Trudeau v. Google LLC

Filing 45

ORDER GRANTING 25 MOTION TO COMPEL ARBITRATION; GRANTING IN PART AND TERMINATING AS MOOT IN PART 25 MOTION TO DISMISS; DISMISSING ACTION WITHOUT PREJUDICE. Signed by Judge Beth Labson Freeman on 10/3/2018.(blflc2S, COURT STAFF) (Filed on 10/3/2018)

1
2
3

UNITED STATES DISTRICT COURT

4

NORTHERN DISTRICT OF CALIFORNIA

5

SAN JOSE DIVISION

6
7

MARK TRUDEAU, ET AL.,
Plaintiffs,

8
v.

9
10

GOOGLE LLC,
Defendant.

United States District Court
Northern District of California

11

Case No. 18-cv-00947-BLF
ORDER GRANTING MOTION TO
COMPEL ARBITRATION; GRANTING
IN PART AND TERMINATING AS
MOOT IN PART MOTION TO
DISMISS; DISMISSING ACTION
WITHOUT PREJUDICE
[Re: ECF 25]

12
13

Plaintiffs Mark Trudeau and Troy Martial Arts Inc. bring claims on behalf of themselves
14

and a putative class of others similarly situated in connection with Defendant Google LLC’s

15
alleged misrepresentations to advertisers using its AdWords program. Before the Court is
16

Defendant’s Motion to Compel Arbitration or Alternatively Dismiss Plaintiffs’ First Amended

17
Class Action Complaint. Mot., ECF 25. The Court heard oral argument on the motion on
18
19

September 27, 2018. For the reasons stated herein, Defendant’s Motion to Compel Arbitration is
GRANTED. Defendant’s Motion to Dismiss is GRANTED IN PART and TERMINATED AS

20
MOOT IN PART. The action is DISMISSED without prejudice.
21
22

I.

BACKGROUND
Defendant Google LLC (“Google”) runs an advertising program called AdWords, which

23
allows an advertiser to tie his advertisement to specific keywords, such that users of Google see
24
the advertisement when they search for those keywords. First Am. Class Action Compl.
25

(“FACC”) ¶ 2, ECF 9. AdWords also allows the advertiser to select certain negative keywords,

26
such that users of Google cannot see the advertisement when they search for those negative
27
keywords. Id. ¶ 3. But Plaintiff Troy Martial Arts Inc. and its co-owner Plaintiff Mark Trudeau
28

(collectively, “Trudeau”) claim that this negative keyword functionality does not work as

2

promised. See generally FACC. Specifically, when a user misspells a negative keyword in his or

3

her search, Google allegedly corrects that misspelling and then runs the search results for that

4

word. See, e.g., id. ¶¶ 30–31. In that scenario, AdWords displays the advertisement, even though

5

the search includes the negative keyword. Id. Trudeau thus claims that Google makes material

6

misrepresentations about AdWords’ functionality. He brings the following causes of action on

7

behalf of himself and a putative class: (1) breach of contract; (2) breach of implied covenant of

8

good faith and fair dealing; (3) violation of the Unfair Competition Law, Cal. Bus. Prof. Code §§

9

17200, et seq.; (4) violation of the False Advertising Law, Cal. Bus. Prof. Code §§ 17200, et seq.;

10

(5) declaratory relief that the arbitration clause included in the 2017 AdWords Terms of Service is

11

United States District Court
Northern District of California

1

procedurally and substantively unconscionable and unenforceable; and (6) unjust enrichment. Id.

12

¶¶ 81–118.
Trudeau first began using the AdWords program in January 2012, when he accepted the

13
14

AdWords Terms of Service via a clickwrap agreement.1 See id. ¶ 32; Sung Decl. ISO Mot. ¶¶ 6–

15

7, 14, ECF 25-1. At the time, the 2006 Terms of Service (“TOS”) were in effect. See Sung Decl.

16

¶ 6. In 2013, Google modified the Terms and pre-existing advertisers were given notice and asked

17

to review and accept these terms. Id. Section 11 of the 2013 TOS included the following

18

provision:

19

11 Term. Google may add to, delete from or modify these Terms at any time without
liability. The modified Terms will be posted at www.google.com/ads/terms.
Customer should look at these Terms regularly. The changes to the Terms will not
apply retroactively and will become effective 7 days after posting. However,
changes specific to new functionality or changes made for legal reasons will be
effective immediately upon notice. . . .

