Michael Savetsky v. Pre-Paid Legal Services, Inc.

Filing 33

ORDER by Judge Samuel Conti denying 18 motion to compel arbitration. (sclc2, COURT STAFF) (Filed on 2/12/2015).

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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MICHAEL SAVETSKY, individually and ) Case No. 14-03514 SC
on behalf of all others similarly )
situated,
) ORDER DENYING MOTION TO
) COMPEL ARBITRATION
Plaintiff,
)
)
v.
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PRE-PAID LEGAL SERVICES, INC.
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d/b/a LegalShield,
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Defendant.
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)
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)
)
)

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For the Northern District of California

United States District Court

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I.

INTRODUCTION
Now before the Court is Defendant LegalShield's1 motion to

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compel arbitration.

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Savetsky opposes.

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briefed, ECF No. 26 ("Reply"), and appropriate for resolution

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without oral argument under Civil Local Rule 7-1(b).

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reasons set forth below, the motion is DENIED.

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ECF No. 18 ("Mot.").

ECF No. 24 ("Opp'n").

Plaintiff Michael
The motion is fully

For the

Defendant is actually named Pre-Paid Legal Services, Inc., but
does business as LegalShield. For simplicity the Court will refer
to Defendant as LegalShield.

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II.

BACKGROUND
This is a putative class action alleging that LegalShield

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improperly charged recurring payments for pre-paid legal services

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without sufficient consent or disclosure.

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Pre-paid legal services providers generally eschew the

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traditional 'fee-for-service' model of legal representation,

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instead selling fixed-rate memberships that entitle customers to a

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menu of legal services.

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and Group Legal Services: Thirty Years After the Storm, 70 Fordham

See generally Judith L. Maute, Pre-Paid

United States District Court

For the Northern District of California

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L. Rev. 915, 916-18 (2001).

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in the states where it operates and, in exchange for a monthly fee

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(sometimes as little as $20 per month) gives its members access to

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that law firm for various types of legal services.

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provides non-legal services as well, including identity theft

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protection, which can be purchased along with or separately from a

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pre-paid legal services plan.

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LegalShield contracts with law firms

LegalShield

When a prospective customer logs on to LegalShield's website,

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he is presented with the option to "Buy Now" or "Learn More."

If

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he chooses to "Buy Now," the customer is prompted to select his

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state and given an overview of the pre-paid legal service plans

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available in that state.

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"More Plan Details."

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details to purchase the plan, however, if he does, he is informed

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that the details are "a general overview," and "[f]or more specific

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information, please view our member contract."

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("Pinson Decl.") at Ex. A.

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that takes the prospective customer to a sample version of

Alongside those options is a link to

A customer need not review those additional

ECF No. 18-2

The words "member contract" are a link

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LegalShield's member contract.

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Savetsky purchased his membership contained the following clause:

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The member contract in effect when

Settlement of Disputes: All disputes or claims
relating to the Company, this Contract, any
Company products or services or any claims or
causes of action between you and the Company,
and any of the Company's officers, directors,
employees or affiliates, whether in tort or
contract, shall be settled totally and finally
by arbitration according to the Commercial
Arbitration Rules of the American Arbitration
Association . . . .
If you file a claim or
counterclaim against the Company . . . in any
such arbitration, you may do so only on an
individual basis and not with any other member
or as part of a class action . . . .

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United States District Court

For the Northern District of California

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Pinson Decl. Ex. C ("Membership Contract"), at 7.

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the services the customer would like to purchase and entering his

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personal information, the customer reaches the "Payment

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Information" screen.

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Credit Card until I revoke this authorization in writing," and

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informs the consumer that "[y]our account will be drafted each

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month on or about the effective date of your membership."

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Decl. Ex. A at 9.

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check a box next to the statement:

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That screen states that "I wish to pay by

Pinson

To advance to the next screen, the consumer must

Authorization for Electronic Premium: I, . . .
authorize LegalShield, to make direct payment
by charge/draft of my checking/savings/credit
card account from the Financial Institution
listed above.
(This authority will remain in
effect until you notify us in writing to
terminate the authorization.)

