Towns v. West Creek Financial, Inc., et al.,

Filing 26

ORDER signed by District Judge Daniel J. Calabretta on 11/9/2023 DENYING 12 Motion to Remand and DENYING 4 Motion to Compel Arbitration. Koalafi has 14 days from the docketing of this Order to file its responsive pleadings. (Donati, J)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 LATESHA TOWNS, individually and on behalf of all others similarly situated, 12 13 14 15 16 17 18 No. 2:22-cv-01757-DJC-AC Plaintiff, ORDER DENYING MOTION TO REMAND AND MOTION TO COMPEL ARBITRATION v. WEST CREEK FINANCIAL, INC., doing business as KOALAFI; MATTRESS AND FURNITURE EXPRESS; and DOES 1–5, Defendants. 19 20 Plaintiff LaTesha Towns brings a putative class action against Defendants West 21 Creek Financial, Inc., doing business as Koalafi (“Koalafi”) and Mattress and Furniture 22 Express (“Mattress Express”) for violations of various California consumer laws related 23 to a “rent-to-own” transaction with Mattress Express financed by Koalafi. Koalafi 24 moves to compel arbitration of Towns’s individual claims and to stay or dismiss the 25 representative or class action claims. Plaintiff counters by moving to remand the case 26 back to state court following removal under the Class Action Fairness Act (“CAFA”), 27 codified at 28 U.S.C. § 1332(d). For the reasons set forth below, the Court DENIES 28 Plaintiff’s Motion to Remand (ECF No. 12) because Koalafi adequately alleges an 1 1 amount-in-controversy exceeding $5 million. The Court also DENIES Koalafi’s Motion 2 to Compel Arbitration (ECF No. 4) because Plaintiff did not assent to a lease with 3 Koalafi and therefore could not have agreed to arbitrate with Koalafi. 4 5 6 BACKGROUND I. Factual Background Plaintiff LaTesha Towns purchased a piece of furniture from Mattress Express on 7 March 3, 2023 for a “discounted” price of $2,600.00. (See Class Action Compl. and 8 Demand for Jury Trial (ECF No. 1-1) ¶¶ 12–13 (“Complaint” or “Compl.”).) According 9 to Plaintiff, she ultimately agreed to give a down payment of $1,995.43 and to finance 10 the remaining balance of $605 with Mattress Express. (See id. ¶¶ 15–16.) Mattress 11 Express prepared the paperwork for the transaction, but “unbeknownst to Plaintiff, 12 Mattress Express and Koalafi provided a Rental-Purchase Agreement (the 13 ‘Agreement’).” (Id. ¶ 17; see also Decl. of Njeri Kershaw Ex. 1 (ECF No. 4-1 at 6–7) 14 (“the Agreement” or “Kershaw Decl. Ex. 1”) (providing a copy of the email that 15 contained the 3/3/2022 rental-purchase agreement that contained the arbitration 16 clause).) According to the Agreement, the piece of furniture Plaintiff purchased had a 17 total cash price of $1,000, but because Plaintiff did not pay the cash price, Plaintiff had 18 to make biweekly rental payments totaling $1,316.63 that then gave Plaintiff the 19 option to make additional biweekly payments that would ultimately require Plaintiff to 20 pay $2,316.63 to own the piece of furniture. (See Kershaw Decl. Ex. 1.) In short, 21 Plaintiff had to pay more than $2,000 on a piece of furniture allegedly only worth 22 $1,000 despite making a down payment of $1,995.43. (See Compl. ¶ 19; Pl.’s Opp’n 23 to Koalafi’s Mot. to Compel Arbitration and Stay the Proceedings (ECF No. 13) at 1 24 (“Arbitration Opposition or Arb. Opp’n”).) 25 Although Plaintiff alleges that she did not get a chance to review the 26 Agreement before signing it (see, e.g., Compl. ¶ 18), Plaintiff did receive an email with 27 the entire agreement that she accessed a few days later (see Decl. of LaTesha Towns 28 in Supp. of Arb. Opp’n (ECF No. 13-1) ¶ 10 (“Towns Decl.”)). The Agreement required 2 1 26 biweekly payments beginning March 3, 2022, the day the Agreement was signed. 2 (See Kershaw Decl. Ex. 1.) Beginning in April 2022, Koalafi began reporting Plaintiff’s 3 rental-purchase account as past due. (See Compl. ¶ 21.) 4 II. 5 Procedural Background Plaintiff filed the Complaint on August 24, 2022. (See Pl.’s Not. of Mot. and 6 Mot. to Remand Action (ECF No. 12) at 51 (“Remand Motion or Remand Mot.”).) 