Esparza v. Smartpay Leasing, Inc.

Filing 33

ORDER RE MOTION TO COMPEL ARBITRATION by Judge William Alsup denying 19 Motion to Compel.(whalc1, COURT STAFF) (Filed on 10/3/2017)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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SHAWN ESPARZA, on behalf of herself, and
all others similarly situated,

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For the Northern District of California

United States District Court

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No. C 17-03421 WHA
Plaintiff,

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v.

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ORDER RE MOTION TO
COMPEL ARBITRATION

SMARTPAY LEASING, INC.,

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Defendant.

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/

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INTRODUCTION

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In this putative class action for violation of the Telephone Consumer Protection Act,

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defendant moves to compel arbitration. Plaintiff opposes. For the reasons herein, the motion is

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DENIED.

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STATEMENT

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Plaintiff Shawn Esparza leased a cell phone from defendant SmartPay Leasing, Inc. in

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December 2015. To lease the phone, Esparza first had to open an account on SmartPay’s

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website, which required her to consent to SmartPay’s general Terms of Use Agreement. Under

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the Terms of Use Agreement, Esparza agreed to “receive transactional and promotional emails

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and text messages.” The Terms of Use Agreement did not contain an arbitration clause. It

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provided, however, that it “shall be subject to any other agreement [Esparza has] entered into

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with SmartPay” (Dkt. No. 20 ¶¶ 9, 12–13 Exh. A).1
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SmartPay Leasing, Inc., has since become SmartPay Leasing, LLC (Dkt. No. 20 ¶ 1).

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After entering into the Terms of Use Agreement, Esparza then consented to a separate

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set of terms and conditions when she completed the paperwork required to lease a cell phone —

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the Agreement Terms and Conditions (hereinafter “Lease Terms and Conditions”). The Lease

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Terms and Conditions provided that “any claim or dispute arising from or in any way related to

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the Agreement must be resolved by binding arbitration instead of a lawsuit,” with “Agreement”

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defined as the Lease-Purchase Agreement. It further stated that the agreement to arbitrate “will

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survive termination of the Agreement and will continue to be in effect to resolve any disputes

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that arise between [Esparza] and [SmartPay]” (id. ¶¶ 14-18, Exh. B).

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Several months after leasing her phone, Esparza returned it, allegedly because it was
defective. Nevertheless, after returning her phone and otherwise ending her relationship with

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For the Northern District of California

United States District Court

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SmartPay, Esparza began receiving promotional text messages from SmartPay on a completely

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different phone (not leased from SmartPay). These continued despite her requests that

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SmartPay stop sending them. In June, Esparza filed this suit alleging that SmartPay violated the

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Telephone Consumer Protection Act, 47 U.S.C. 227, by continuing to send her unsolicited texts

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(Compl. ¶¶ 19-20, 22-29).

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In response, SmartPay filed this motion to compel arbitration. This order follows full
briefing and oral argument.
ANALYSIS
SmartPay’s motion to compel arbitration is governed by the Federal Arbitration Act.

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The FAA requires resolution of two “gateway” issues: “(1) whether a valid agreement to

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arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.”

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Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000).

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Esparza argues that the arbitration clause contained in her lease agreement does not

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encompass this dispute. She takes the position that the arbitration clause, by its own terms,

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applies only to claims arising from or related to the lease of her phone (which lease ended

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several months before this dispute arose), and that her claims in this action are entirely

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unrelated to the lease. SmartPay, on the other hand, argues that the arbitration clause broadly

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encompasses any disputes between Esparza and SmartPay, and therefore applies to her TCPA
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claims. It further contends that “any doubts concerning the scope of arbitrable issues should be

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resolved in favor of arbitration” (Dkt. No. 19 at 7–8 quoting Moses H. Cone Mem’l Hosp. v.

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Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983)).

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A straightforward analysis of the language of the agreements at issue, however, shows

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that no doubts need be resolved inasmuch as Esparza’s claims clearly fall outside of the scope

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of the arbitration clause.

The Lease Terms and Conditions provided that claims or disputes “arising from or in

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any way related to the [lease] Agreement must be resolved by binding arbitration” (Dkt. No.

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20-2 at 4) (emphasis added). The lease agreement, in turn, concerned the transaction through

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For the Northern District of California

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United States District Court

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which Esparza obtained her cell phone from SmartPay. It set forth in detail the terms of the

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lease including pricing, payment schedule, and rental period, and details about the phone (see

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Dkt. No 20-2).

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TCPA CLAIMS FALL OUTSIDE OF THE LEASE AGREEMENT.