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After selecting

Id.
Savetsky purchased his membership online using the process

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outlined here.

After enrolling, his membership contract containing

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the arbitration clause cited above was mailed to the address he

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provided.

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Subsequently, Savetsky filed this putative class action in

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Alameda County Superior Court, seeking to represent a class of

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those who purchased a LegalShield membership online in California

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since December 1, 2010, and alleging that the drafting of recurring

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payments for LegalShield membership from customer accounts violates

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various California consumer laws.

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this Court and now seeks to compel arbitration.

LegalShield removed the case to
Savetsky opposes.

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III. LEGAL STANDARD
Section 4 of the Federal Arbitration Act ("FAA") permits "a

United States District Court

For the Northern District of California

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party aggrieved by the alleged failure, neglect, or refusal of

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another to arbitrate under a written agreement for arbitration [to]

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petition any United States district court . . . for any order

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directing that . . . arbitration proceed in the manner provided for

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in [the arbitration] agreement."

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policy that generally favors arbitration agreements.

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Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

9 U.S.C. § 4.

The FAA embodies a
Moses H. Cone

To determine whether a valid arbitration agreement exists, we

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"apply ordinary state-law principles that govern the formation of

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contracts."

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938, 944 (1995).

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governs.

First Options of Chicago, Inc. v. Kaplan, 514 U.S.
Here the parties agree that California law

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IV.

DISCUSSION
This case requires the Court to resolve whether the parties

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entered into a valid and enforceable agreement to arbitrate

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Plaintiff's claims.

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dismiss the case entirely or stay the action pending the resolution

If so, the Court must then decide whether to

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of arbitration.

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638 (9th Cir. 1988).

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See Sparling v. Hoffman Constr. Co., 864 F.2d 635,

Because arbitration is a creature of contract, the crux of

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this motion is whether Savetsky assented to arbitrate his disputes

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with LegalShield.

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Nav. Co., 363 U.S. 574, 582 (1960) ("[A] party cannot be required

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to submit to arbitration any dispute which he has not agreed so to

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submit.").

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motion.

See United Steelworkers of Am. v. Warrior & Gulf

If assent is lacking, then the Court must deny the

Nevertheless, even if assent is present, Savetsky argues

United States District Court

For the Northern District of California

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that the parties' agreement is unenforceable because it is illusory

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and unconscionable.

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arbitration clause cannot be enforced.

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A.

Because the Court finds assent is absent, the

Assent

"Promises become binding when there is a meeting of the minds

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and consideration is exchanged.

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common law England; so it was under the common law in the American

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colonies; . . . and so it is today."

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Corp., 150 F. Supp. 2d 585, 587 (S.D.N.Y. 2001), aff'd, 306 F.3d 17

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(2d Cir. 2002).

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So it was at King's Bench in

Specht v. Netscape Commc'ns

Under California law, mutual assent is required to form a

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contract and can be demonstrated either by words or by actions.

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See Binder v. Aetna Life Ins. Co., 75 Cal. App. 4th 832, 850

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(1999).

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but not knowing all of its terms, may be held to have accepted, by

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his conduct, whatever terms the offer contains."

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Inc. v. Collins & Aikman Corp., 25 Cal. App. 3d 987, 991 (Cal. Ct.

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App. 1972).

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outward manifestations of consent would lead a reasonable person to

"[A]n offeree, knowing that an offer has been made to him

Windsor Mills,

In such a case, the Court must determine "whether the

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believe the offeree has assented to the agreement."

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Sirius XM Radio, Inc., 771 F.3d 559, 565 (9th Cir. 2014) (citing

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Meyer v. Benko, 55 Cal. App. 3d 937, 942-43 (Cal. Ct. App. 1976)).

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Arbitration agreements are no exception, and the "principle of

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knowing consent applies with particular force to provisions for

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arbitration."

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Knutson v.