7 Koalafi removed the matter to federal court on October 5, 2022. (See id.) On 8 October 12th, Koalafi moved to compel arbitration of Plaintiff’s individual claims and 9 stay or dismiss the class action or representative claims. (See Koalafi’s Not. of Mot. 10 and Mot. to Compel Arbitration of Pl.’s Individual Claims and Stay the Proceedings; 11 Supp. Mem. of P. and A. (ECF No. 4) (“Arbitration Motion” or “Arb. Mot.”).) Plaintiff 12 then moved to remand the case when she filed her Opposition. (See Remand Mot.; 13 Arb. Opp’n.) The Court took the matter under submission without oral argument, and 14 the matter is now fully briefed. (See ECF No. 19.) 15 DISCUSSION 16 Motions to remand questioning the alleged amount-in-controversy “inherently 17 [raise] an issue of subject matter jurisdiction.” Avila v. Con-Way Freight Inc., 588 F. 18 App’x 560, 561 (9th Cir. 2014) (mem.) (non-precedential); see Greene v. Harley- 19 Davidson, Inc., 965 F.3d 767, 774 (9th Cir. 2020) (quoting Geographic Expeditions, 20 Inc. v. Est. of Lhotka ex rel. Lhotka, 599 F.3d 1102, 1108 (9th Cir. 2010)) (criticizing the 21 district court for improperly deciding the merits of the case before determining 22 whether it had subject matter jurisdiction). Accordingly, the Court must decide the 23 Remand Motion before it can decide the Arbitration Motion because establishing 24 federal subject matter jurisdiction would oust state court jurisdiction as opposed to 25 simply compelling arbitration, in which case state court litigation may proceed in 26 parallel. See Geographic Expeditions, Inc., 599 F.3d at 1107. 27 1 28 Because Plaintiff’s Remand Motion is mispaginated by re-using page number two, the Court refers to the ECF or Bates stamp page number. 3 1 I. Motion to Remand 2 A. Standard 3 “[A]ny civil action brought in a State court of which the district courts of the 4 United States have original jurisdiction, may be removed by the defendant, or the 5 defendants, to the district court of the United States for the district . . . where such 6 action is pending.” 28 U.S.C. § 1441(a). Under CAFA, the federal courts have original 7 jurisdiction over class actions in which the parties are minimally diverse, the proposed 8 class has at least one hundred members, and the aggregated amount-in-controversy 9 exceeds $5 million dollars. See 28 U.S.C. §§ 1332(d)(2), (d)(5). 10 A defendant removing a class action filed in state court pursuant to CAFA need 11 only plausibly allege in the notice of removal that the CAFA prerequisites are satisfied. 12 Dart Cherokee Basin Operating Co., LLC v. Owens, 574 U.S. 81, 87 (2014). If the 13 plaintiff seeks to remand that action back to state court, however, the defendant bears 14 the evidentiary burden of establishing federal jurisdiction under CAFA by a 15 preponderance of the evidence. See id. at 88 (quoting 28 U.S.C. § 1446(c)(2)(B)); also 16 Rodriguez v. AT & T Mobility Servs. LLC, 728 F.3d 975, 978 (9th Cir. 2013). “If at any 17 time before final judgment it appears that the district court lacks subject matter 18 jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c); see also Smith v. Mylan 19 Inc., 761 F.3d 1042, 1044 (9th Cir. 2014); Bruns v. Nat’l Credit Union Admin., 122 F.3d 20 1251, 1257 (9th Cir. 1997). The Supreme Court has advised, however, “that no 21 antiremoval presumption attends cases invoking CAFA” in part because the statute 22 was enacted “to facilitate adjudication of certain class actions in federal court,” and 23 that “CAFA's provisions should be read broadly, with a strong preference that 24 interstate class actions should be heard in a federal court if properly removed by any 25 defendant.” Dart Cherokee Basin Operating Co., LLC, 574 U.S. at 89 (citations and 26 quotations marks omitted); see also Ibarra v. Manheim Invs., Inc., 775 F.3d 1193, 1197 27 (9th Cir. 2015). 