20
21
22
23

Trudeau Decl. ISO Opp., Ex. 1 (“2013 TOS”), ECF 34-2. Several other versions of Google’s

24

Terms of Service throughout the relevant period stated that “[c]hanges [to the terms] will not

25

apply retroactively and will become effective no sooner than fourteen days after they are posted.”

26

See Id., Ex. 2, ECF 34-3 (March 2012); Id., Ex. 3, ECF 34-4 (November 2013); Id., Ex. 4, ECF

27
28

1

The AdWords account was registered to Troy Martial Arts, Inc.; Plaintiff Trudeau does not have
a separate AdWords account. Song Decl. ¶ 14.
2

1

34-5 (April 2014); Id., Ex. 5, ECF 34-6 (October 2017).
The Terms were modified again in September 2017. Sung Decl. ¶ 7. Like other versions

2
3

of the Terms of Service, the 2017 TOS includes provisions relating to changes to the terms. In

4

Section 12, the 2017 TOS states, in relevant part:

5

12 Changes to Terms. Google may make non-material changes to these Terms at
any time without notice, but Google will provide advance notice of any material
changes to these Terms. The Terms will be posted at google.com/ads/terms. Other
than changes made under Section 13(G), the changes to the Terms will not apply
retroactively and will become effective 7 days after posting. However, changes made
for legal reasons will be effective immediately upon notice.

6
7
8
9

Id., Ex. C (“2017 TOS”), ECF 25-2. Section 13(G) in turn states:

10

G. Future changes to Dispute Resolution Agreement. If Google makes any changes
to this Dispute Resolution Agreement (other than a change to Google’s Notice
Address), Customer or Advertiser may reject any such change by notifying Google
via webform as set forth in Section 13(F) within 30 days of the change. It is not
necessary to submit a rejection of the future change to this Dispute Resolution
Agreement if Customer or Advertiser had properly opted out of arbitration in
compliance with the requirements of Section 13(F). By rejecting a future change,
Customer or Advertiser is agreeing that it will arbitrate any dispute in accordance
with the language of this Dispute Resolution Agreement, as modified by any changes
that Customer or Advertiser did not reject.

United States District Court
Northern District of California

11
12
13
14
15
16

Finally, Section 14 governs miscellaneous provisions and states:

17

14 Miscellaneous. . . . (d) These Terms are the parties’ entire agreement relating to
their subject matter and supersede any prior or contemporaneous agreements on
those subjects.

18
19
20
21
22

Id.
The 2017 TOS also included, for the first time, an arbitration provision and a class action
waiver. Sung Decl. ¶ 8. The arbitration provision covers, in relevant part:
13 Dispute Resolution Agreement.

23
24
25
26
27
28

A. Arbitration of disputes. Google, Customer, and Advertiser agree to arbitrate all
disputes and claims between Google and Customer or between Google and
Advertiser that arise out of or relate in any way to the Programs or these Terms. This
agreement to arbitrate (“Dispute Resolution Agreement” or “Section 13”) is intended
to be broadly interpreted and includes, for example:
1. claims brought under any legal theory;
2. claims that arose before Customer or Advertiser first accepted any version of these
Terms containing an arbitration provision;
3

3. claims that may arise after the termination of Customer’s or Advertiser’s Use of
the Programs; . . . .

1
2

The arbitration provision also included a 30-day opt out period, stating:
F. 30-day opt out period. Customer (both for itself and for any Advertiser that
Customer represents) and Advertiser have the right to opt out of this Dispute
Resolution Agreement. A Customer or Advertiser who does not wish to be bound
by this Dispute Resolution Agreement (including its waiver of class and
representative claims) must notify Google as set forth below within 30 days of the
first acceptance date of any version of these Terms containing an arbitration
provision (unless a longer period is required by applicable law). Customer’s or
Advertiser’s notice to Google under this subsection must be submitted via webform
available at adwords.google.com/nav/arbitration. An opt-out notice does not revoke
or otherwise affect any previous arbitration agreement between Customer and
Google or between Advertiser and Google.