Windsor Mills, 25 Cal. App. 3d at 992.

While the internet has changed the factual circumstances in

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which courts must apply these principles, the requirement of

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"'mutual manifestation of assent, whether by written or spoken word

United States District Court

For the Northern District of California

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or by conduct, [remains] the touchstone of contract.'"

Nguyen v.

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Barnes & Noble, Inc., 763 F.3d 1171, 1175 (9th Cir. 2014) (quoting

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Specht, 306 F.3d at 29).

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situations arising on the internet, "clickwrap," "shrinkwrap," and

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"browsewrap" agreements, illustrate the application of the assent

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requirement in similar circumstances to those at issue here.

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generally Mark A. Lemley, Terms of Use, 91 Minn. L. Rev. 459, 459-

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60 (2006) (discussing each of these types).

Three paradigmatic contract formation

See

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The first, a clickwrap agreement, is familiar to most internet

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users and requires a user or prospective customer to check a box or

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click an "I agree" button after being presented with terms and

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conditions (or more realistically after declining the opportunity

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to review the often voluminous terms and conditions).

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763 F.3d at 1175-76.

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potential licensees are presented with the proposed license terms

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and forced to expressly and unambiguously manifest either assent or

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rejection prior to being given access to the product."

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Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 429 (2d Cir.

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2004).

See Nguyen,

"Essentially, under a clickwrap arrangement,

Because "[b]lanket assent to a form contract is still

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assent, albeit a more attenuated form than the assent that drives

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contract theory," courts generally find that clickwrap agreements

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are enforceable.

Lemley, Terms, supra at 466.

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Assent in the shrinkwrap context is more attenuated still,

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however courts generally enforce shrinkwrap agreements as well.

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Shrinkwrap agreements are common in the computer software or

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hardware context, and are related to unilateral contracts in that

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they involve the "'money now, terms later' approach to

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sales . . . ."

O'Quin v. Verizon Wireless, 256 F. Supp. 2d 512,

United States District Court

For the Northern District of California

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516 (M.D. La. 2003).

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involves "(1) notice of a license agreement on product packaging

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(i.e., the shrinkwrap), (2) presentation of the full license on

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documents inside the package, and (3) prohibited access to the

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product without an express indication of acceptance."

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Register.com, 356 F.3d at 428; see also ProCD, Inc. v. Zeidenberg,

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86 F.3d 1447, 1449 (7th Cir. 1996) (describing and enforcing a

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shrinkwrap license for software).

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is not demonstrated at the time of purchase (like in the clickwrap

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context), and instead the customer's actions after receiving the

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product or service demonstrates his assent.

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A classic shrinkwrap agreement generally

Assent to a shrinkwrap agreement

Finally, there are "browsewrap" agreements.

"'[I]n a pure-

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form browsewrap agreement, the website will contain a notice that

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-- by using the services of, obtaining information from, or

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initiating applications within the website -- the user is agreeing

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to and is bound by the site's terms of service.'"

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at 1176 (quoting Fteja v. Facebook, Inc., 841 F. Supp. 2d 829, 837

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(S.D.N.Y. 2012)) (quotation and internal quotation marks omitted).

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As several courts have noted, assented is even more attenuated in

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Nguyen, 763 F.3d

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browsewrap agreements than in the clickwrap or shrinkwrap contexts

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because "user[s] can continue to use the website or its services

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without visiting the page hosting the browsewrap agreement or even

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knowing that such a webpage exists."

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No. 12-cv-03373-LHK, 2013 WL 5568706, at *6 (N.D. Cal. Oct. 9,

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2013).

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constructive knowledge of a website's terms and conditions before

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enforcing browsewrap agreements.

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Tassell v. United Mktg. Grp., LLC, 795 F. Supp. 2d 770, 790 (N.D.