28 //// 4 1 When a plaintiff’s complaint does not quantify damages, as here, defendants 2 must show by a preponderance of the evidence that the amount-in-controversy 3 exceeds the jurisdictional threshold. Canela v. Costco Wholesale Corp., 971 F.3d 845, 4 849 (9th Cir. 2020). A defendant is only required to show that it is more likely than not 5 that the plaintiff's maximum recovery could reasonably be over $5 million. Avila v. 6 Rue21, Inc., 432 F. Supp. 3d 1175, 1185 (E.D. Cal. 2020). This burden is not daunting 7 as “a removing defendant is not obligated to ‘research, state, and prove the plaintiff’s 8 claims for damages.’” Korn v. Polo Ralph Lauren Corp., 536 F. Supp. 2d 1199, 1204–05 9 (E.D. Cal. 2008) (citation omitted). Rather, in making this showing, a removing 10 defendant “must be able to rely ‘on a chain of reasoning that includes 11 assumptions . . . .’” Jauregui v. Roadrunner Transportation Servs., Inc., 28 F.4th 989, 12 993 (9th Cir. 2022) (quoting LaCross v. Knight Transp. Inc., 775 F.3d 1200, 1201 (9th 13 Cir. 2015)); see also id. (“[A] CAFA defendant’s amount in controversy assumptions in 14 support of removal will always be just that: assumptions.”). These assumptions must 15 reflect more than “mere speculation and conjecture,” Ibarra, 775 F.3d at 1197, and 16 they “need some reasonable ground underlying them,” id. at 1199, but they “need not 17 be proven,” Arias v. Residence Inn by Marriott, 936 F.3d 920, 927 (9th Cir. 2019). 18 Assumptions may be reasonable if they are “founded on the allegations of the 19 complaint.” Arias, 936 F.3d at 925. Parties may also submit evidence outside the 20 complaint, including affidavits, declarations, or other summary-judgment type 21 evidence. Ibarra, 775 F.3d at 1197. 22 The plaintiff can contest the amount-in-controversy by making either a “facial” 23 or “factual” attack on the defendant's jurisdictional allegations. Harris v. KM Indus., 24 Inc., 980 F.3d 694, 699 (9th Cir. 2020). “A facial attack accepts the truth of the 25 [defendant's] allegations but asserts that they are insufficient on their face to invoke 26 federal jurisdiction.” Id. (citations and quotations omitted). A factual attack, on the 27 other hand, contests the truth of the allegations themselves. Id. When a plaintiff 28 mounts a factual attack, they “need only challenge the truth of the defendant’s 5 1 jurisdictional allegations by making a reasoned argument as to why any assumptions 2 on which they are based are not supported by evidence.” Id. at 700. 3 B. 4 Plaintiff contends that the proposed class size is smaller than the 5,000 5 members Koalafi used to base its calculations. (See Pl.’s Reply in Supp. of Remand 6 Mot. (ECF No. 20) at 2 (“Remand Reply”).) However, the Complaint indicated that 7 “Koalafi opened hundreds or even thousands of rental purchase agreements in 8 California during the applicable statute of limitations period . . . .” (Compl. ¶ 25.) 9 Plaintiff’s proposed classes defined members to include people in California who have 10 or had a: 11 1. 12 13 Analysis “Rental-Purchase Agreement with Koalafi during the relevant statute of limitations periods[ ]” in the Defective Disclosure Class; 2. “Rental-Purchase Agreement with Koalafi and paid a down payment, 14 during the relevant statute of limitations period[ ]” in the Down Payment 15 Class; and 16 3. “Rental-Purchase Agreement with Koalafi and were reported by Koalafi 17 as past due, in default, or in repossession, during the relevant statute of 18 limitations period[ ]” in the Credit Reporting Class. (Id. ¶ 22.) 19 Koalafi reviewed its records to find that “Koalafi entered Rental-Purchase Agreements 20 with more than 5,000 individuals with addresses in California.” (Decl. of Njeri Kershaw 21 in Supp. of Remand Opp’n (ECF No. 17-1) ¶ 5 (“Kershaw Decl.”).) Here, the Defective 22 Disclosure Class will contain those 5,000 individuals; the Down Payment Class likely 23 will contain nearly 5,000 members; and the Credit Reporting Class will likely contain 24 less members than the Down Payment Class. Therefore, the assumption of 5,000 25 members seems reasonable, depending on the particular class being analyzed. 