3
4
5
6
7
8
9

Clicking the link in this section took the advertiser to a webpage containing the opt out procedure.
10
Sung Decl. ¶ 13; see id., Ex. D, ECF 23-2.
11

United States District Court
Northern District of California

Google gave notice of the 2017 TOS to the AdWords advertisers through multiple means,
12
including through a direct email to the advertisers, a public blog post, and an alert on the
13

advertisers’ AdWords account. Sung Decl. ¶ 7. Each notice directed the advertisers to a webpage

14
where they could review and accept the modified terms, which were displayed in a single
15

embedded window. Id. ¶ 9. Above the TOS window was the following admonition: “Please

16
review these Terms carefully. They include the use of binding arbitration to resolve disputes
17
rather than jury trials or class actions. Please follow the instructions in the terms below if you
18

wish to opt out of this provision.” Id., Ex. B, ECF 25-2. Advertisers were then prompted to

19
accept or decline the terms.
20
Google notified Trudeau of the 2017 TOS by both email and an alert in his AdWords
21
account. Sung Decl. ¶ 16. Trudeau accepted the 2017 TOS on September 15, 2017 and did not
22
attempt to opt out of the arbitration provision. See id. ¶¶ 17–18.
23
24
25

II.

LEGAL STANDARD
A.

Motion to Compel

The Federal Arbitration Act (“FAA”) applies to arbitration agreements affecting interstate

26
commerce. 9 U.S.C. §§ 1 et seq. When it applies, the FAA preempts state laws that conflict with
27
its provisions or obstruct its objective to enforce valid arbitration agreements. See AT&T Mobility
28
4

1
2

LLC v. Concepcion, 563 U.S. 333, 339, 341–43 (2011).
The FAA reflects a strong policy in favor of arbitration. Id. at 339; Ericksen, Arbuthnot,

3

McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street, 35 Cal. 3d 312, 322 (1983). Under the FAA,

4

contractual arbitration agreements must be enforced “save upon such grounds as exist at law or in

5

equity for the revocation of any contract.” Newton v. Am. Debt Servs., Inc., 549 Fed. Appx. 692,

6

693 (9th Cir. 2013) (quoting 9 U.S.C. § 2). “In line with these principles, courts must place

7

arbitration agreements on an equal footing with other contracts, and enforce them according to

8

their terms.” Concepcion, 563 U.S. at 339 (internal citations omitted); Weeks v. Crow, 113 Cal.

9

App. 3d 350, 353 (1980) (“The court should attempt to give effect to the parties’ intentions, in
light of the usual and ordinary meaning of the contractual language and the circumstances under

11

United States District Court
Northern District of California

10

which the agreement was made.” (citation omitted)). “[W]here a contract contains an arbitration

12

clause,” moreover, “courts apply a presumption in favor of arbitrability . . . and the party resisting

13

arbitration bears the burden of establishing that the arbitration agreement is inapplicable.” Wynn

14

Resorts v. Atl.-Pac. Capital, Inc., 497 Fed. App’x. 740, 742 (9th Cir. 2012).

15

A district court faced with a petition to enforce an arbitration clause engages in a limited

16

two-part inquiry: first, it determines whether the arbitration agreement is valid, and second, it

17

determines whether the agreement encompasses the claims at issue. Ashbey v. Archstone Prop.

18

Mgmt., Inc., 785 F.3d 1320, 1323 (9th Cir. 2015). A district court does not consider challenges to

19

the contract as a whole, but rather only specific challenges to the validity of the arbitration clause

20

itself. See Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 70 (2010) (noting the “two types of

21

validity challenges” but holding that only challenges to the validity of the agreement to arbitrate

22

are “relevant to a court’s determination whether the arbitration agreement at issue is enforceable”).

23

B.

24

“A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a

Motion to Dismiss

25

claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation

26

Force v. Salazar, 646 F.3d 1240, 1241–42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d

27

729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts

28

as true all well-pled factual allegations and construes them in the light most favorable to the
5

1

plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the

2

Court need not “accept as true allegations that contradict matters properly subject to judicial

3

notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or

4

unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008)

5

(internal quotation marks and citations omitted). While a complaint need not contain detailed

6

factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to

7

relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.

