District Courts in the First Circuit Issue Notable Early 2026 Arbitration Decisions
District courts in the First Circuit issued several important decisions in early 2026 regarding the enforceability of arbitration provisions and interpreting recent First Circuit precedent. The cases revolved around a variety of issues including (1) analysis of under what circumstances arbitration provisions formed through online contracts are binding; (2) the availability of arbitration agreements to nonsignatories; and (3) the relationship between the Military Lending Act and the Federal Arbitration Act.
Analysis of Formation of Online Contracts
M.M. v. VGW US, Inc., decided by the District of Massachusetts, continues the line of cases addressing the enforceability of arbitration provisions contained within contracts formed online. The court held that the arbitration provisions were enforceable and granted defendants’ motion to compel arbitration.
Plaintiff attempted to argue that because he asserted that the contract was for an “illegal purpose” (online gambling), his challenge went to the validity of the contract rather than an issue of contract formation and that therefore the issue was for the court to decide. The court disagreed, applying Supreme Court precedent and holding that challenges to the overall validity of a contract must go to the arbitrator.
The court then held that a contract had been formed between the parties because plaintiff had reasonable notice of the Terms of Service, including the arbitration provisions. With both contracts, users were informed that by creating an account they were agreeing to the Terms of Service. Both interfaces provided hyperlinks to such Terms of Service in a conspicuous manner, and both platforms required the user to click a box assenting that they had reviewed the Terms.
The court underwent a similar analysis in Shwartz v. HelloFresh SE, holding that an arbitration provision in online terms were binding where the hyperlinked terms were conspicuous during the sign up process.
Key Takeaway: The core question of whether a consumer using an online platform is bound by an arbitration provision continues to be whether the user had reasonable notice of such terms. Elements that courts look for include whether the user’s attention is drawn to the fact that they are being bound by an agreement; whether the terms are hyperlinked in a conspicuous manner, and whether the user must click on the terms or assent that they have reviewed them.
Availability of Arbitration Agreements to Nonsignatories
The District of Rhode Island recently interpreted the First Circuit’s decision in Morales-Posada v. Cultural Care, Inc. to answer the following question: under what circumstances may a nonparty to an arbitration agreement with a delegation clause compel a signatory to submit to arbitration?
In Sheet Metal Workers Local No. 20 Welfare & Benefit Fund v. CVS Pharm., Inc., plaintiffs were a group of third-party payors (“TPP”) offering their members prescription drug prices at reduced costs. The TPPs had contracts with pharmacy benefit managers (“PBM”), who acted as a middle man between the TPPs and pharmacies such as CVS. The TPPs and PBMs had contracts containing arbitration provisions and containing delegation clauses in some cases. CVS was not a party to those contracts.
Prior to Morales-Posada, the district court ruled that the question of whether CVS could compel plaintiff to arbitrate claims against it was a question of arbitrability that was properly before an arbitrator and not the court. However, as we have noted in an earlier post, the First Circuit in Morales-Posada held that nonsignatories generally do not have a right to enforce arbitration provisions against signatories.
Applying Morales-Posada, the court held that when a nonsignatory attempts to compel arbitration, nonsignatories must first establish to the court (rather than the arbitrator) that they have a right to enforce the arbitration provision. The court described that burden as “not a low bar.”
The District of Massachusetts recently reached a similar ruling in applying the Morales-Posada case in Shwartz v. HelloFresh SE, holding that nonsignatory could not compel arbitration under an equitable estoppel theory.
Key Takeaway: Before compelling arbitration or relying upon a delegation clause, nonsignatories must convince the court that they have a right to enforce such agreement using traditional contract principles.
Exemption for Military Servicemembers in Consumer Credit Cases
Burrison v. FloatMe, Corp., decided by the District of Massachusetts, resolved the enforceability of an arbitration provision in a contract related to cash advances. The court held that the Military Lending Act (“MLA”) displaces the Federal Arbitration Act and precludes enforcement of arbitration agreements against servicemembers in disputes involving the extension of consumer credit. The court held that the cash advances at issue qualified as “extension of consumer credit” and therefore the arbitration agreement was unenforceable.
Defendant argued that even if the claim under the MLA was not arbitrable, the court should still compel the Truth in Lending Act claim to arbitration. The court disagreed, holding that the MLA limitation on enforcement of arbitration provisions applies to any dispute involving the extension of consumer credit, not just claims brought under that act.
Finally, the court held that the class action waiver in the arbitration provision did not prevent the plaintiff from pursuing his claims on a class basis in Court.
Key Takeaway: Arbitration provisions cannot be enforced against military servicemembers in cases involving the extension of consumer credit.
Interpretation of the FAA’s “arising out of” language
In re: Zelis Repricing Antitrust Litig. recently resolved the arbitrability of antitrust claims against a group of defendants, arguing that they conspired to lower payments for out of network services to healthcare providers.
Plaintiffs opposed the defendants’ motion to compel arbitration, arguing that the FAA requires claims to “arise out of” the contract and that the claims did not meet that requirement. The District of Massachusetts agreed that § 2 of the FAA limited its applicability to “controversies that actually stem from the contract containing the arbitration clause.” However, the court held that the FAA applied because the disputes arose out of the relevant contracts.
Separately, consistent with First Circuit precedent, the court held that a provision stating that “all disputes are governed by the rules of the AAA’s Commercial Arbitration Rules” is sufficient to reflect the parties’ intent to delegate the question of arbitrability to the arbitrator.
Ultimately, the court granted each of the defendants motions to compel arbitration under the relevant agreements.
Key Takeaway: The Federal Arbitration Act is limited to cases “arising out of” the contract that contains the relevant arbitration provision, and the court may undertake this threshold analysis rather than the arbitrator even if there is a delegation clause.