26 Having found that 5,000 members is a reasonable assumption depending on 27 the proposed class, there remains to be found whether Koalafi can establish the $5 28 million amount-in-controversy based on the potential violations alleged in the 6 1 Complaint. Koalafi can. As Koalafi notes, the Complaint alleges in the first cause of 2 action eight different violations of California’s Rental-Purchase Act, codified at 3 California Civil Code section 1812.620, et seq., each violation authorizing $1,000 in 4 statutory damages. (See Koalafi’s Opp’n to Remand Mot. (ECF No. 17) at 3 (“Remand 5 Opposition” or “Remand Opp’n”).) The first cause of action applies to the Defective 6 Disclosure Class that contains 5,000 individuals. The California Rental-Purchase Act 7 provides essentially strict liability for a defendant’s failure to provide certain 8 information or for various unlawful practices arising from a rental-purchase 9 agreement. (See Compl. ¶ 32.) Even assuming Plaintiff succeeds on just proving one 10 out of eight violations for each of the 5,000 members, that would satisfy the amount- 11 in-controversy by itself. (See Remand Opp’n at 6.) 12 Assuming Plaintiff only succeeds on a portion of her claims under the California 13 Rental-Purchase Act, Plaintiff also seeks $5,000 in statutory damages for each 14 individual violation of the California Consumer Credit Reporting Agencies Act, 15 codified at California Civil Code section 1785.25(a). (See Compl. ¶¶ 36–44.) That 16 class size is likely less than 5,000 members, but, as stated in the Complaint, “[e]very 17 month that Koalafi continues to inaccurately report a past due payment is a separate 18 and distinct action of furnishing credit reporting information, and is therefore a 19 separate and distinct violation of California Civil Code § 1785.25(a).” (Id. ¶ 41.) The 20 Complaint was filed in August of 2022. Assuming only violations since the filing of the 21 Complaint, there are twelve months so twelve distinct violations for each potential 22 class member. At $5,000 for each violation for twelve months, there need only be 23 over 84 members that suffered a loss to satisfy the entire $5 million amount-in- 24 controversy. Finding only 84 affected members out of 5,000 potential members 25 would equate to a 1.68% violation rate, an arguably de minimis amount, and therefore 26 a reasonable assumption. 27 //// 28 7 1 C. Conclusion 2 Because all of Plaintiff’s proposed classes include members who had a Rental- 3 Purchase Agreement with Koalafi, Koalafi’s assumption that there were 5,000 potential 4 class members based on a review of its records is reasonable. Even assuming that the 5 putative classes succeed on a portion of or even a de minimis amount of the claims, 6 damages will exceed $5 million. That is more than enough at this stage to find that 7 the amount-in-controversy has been met because “[t]he amount in controversy is 8 simply an estimate of the total amount in dispute, not a prospective assessment of 9 defendant’s liability.” Arias, 936 F.3d at 927 (quoting Lewis v. Verizon Commc’ns, Inc., 10 627 F.3d 395, 400 (9th Cir. 2010)). Accordingly, Plaintiff’s Motion to Remand (ECF No. 11 12) is DENIED. 12 II. Motion to Compel Arbitration 13 A. Standard 14 The Federal Arbitration Act (“FAA”) governs arbitration agreements. 9 U.S.C. 15 § 2. The FAA affords parties the right to obtain an order directing that arbitration 16 proceed in the manner provided for in the agreement. 9 U.S.C. § 4. To decide on a 17 motion to compel arbitration, a court must determine: (1) whether a valid agreement 18 to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute 19 at issue. Boardman v. Pac. Seafood Grp., 822 F.3d 1011, 1017 (9th Cir. 2016). 20 “Arbitration is a matter of contract, and the FAA requires courts to honor parties’ 21 expectations.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 351 (2011). However, 22 parties may use general contract defenses to invalidate an agreement to arbitrate. 