McLellan et al v. Fitbit, Inc.

Filing 126

ORDER re Motion for Partial Reconsideration (Dkt. No. 115 ). Signed by Judge James Donato on 1/24/2018. (jdlc3S, COURT STAFF) (Filed on 1/24/2018)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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KATE MCLELLAN, et al.,
Plaintiffs,

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United States District Court
Northern District of California

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Case No. 3:16-cv-00036-JD
ORDER RE MOTION FOR
RECONSIDERATION OF
ARBITRATION RULING

v.
FITBIT, INC.,
Defendant.

Re: Dkt. No. 115

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In an order that sent 12 of the 13 named plaintiffs to arbitration, the Court found that

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Fitbit’s terms of service (“ToS”) delegated threshold questions of arbitrability to the arbitrator, and

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that plaintiffs’ challenges to the validity of the ToS and the agreement to arbitrate should be

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decided by the arbitrator. Dkt. No. 114. Plaintiffs have suggested that further discussion of

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contract formation issues would be helpful, and have requested leave to file a motion for partial

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reconsideration on that topic. Dkt. No. 115. Plaintiffs contend that (1) they did not unequivocally

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assent to the ToS, and (2) they did not receive adequate consideration to create a binding

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agreement. Dkt. No. 115-1 at 5. The Court allowed the motion, Dkt. No. 116, and called for a

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response from Fitbit. Dkt. No. 118.

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It is certainly true that contract formation disputes are for the Court to decide, but the ones

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plaintiffs have raised do not disturb the order compelling arbitration. The starting point for this

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conclusion is the plain language of the Federal Arbitration Act, which states that a “written

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provision in . . . a contract . . . to settle by arbitration a controversy thereafter arising out of such

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contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or

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in equity for the revocation of any contract.” 9 U.S.C. § 2.

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In analyzing the enforceability of agreements to arbitrate under Section 2, the Supreme

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Court has consistently distinguished between formation challenges and validity challenges. In

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Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444-46 (2006), for example, the Court

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discussed the different types of validity challenges under Section 2 and held that validity

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challenges going to the contract as a whole are considered by the arbitrator in the first instance.

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The Court was careful to emphasize that issues of contract validity differ from issues of “whether

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any agreement between the alleged obligor and obligee was ever concluded. Our opinion today

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addresses only the former, and does not speak to . . . [whether] it is for courts to decide whether

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the alleged obligor ever signed the contract, whether the signor lacked authority to commit the

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alleged principal, and whether the signor lacked the mental capacity to assent.” Id. at 444 n.1

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(citations omitted). The topics left unaddressed are all classic examples of contract formation
issues. This distinction between formation and validity challenges was reiterated in Rent-A-

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United States District Court
Northern District of California

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Center, West, Inc. v. Jackson, 561 U.S. 63, 70 n.2 (2010) (“The issue of the agreement’s ‘validity,’

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is different from the issue whether any agreement between the parties ‘was ever concluded,’ and,

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as in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), we address only the

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former”).
Under these precedents, “courts should order arbitration of a dispute only where the court

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is satisfied that neither the formation of the parties’ arbitration agreement nor (absent a valid

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provision specifically committing such disputes to an arbitrator) its enforceability or applicability

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to the dispute is in issue.” Granite Rock Co. v. Int’l Broth. of Teamsters, 561 U.S. 287, 299 (2010)

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(emphasis in original). It follows that when formation disputes are present, the courts decide those

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questions even if an agreement to arbitrate delegates gateway issues of jurisdiction to the

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arbitrator. To that point, the Ninth Circuit recently held that an arbitration agreement could not be

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enforced because it was contained in a “sham” contract to which the parties never intended to bind

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themselves. The existence vel non of the arbitration agreement was for the court to decide even

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though the agreement provided that the “arbitral tribunal shall have the power to rule on its own

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jurisdiction, including any objections with respect to the existence or validity of the arbitration

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agreement.” Casa del Caffe Vergnano S.P.A. v. ItalFlavors, LLC, 816 F.3d 1208, 1214 (9th Cir.

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2016).

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Here, plaintiffs raise formation challenges that go to “the threshold issue of the existence of

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an agreement to arbitrate.” Three Valley Mun. Water Dist. v. E.F. Hutton & Co., Inc., 925 F.2d

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1136, 1140-41 (9th Cir. 1991) (emphasis in original). These questions are entrusted to the Court

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for resolution under California law. Dkt. No. 60-1 at 4 (“The Terms of Service . . . shall be

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governed by and construed in accordance with the laws of the State of California”).

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Plaintiffs’ first challenge is that they did not manifest unequivocal assent to the ToS. This
position is strained given that plaintiffs acknowledge they “each clicked a box next to a

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hyperlinked terms of service (or took equivalent action on a mobile platform)” that stated, “I agree

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to the Fitbit Terms of Service and Privacy Policy.” Dkt. No. 93 at 7; Dkt. No. 87 at 5. Fitbit’s

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ToS is a classic “clickwrap” agreement, a type of agreement that courts routinely find valid and

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United States District Court
Northern District of California

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enforceable because the user must affirmatively acknowledge receipt of the terms of the contract.

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In re Facebook Biometric Info. Privacy Litig., 185 F. Supp. 3d 1155, 1165 (N.D. Cal. 2016);

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Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175-76 (9th Cir. 2014); Meyer v. Uber Techs.,

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Inc., 868 F.3d 66, 75 (2d Cir. 2017).

