski, 602 U.S. 143,

151 (2024) (requiring a court to decide if a contract is in effect

before enforcing it).

We will not perform the estoppel analysis on appeal

since it may become moot if the outcome on choice-of-law

results in there being no arbitration. On remand, the District

Court should consider the estoppel analysis to the extent it is

relevant.

VIII.

Accordingly, we will vacate the order compelling

arbitration and remand for the District Court to complete the

choice-of-law analysis under the correct framework, as well as

evaluate, if necessary, whether the non-signatory Plaintiffs are

bound to the contract.

40