23 See id. at 339. Thus, a court should order arbitration of a dispute only where satisfied 24 neither the agreement’s formation nor enforceability or applicability to the dispute is 25 at issue. See Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 299 (2010). 26 “Where a party contests either or both matters, ‘the court’ must resolve the 27 disagreement,” id. at 299–300 (quoting First Options of Chicago, Inc. v. Kaplan, 514 28 U.S. 938, 943 (1995)), because “a party cannot be required to submit to arbitration any 8 1 dispute it has not agreed so to submit.” Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 2 565 (9th Cir. 2014) (quoting United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 3 U.S. 574, 582 (1960)) (alteration omitted). If a valid arbitration agreement 4 encompassing the dispute exists, arbitration is mandatory. Dean Witter Reynolds, Inc. 5 v. Byrd, 470 U.S. 213, 218 (1985). Under § 3 of the FAA, a court, “upon being satisfied 6 that the issue involved . . . is referable to arbitration, shall on application of one of the 7 parties stay the trial of the action until such arbitration has been had in accordance 8 with the terms of the agreement.” 9 U.S.C. § 3. 9 The party seeking to compel arbitration bears the burden of proving by a 10 preponderance of the evidence the existence of an agreement to arbitrate. See 11 Ashbey v. Archstone Prop. Mgmt., Inc., 785 F.3d 1320, 1323 (9th Cir. 2015) (citing Cox 12 v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008)). In resolving a motion 13 to compel arbitration, “[t]he summary judgment standard [of Federal Rule of Civil 14 Procedure 56] is appropriate because the district court’s order compelling arbitration 15 ‘is in effect a summary disposition of the issue of whether or not there had been a 16 meeting of the minds on the agreement to arbitrate.’” Hansen v. LMB Mortg. Servs., 17 Inc., 1 F.4th 667, 670 (9th Cir. 2021) (quoting Par-Knit Mills, Inc. v. Stockbridge Fabrics 18 Co., 636 F.2d 51, 54 n.9 (3d Cir. 1980)). Under this standard of review, “[t]he party 19 opposing arbitration receives the benefit of any reasonable doubts and the court 20 draws reasonable inferences in that party’s favor, and only when no genuine disputes 21 of material fact surround the arbitration agreement’s existence and applicability may 22 the court compel arbitration.” Smith v. H.F.D. No. 55, Inc., No. 2:15-CV-01293-KJM- 23 KJN, 2016 WL 881134, at *4 (E.D. Cal. Mar. 8, 2016) (citing Three Valleys Mun. Water 24 Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1141 (9th Cir. 1991) (citations omitted)). “A 25 material fact is genuine if ‘the evidence is such that a reasonable jury could return a 26 verdict for the nonmoving party.’” Hanon v. Dataproducts Corp., 976 F.2d 497, 500 27 (9th Cir. 1992) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). 28 Conversely, “where the record taken as a whole could not lead a rational trier of fact to 9 1 find for the nonmoving party, there is no ‘genuine issue for trial.’” Id. (quoting 2 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). 3 B. Analysis 4 Plaintiff does not contest that the Agreement includes a provision requiring 5 arbitration of gateway issues. The Agreement states in one section towards the 6 bottom that “[t]he arbitrator shall decide any and all issues relevant to the Claim, 7 including all issues of Arbitrability.” (Kershaw Decl. Ex. 1.) The Agreement defines 8 “Arbitrability” in a separate section towards the top of the Agreement to “mean[ ] all 9 issues, without limitation, relating to the making, validity, revocation of the agreement 10 to arbitrate, whether a particular claim or dispute is arbitrable, the scope of the 11 Arbitration Provision, and any issue with respect to the validity of jury trial, class action 12 or representative action waivers.” (Id.) 13 Instead, Plaintiff contends that the Agreement is not enforceable: (1) because 