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Plaintiffs nevertheless argue that they did not manifest assent because the ToS included a

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“browsewrap” clause informing the user that by visiting the Fitbit website or using any part of the

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Fitbit service, he or she had already agreed to the terms. Dkt. No. 93 at 7. Plaintiffs each state

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that they now understand the browsewrap clause to mean that even before checking the “I agree”

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box, they were “deemed by Fitbit to already have agreed to [the Terms of Service].” See, e.g.,

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Dkt. No. 93-1 ¶ 7. But none of the plaintiffs have tendered any evidence showing that they had in

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fact actually read the browsewrap clause before clicking “I agree.” The browsewrap clause could

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not have influenced anyone’s decision to check the “I agree” box, and so correlatively cannot

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undermine each plaintiff’s decision to manifest acceptance by clicking in the affirmative. Because

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each plaintiff affirmatively accepted the ToS independent of the browsewrap statement, any

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ambiguity was negated. Plaintiffs point to no evidence or case law suggesting a different

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conclusion.

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Consequently, plaintiffs’ current perspective on the browsewrap clause, and their
suggestion that the clause would have influenced their understanding of assent to the ToS had they
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read it, is of no moment to the formation analysis. See, e.g., Cordas v. Uber Techs., Inc., 228 F.

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Supp. 3d 985, 989-90 (N.D. Cal. 2017) (consumer as a matter of law was bound by arbitration

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provision in Uber’s clickwrap policy where consumer presented no evidence that Uber failed to

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put him on notice).

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Plaintiffs also argue that they had no meaningful opportunity to withhold assent because

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agreement to the ToS was required for device functionality, and Fitbit did not disclose the ToS

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until after the sales transaction. Dkt. No. 93 at 8-9. To the extent that this raises a contract of

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adhesion argument that may be considered as a formation issue, it does not defeat contract

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formation. As an initial matter, contracts of adhesion are not per se invalid, and the California
Supreme Court has enforced them and their attendant arbitration clauses in consumer cases over

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United States District Court
Northern District of California

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similar objections to the ones plaintiffs make here. See Sanchez v. Valencia Holding Co., LLC, 61

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Cal. 4th 899, 914 (Cal. 2015). Plaintiffs make no showing of unconscionability that would

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warrant a departure from this holding. In addition, the devices here are wearable fitness monitors,

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which are purely items of personal choice and interest, and not necessities of life. Plaintiffs were

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perfectly free to reject the ToS and return the device for a refund; they have not shown any

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barriers to exercising that option. Finally, common experience undermines plaintiffs’ protest that

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they could not have foreseen the possibility of an additional terms of service. For decades,

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technology companies have routinely required consumers to sign post-purchase agreements in

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order to use a product. See, e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1451 (7th Cir. 1996)

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(“Transactions in which the exchange of money precedes the communication of detailed terms are

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common,” and discussing software warranties and license restrictions in particular). Plaintiffs

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have not pointed to any packaging claims or marketing practices suggesting that their devices were

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somehow an exception to that well-established rule. See Dkt. No. 87 at 8 (Fitbit packaging

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discussed Fitbit app and dashboard, listed computers and smart phones that were device-

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compatible).

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Plaintiffs’ second formation challenge goes to the adequacy of consideration. This is a

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slender reed indeed, as the Ninth Circuit has found. Pope v. Sav. Bank of Puget Sound, 850 F.2d

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1345, 1356 (9th Cir. 1988) (“the first lesson in contracts [is] the peppercorn theory -- that courts
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will not inquire into the adequacy of consideration, so long as it was true and valuable.”); see also

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Restatement (Second) of Contracts § 79 (1981) (“Ordinarily . . . courts do not inquire into the

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adequacy of consideration”). Under California law, “[a]ny benefit conferred, or agreed to be

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conferred . . . or any prejudice suffered, or agreed to be suffered, . . . as an inducement to the

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promisor, is a good consideration for a promise,” Cal. Civ. Code § 1605, and a “written instrument

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is presumptive evidence of a consideration,” Cal. Civ. Code § 1614. It is well-established that a

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party’s reciprocal agreement to arbitrate claims is adequate consideration for a contract. See, e.g.,

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Circuit City Stores, Inc. v. Najd, 294 F.3d 1104, 1108 (9th Cir. 2002) (employer’s “promise to

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submit to arbitration and to forego the option of a judicial forum for a specified class of claims

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constitutes sufficient consideration” under California law); Khraibut v. Chahal, No. C15-04463

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United States District Court
Northern District of California

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CRB, 2016 WL 1070662, at *8 (N.D. Cal. Mar. 18, 2016) (same). Plaintiffs argue that Circuit

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City should not be read to apply to post-purchase consumer agreements but cites no authority to

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that effect.

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Consequently, while plaintiffs properly note that contract formation issues are for the

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Court to decide, neither of plaintiffs’ formation challenges disrupts their agreement to arbitrate.

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The record shows that plaintiffs manifested their objective assent to the ToS by checking the “I

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agree” box, and for that agreement they received adequate consideration. The order compelling

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arbitration remains in full force and effect.

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IT IS SO ORDERED.
Dated: January 24, 2018

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JAMES DONATO
United States District Judge

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