Be In, Inc. v. Google Inc.,

As a result, courts generally require users have actual or

Nguyen, 763 F.3d at 1176; Van

United States District Court

For the Northern District of California

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Ill. 2011); Sw. Airlines Co. v. BoardFirst, LLC, No. 06-CV-0891-B,

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2007 WL 4823761, at *4 (N.D. Tex. Sept. 12, 2007); see also Lemley,

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Terms, supra at 477.
The circumstances at issue in this case do not fit neatly into

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any of these categories.

Instead LegalShield's presentation of its

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terms shares some characteristics with all three.

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comparing clickwrap, shrinkwrap, and browsewrap agreements to the

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process by which Savetsky enrolled in LegalShield, it is clear that

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he did not consent to arbitrate disputes at any point.

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Nonetheless, by

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When a consumer chooses the "Buy Now" option on LegalShield's

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website and enters his state of residence, in this case,

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California, a user next sees this:

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United States District Court

For the Northern District of California

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If the user clicks the "More Plan Details" button (circled in red

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in the above graphic), then (and only then) will the user see this

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screen:

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United States District Court

For the Northern District of California

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The "More Plan Details" page continues at length, providing details

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about the various services included in a LegalShield membership,

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pointing out at the end that a prospective member should "consult

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[the member] contract 'for the complete terms and conditions' of

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his LegalShield membership."

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A) (internal alterations omitted).

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circled in red in the above graphic, are a link to a sample version

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of LegalShield's member contract, including the arbitration

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provision.

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Mot. at 9 (quoting Pinson Decl. Ex.
The words "member contract,"

LegalShield argues that Savetsky agreed to arbitrate his

process.

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discussed above adequately communicated the terms of the agreement

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United States District Court

claims simply by purchasing his LegalShield membership using this

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For the Northern District of California

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or, at a minimum, put Savetsky on inquiry notice of the terms, and

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as a result, the contract is binding whether he read it or not.

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True, "[a] party cannot avoid the terms of a contract on the ground

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that he or she failed to read it before signing," Marin Storage &

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Trucking, Inc. v. Benco Contracting & Eng'g, Inc., 89 Cal. App. 4th

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1042, 1049 (Cal. Ct. App. 2001), but an exception exists "when the

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writing does not appear to be a contract and the terms are not

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called to the attention of the recipient.

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contract is formed with respect to the undisclosed term."

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1049-50.

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the sample member contract on LegalShield's website, or

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acknowledged the existence of such a contract prior to purchasing

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his membership.

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and clicking the "BUY NOW" button, a consumer can order a

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LegalShield plan without even being aware a member contract exists.

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Not to mention that a consumer would only receive actual notice if

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he clicked through two optional links and read to page seven where,

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under the inconspicuous heading "Settlement of Disputes," the

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arbitration provision appears.

In short, LegalShield believes that the website design

In such a case no
Id. at

Here, there is no evidence Savetsky had actual notice of

In fact, by simply checking the desired services

See Windsor Mills, 25 Cal. App. 3d

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at 993 (noting that "an offeree, regardless of apparent

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manifestation of his consent, is not bound by inconspicuous

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contractual provisions of which he was unaware, contained in a

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document whose contractual nature is not obvious.").

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Furthermore, the context in which LegalShield's member

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contract appears does not put users on "inquiry notice" of the

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contract or its terms.

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Plan Details" link (which users must click to find the contract or

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even to find the warning to check the contract for further terms

See Specht, 306 F.3d at 30-32.

The "More

United States District Court

For the Northern District of California

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and conditions) appears after a list of features of the plan

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(features LegalShield calls "Plan Details") including "Legal

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Advice/Consultation," "Legal Document Review," or "Trial Defense."

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In this context, a reasonable person could easily conclude that

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"More Plan Details" are simply an even fuller list of features

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LegalShield offers to its members, not the member contract or

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additional terms and conditions.

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and the fact that "a reasonably prudent user [would not be] on

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inquiry notice of the terms of the contract," Nguyen, 763 F.3d at

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1177, or even the location of the contract on LegalShield's

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website, the Court cannot conclude that "a reasonable person in

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[Savetsky's] position would understand that he had assented to the

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arbitration provision in the [LegalShield member contract] when he

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purchased" his membership.