14 she did not assent to the terms; and (2) because the clause delegating gateway issues 15 is unconscionable. (See Arb. Opp’n at 4–9.) Koalafi counters by arguing that mutual 16 assent exists because of a 30-day opt-out provision that Plaintiff failed to exercise, and 17 that this same provision prevents any finding of unconscionability because there 18 would be no procedural unconscionability. (See Koalafi’s Reply to Pl.’s Arb. Opp’n 19 (ECF No. 18) at 1 (“Arbitration Reply” or “Arb. Reply”); see generally id. (first quoting 20 Circuit City Stores, Inc. v. Najd, 294 F.3d 1104 (9th Cir. 2002); then quoting Knutson v. 21 Sirius XM Radio Inc., 771 F.3d 559 (9th Cir. 2014); and then quoting Mohamed v. Uber 22 Techs., Inc., 848 F.3d 1201, 1210 (9th Cir. 2016)).) As the Court concludes Plaintiff did 23 not assent to the terms of the Agreement, it need not reach the arguments regarding 24 unconscionability. 25 The Supreme Court has repeatedly proclaimed that “’the first principle that 26 underscores all of our arbitration decisions’ is that ‘[a]rbitration is strictly a matter of 27 consent.’” Lamps Plus, Inc. v. Varela, 587 U.S. ----, 139 S. Ct. 1407, 1415 (2019) 28 (quoting Granite Rock Co., 561 U.S. at 299 (quoting Volt Info. Scis., Inc. v. Bd. of 10 1 Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 479 (1989))) (first alteration 2 omitted). Although consent is required for every contract, the “’principle of knowing 3 consent applies with particular force to provisions for arbitration[,]’ including 4 arbitration provisions contained in contracts purportedly formed over the internet[.]” 5 Sellers v. JustAnswer LLC, 73 Cal. App. 5th 444, 460 (2021) (first quoting Windsor 6 Mills, Inc. v. Collins & Aikman Corp., 25 Cal. App. 3d 987, 993 (1972); and then citing 7 Long v. Providence Commerce, Inc., 245 Cal. App. 4th 855, 862 (2016)), reh’g denied 8 (Jan. 18, 2022), review denied (Apr. 13, 2022). 9 Here, Plaintiff averred that she agreed to and believed that she entered into a 10 financing agreement or loan provided by Mattress Express. (See Towns Decl. ¶ 3.) 11 She indicated that she only engaged with a Mattress Express representative in a 12 Mattress Express location where the representative executed the procedures for 13 creating an agreement on a screen that Plaintiff could not see. (See id. ¶¶ 4–8.) 14 Plaintiff never saw the Agreement or any related terms before she acknowledged the 15 Agreement “on a small stand-alone digital signature pad and [was] advised that [she] 16 would receive a completed copy of the Agreement via email.” (Id. ¶ 8.) Koalafi does 17 not dispute this fact, and, indeed, likely cannot dispute this fact because Mattress 18 Express — not Koalafi and not its Senior Operations Manager Njeri Kershaw — was 19 present and made the sale and thus had personal knowledge of it. Instead, Koalafi 20 tries to argue that it is enough that the Agreement was sent via email to Plaintiff before 21 and after she acknowledged it. (See Arb. Reply at 2–3.) Koalafi’s emails, however, are 22 insufficient to “establish [that] the contractual terms were presented to the consumer 23 in a manner that made it apparent [that] the consumer was assenting to those very 24 terms when checking a box or clicking on a button.” Sellers, 73 Cal. App. 5th at 461 25 (citing See Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1177 (9th Cir. 2014)). 26 First, the fact that Koalafi sent Plaintiff an email with the Agreement before she 27 signed it is irrelevant in light of the fact that no one told her that any such email had 28 been sent. See Knutson, 771. F.3d at 565 (“[A]n offeree, regardless of apparent 11 1 manifestation of h[er] consent, is not bound by inconspicuous contractual provisions 2 of which [s]he was unaware, contained in a document whose contractual nature is not 3 obvious.” (quoting Windsor Mills, Inc., 25 Cal. App. 3d at 991) (second and third 4 alterations added)). While Koalafi argues that Plaintiff “does not dispute receiving