Plainly, Esparza’s TCPA claims do not implicate her cell phone, or the lease agreement

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she entered into to obtain that phone. Indeed, her claims did not even arise until months after

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she had returned her phone and in doing so terminated the lease (Dkt. Nos. 23 at 2, 20-2 at 3).

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Seemingly recognizing that Esparza’s lease agreement and TCPA claims are unrelated,

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SmartPay concedes that the terms of the lease agreement do not apply directly to Esparza’s

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claims. Instead, it argues that the lease agreement was subject to SmartPay’s website’s Terms

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of Use Agreement, which permitted SmartPay to send Esparza promotional text messages. The

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Terms of Use Agreement, SmartPay contends, incorporated the lease agreement’s arbitration

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clause, and through this route subjects Esparza’s claims to arbitration (Dkt. No. 19 at 6–9). For

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the reasons set forth below, this argument is unpersuasive.

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2.

SMARTPAY’S TERMS OF USE AGREEMENT DOES NOT INCORPORATE THE
LEASE AGREEMENT’S ARBITRATION CLAUSE.

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SmartPay’s Terms of Use Agreement provided, in pertinent part, that by consenting to
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the Terms of Use, customers “agree to receive transactional and promotional emails and text
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messages on [their] mobile device[s]” (Dkt. 20-1 at 6). The Terms of Use Agreement, however,
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did not contain an arbitration clause. Rather, it provided that the Terms of Use “shall be
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governed by and construed in accordance with the laws of the United States, and to the extent

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applicable, the laws of the State of California” (id. at 8).

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Nevertheless, SmartPay argues that the Terms of Use Agreement was subject to the

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arbitration clause contained in the separate lease agreement, pointing to a section of the Terms

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of Use Agreement, which provided that the Terms of Use “shall be subject to any other

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agreements [customers] have entered into with SmartPay” (id. at 8; Dkt. No. 19 at 7–8). Its

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contention is unpersuasive for two reasons.

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First, the arbitration clause in the lease agreement expressly applied to claims “arising

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from or in any way related to the [lease] agreement” (id. Exh. B at 4). Since Esparza’s TCPA
claims do not arise from or relate to her agreement to lease a cell phone, the arbitration

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For the Northern District of California

United States District Court

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provision has no applicability even if the agreements are read together.

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Second, to the extent that SmartPay contends the promotional text provision in the

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Terms of Use was incorporated into the lease agreement, its interpretation reverses the direction

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in which the “subject to any other agreements” clause applies (see Dkt. No. 19 at 6–7). The

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Terms of Use Agreement provided that the Terms of Use Agreement would be subject to other

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agreements SmartPay enters into with its customers. SmartPay, however, attempts to make the

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lease agreement subject to the Terms of Use, which allows for promotional text messaging.

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This defies the language of the contract, and therefore does not bring disputes regarding

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promotional text messages within the scope of the arbitration clause.

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3.

THE “ANY DISPUTES THAT ARISE BETWEEN YOU AND US” CLAUSE APPLIES
TO THE LEASE AGREEMENT, NOT THE TERMS OF USE.

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SmartPay’s final argument is that the promotional text messaging agreement falls within
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the scope of the arbitration clause because the arbitration clause contains the following
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provision: “This arbitration agreement will survive termination of the [lease] Agreement and
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will continue to be in effect to resolve any disputes that arise between you and us” (Dkt. No. 2025
2 at 4–5). This argument is unavailing for two reasons.
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First, this clause is part of, and modifies, the section providing that customers agreed to
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arbitrate disputes arising from the lease agreement. The natural reading of the clause,
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therefore, is that it too applies to disputes arising from the lease agreement.
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Second, reading the clause as applying to any and every claim arising between SmartPay

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and its customers, even including employment and tort claims, with no limiting principle would

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render the clause impermissibly overbroad, and therefore inoperable. See, e.g., Savage v.

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Citibank N.A., No. 14-CV-03633-BLF, 2015 WL 2214229, at *4 (N.D. Cal. May 12, 2015)

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(Judge Beth Freeman); In re Jiffy Lube Int'l, Inc., Text Spam Litig., 847 F. Supp. 2d 1253, 1263

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(S.D. Cal. 2012) (Judge Jeffrey Miller). This order rejects SmartPay’s excessively broad and

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unnatural reading.

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Because the arbitration agreement does not encompass Esparza’s claim, SmartPay’s
motion to compel arbitration is DENIED.

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For the Northern District of California

United States District Court

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CONCLUSION

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IT IS SO ORDERED.
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Dated: October 3, 2017.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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