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Given the lack of actual notice

Knutson, 771 F.3d at 565.

Nor would a reasonable person in Savetsky's position

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understand that by not cancelling his LegalShield membership after

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receiving a copy of the membership contract he was assenting to the

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arbitration provision.

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inferred from inaction in the face of a duty to act . . . and from

True, "[a]cceptance of an offer may be

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retention of the benefit offered," but here the contract did not

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contain any such duty to act.

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Ins. Co., 20 Cal. App. 4th 1372, 1385-86 (Cal. Ct. App. 1993)

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(citations omitted).

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provides that Savetsky may cancel his membership "at any time by

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giving written notice to the Company," Pinson Decl. Ex. C.

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it another way, "[a] person can assent to terms even if he or she

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does not actually read them, but the 'offer must nonetheless make

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clear to a reasonable consumer' both that terms are being presented

Golden Eagle Ins. Co. v. Foremost

Instead, the membership agreement simply

To put

United States District Court

For the Northern District of California

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and that they can be adopted through the conduct that the offeror

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alleges constituted assent."

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F.3d 110, 123 (2d Cir. 2012) (internal alterations omitted)

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(emphasis added) (quoting Specht, 306 F.3d at 29) (applying

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California law).

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that inaction by Savetsky would constitute assent to the terms of

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the contract.

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membership contract would have no way of knowing that failing to

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cancel his membership could be construed as assent to arbitrate all

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disputes with LegalShield.

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Schnabel v. Trilegiant Corp., 697

Here nothing in the membership contract indicated

Accordingly, a reasonable consumer reading the

This sharply distinguishes this case from Hill v. Gateway

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2000, Inc., 105 F.3d 1147, 1148 (7th Cir. 1997) and other cases

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LegalShield cites enforcing shrinkwrap agreements.

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Cruise Lines, Inc. v. Shute, 499 U.S. 585, 587 (1991) (enforcing a

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forum selection clause against cruise ship passengers where the

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ticket stated that "[t]he acceptance of this ticket . . . shall be

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deemed to be an acceptance and agreement . . . of all [its] terms

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and conditions"); Lima v. Gateway, Inc., 886 F. Supp. 2d 1170, 1178

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(C.D. Cal. 2012) (noting that the subsequent document "prominently

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See Carnival

plaintiff's] purchase unless within 15 days . . . he notifies [the

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defendant] in writing that he does not agree to it and returns his

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product"); Bischoff v. DirecTV, Inc., 180 F. Supp. 2d 1097, 1011

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(C.D. Cal. 2002) ("If you do not accept these terms, please notify

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us immediately and we will cancel your service."); O'Quin, 256 F.

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Supp. 2d at 517 ("According to the Terms and Conditions Pamphlet,

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it is the activation and use of Defendant's . . . services . . .

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that constitutes the acceptance of the arbitration agreement.");

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United States District Court

states in capital letters and bold font that it applies to [the

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For the Northern District of California

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Sherr v. Dell, Inc., No. 05cv10097 (GBD), 2006 WL 2109436, at *2

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(S.D.N.Y. July 27, 2006) ("The customer need only return the

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product according to the return policy in order to reject the

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Agreement.").

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Savetsky received provided no indication whatsoever that legal

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consequences (like assent to the arbitration provision) would flow

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from his failure to cancel the contract.

Unlike these cases, the membership agreement

Because the "outward manifestations of consent" present in

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this case would not lead "a reasonable person to believe [Savetsky]

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has consented to the agreement," the Court finds there was no valid

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and enforceable agreement to arbitrate.

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Knutson, 771 F.3d at 565.

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V.

CONCLUSION
Because there was no valid and enforceable agreement to

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arbitrate, there is no basis to compel arbitration.

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Accordingly,

LegalShield's motion is DENIED.

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IT IS SO ORDERED.

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Dated: February 12, 2014
UNITED STATES DISTRICT JUDGE

United States District Court

For the Northern District of California

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