the 5 Rental-Purchase Agreement via email before she signed it” (Arb. Reply at 2), Plaintiff 6 states in her declaration that Mattress Express “did not . . . advise that a copy had been 7 emailed to me for review,” (Towns Decl. ¶ 8,) and Plaintiff has provided evidence that 8 she did not have any actual knowledge of the Agreement at the time she signed it. 9 (See Towns Decl. ¶ 4 (“The [Mattress Express] representative never showed me or 10 offered to show me the monitor, or described the contents of the information on the 11 monitor, including any financial terms or arbitration provision.”); id. ¶ 8 (“Mattress 12 Express did not show me the Agreement or any related terms before I signed it. It did 13 not provide a copy of the Agreement, [or] show a copy on the monitor . . . .”); id. ¶ 10 14 (explaining that she “did not open any email from Koalafi and was not told than an 15 email was sent to [her] containing the Agreement before [she] had signed it on the 16 digital pad[,]” and that she “did not have access to [her email account] on [her] mobile 17 phone because [she] had not downloaded the gmail application to [her] mobile 18 phone, [and] therefore [ ] could not have opened any email from Koalafi.”).). Given 19 these facts, the Court cannot find that the email containing the Agreement would have 20 put a “reasonably prudent” consumer on “inquiry notice of the terms of the contract.” 21 Nguyen, 763 F.3d at 1177 (citations omitted); e.g., Sadlock v. Walt Disney Co., --- F. 22 Supp. 3d. ----, No. 22-CV-09155-EMC, 2023 WL 4869245, at *7–13 (N.D. Cal. July 31, 23 2023). Here, it is unreasonable to assume that Plaintiff would check her email for a 24 copy of an agreement in the middle of a purchase unless she was told to expect it. 25 (Contrast with Towns Decl. ¶¶ 8, 10.) And in any event, she has provided evidence 26 that she did not have a means to access her email. (Id. ¶ 10.) 27 28 Second, the fact that Plaintiff continued to “lease” the couch is insufficient to show she assented to it. Koalafi essentially argues that Plaintiff assented to the 12 1 Agreement because she did not contest her account being automatically charged. 2 (See Compl. ¶ 21; Kershaw Decl. Ex. 1.) But the Ninth Circuit has rejected the 3 contention that automatically charging a person’s debit or credit card manifests that 4 person’s assent, explaining that such a method “was ‘too passive for any reasonable 5 factfinder to conclude that [the consumer] manifested a subjective understanding of 6 the existence of the arbitration and other emailed provisions and an intent to be 7 bound by them in exchange for the continued benefits [the business] offered.” 8 Knutson, 771 F.3d at 569 (quoting Schnabel v. Trilegiant Corp., 697 F.3d 110, 128–29 9 (2d Cir. 2012)). 10 Moreover, the fact that Koalafi sent Plaintiff a subsequent email with a copy of 11 the Agreement is insufficient to show assent. Given that Plaintiff purchased the couch 12 from Mattress Express and was not put on notice that Koalafi would be providing the 13 financing, there is no reason Plaintiff or any objectively reasonable consumer would 14 expect an email from Koalafi to contain a contract with Koalafi, let alone an email from 15 Koalafi that actually contains an arbitration agreement. See Knutson, 771 F.3d at 566– 16 69; Schnabel, 697 F.3d at 126 (“But that someone has received an email does not 17 without more establish that he or she should know that the terms disclosed in the 18 email relate to a service in which he or she had previously enrolled and that a failure 19 affirmatively to opt out of the service amounts to assent to those terms.”). That is 20 particularly true here where the Agreement was a “lease” or “rental-purchase” 21 agreement totaling over $2,000 instead of a $600 financing or loan agreement that 22 Plaintiff would have expected given her conversation with the Mattress Express 23 representative. (See Towns Decl. ¶ 5.) Koalafi tries to assert that Plaintiff 24 “downloaded the Rental-Purchase Agreement—even if several days after the 25 transaction[ ]” (Arb. Reply at 3), but Plaintiff only declared that she downloaded the 26 Gmail application to her phone several days after the transaction (Towns Decl. ¶ 10). 27 Plaintiff never stated that she saw the Agreement, and Koalafi has not claimed or 28 brought forth evidence indicating that Plaintiff did download and view the Agreement. 13 1 Ultimately, this case is indistinguishable from Knutson. There, the plaintiff in 2 Knutson purchased a Toyota vehicle at the dealership that included an additional 3 service provided by Sirius XM Radio Inc. in the form of a 90-day trial of Sirius XM 4 Radio. See Knutson, 771 F.3d at 562. At the time the plaintiff purchased the vehicle 5 from the Toyota dealership, the plaintiff was not presented any documents by Sirius 6 XM Radio Inc. and “believed that Sirius XM’s trial subscription was a complimentary 7 service ‘provided for marketing purposes.’” Id. at 566. One month into the 90-day 8 trial period, Sirius XM Radio Inc. mailed copy of the Customer Agreement containing 9 an arbitration clause and another clause that permitted the plaintiff to opt-out of the 10 Customer Agreement within 3 business days of activation to avoid being legally 11 bound by it. See id. at 562. The plaintiff “did not read the Customer Agreement when 12 it arrived in the mail because he did not think ‘that any of the documents contained 13 therein were a contract governing the terms of Sirius’ service.’” Id. at 563. 14 Furthermore, Sirius XM Radio Inc. failed to have Toyota disclose in the Toyota 15 Purchase Agreement that it had a relationship with Sirius XM Radio Inc. to provide 16 Toyota customers with a trial service and that the Toyota customer was therefore 17 entering into a contractual relationship with Sirius XM Radio Inc. See id. at 567. And 18 Sirius XM Radio Inc. failed to ask Toyota to provide its customers with literature that 19 explained Toyota’s agreement with Sirius XM Radio Inc. and that asked the Toyota 20 customer for assent to the agreement. See id. 21 Koalafi tries to distinguish Knutson by pointing to the 30-day opt-out window as 22 opposed to the 3-day opt-out window in Knutson. However, the Ninth Circuit never 23 addressed the opt-out provision outside of the factual and procedural background 24 sections, see Knutson, 771 F.3d at 562–64, and the logic of the Ninth Circuit’s 25 reasoning is broader than Koalafi contends, see, e.g., id. at 565 (“Accordingly, we 26 consider . . . whether failure to cancel the trial subscription to Sirius XM after he 27 received the Customer Agreement constituted an objective manifestation of his assent 28 to the arbitration provision.”). Moreover, arbitration is a matter of knowing consent, 14 1 and whether the opt-out window was 3 days, 30 days, or 300 days, does not change 2 the fact that Plaintiff “could not assent to [Koalafi’s] arbitration provision because [s]he 3 did not know that [s]he was entering into a contract with [Koalafi].” Id. at 569. 4 C. 5 For these reasons, the Court concludes that Koalafi has failed to meet its 6 burden of showing that a binding agreement to arbitrate exists in this case. Because 7 the Court finds that the arbitration agreement is unenforceable for lack of mutual 8 assent, the Court does not decide whether the arbitration provision in the Agreement 9 is unconscionable. See Knutson, 771 F.3d at 569. Accordingly, Koalafi’s Motion to 10 Conclusion Compel Arbitration (ECF No. 4) is DENIED. 11 ORDER 12 For the reasons set forth above, the Court DENIES Plaintiff’s Motion to Remand 13 (ECF No. 12) and DENIES Koalafi’s Motion to Compel Arbitration (ECF No. 4). Koalafi 14 has 14 days from the docketing of this Order to file its responsive pleadings. 15 16 17 IT IS SO ORDERED. Dated: November 9, 2023 Hon. Daniel J. Calabretta UNITED STATES DISTRICT JUDGE 18 19 20 21 22 23 24 25 DJC3 – towns.22cv1757.MTR.MTCA 26 27 28 15

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