8

Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the

9

court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

10

On a motion to dismiss, the Court’s review is limited to the face of the complaint and

United States District Court
Northern District of California

11

matters judicially noticeable. MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986);

12

N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). However, under the

13

“incorporation by reference” doctrine, the Court also may consider documents which are

14

referenced extensively in the complaint and which are accepted by all parties as authentic. In re

15

Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999), abrogated on other grounds

16

by S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 784 (9th Cir. 2008).

17

If the Court concludes that the complaint should be dismissed, it must then decide whether

18

to grant leave to amend. Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to

19

amend “shall be freely given when justice so requires,” bearing in mind “the underlying purpose

20

of Rule 15 . . . [is] to facilitate decision on the merits, rather than on the pleadings or

21

technicalities.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (internal quotation

22

marks and citation omitted). Nonetheless, a district court may deny leave to amend a complaint

23

due to “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure

24

deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue

25

of allowance of the amendment, [and] futility of amendment.” See Leadsinger, Inc. v. BMG Music

26

Publ’g, 512 F.3d 522, 532 (9th Cir. 2008).

27

C.

28

The Court may generally consider matters properly subject to judicial notice. See Tellabs,

Judicial Notice

6

1

Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). In support of its motion, Google

2

filed a Request for Judicial Notice and Incorporation by Reference of, in relevant part, the 2017

3

TOS, the opt-out website, and the website at which advertisers accepted or declined the TOS. See

4

Mot. at 23–24. Trudeau also incorporates additional versions of the TOS into his Opposition. See

5

Opp. at 3. The Court agrees to take judicial notice of these documents, as they are not the subject

6

of reasonable dispute and their authenticity is not in question. Fed. R. Evid. 201. Likewise,

7

several versions of the TOS are incorporated by reference into the Complaint. See FACC ¶¶ 56–

8

65, 107–114. The documents are accepted for what they represent, but the Court is not bound by

9

any specific fact findings and legal conclusions set forth in them.

10

III.

DISCUSSION

United States District Court
Northern District of California

11

In order to determine whether these claims must be compelled to arbitration or be litigated

12

in this court, the Court necessarily must decide whether the arbitration clause is unconscionable—

13

if it were unconscionable, then it would be unenforceable. After thoroughly reviewing the briefing

14

on this issue and the declarations submitted in support thereof, as well as hearing argument from

15

each side at the hearing on the motion, the Court holds that the arbitration provision is valid and

16

enforceable and covers the claims at issue here, such that Google’s motion to compel arbitration

17

must be granted and its motion to dismiss must be granted as to the claim for declaratory relief

18

that the arbitration provision is unconscionable.

19

As an initial matter, Trudeau does not dispute several facts important to deciding these

20

motions. It is undisputed that Trudeau accepted the 2017 TOS and did not follow the arbitration

21

opt out procedures. See FACC ¶ 32; Sung Decl. ¶¶ 10, 14–17. It is also undisputed that if Section

22

13(A) is valid and enforceable as to claims that accrued before the 2017 TOS was enacted (what

23

Trudeau deems to be “retroactive” application), the scope of that provision covers the claims at

24

issue here. See 2017 TOS § 13(A) (governing “all disputes and claims between Google and

25

Customer . . . that arise out of or relate in any way to the Programs or these Terms”); Mot. at 12.

26

The key dispute then is whether the arbitration provision can cover claims that accrued before the

27

2017 TOS was enacted.

28

It also appears from Trudeau’s Opposition that he abandons his declaratory relief claim
7

that the arbitration provision is procedurally and substantively unconscionable. Compare FACC

2

¶¶ 107–114 (seeking declaratory relief that clause is unconscionable) with Opp. at 4–14 (arguing

3

arbitration provision is unenforceable for other reasons). To the extent Trudeau has not waived

4

this argument, the Court rejects it and dismisses this cause of action with prejudice. Under

5

California law, a contractual clause is unenforceable only if it is both procedurally and

6

substantively unconscionable. See Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir.

7

2006). The Ninth Circuit has held that “the threshold inquiry in California’s unconscionability

8

analysis is whether the arbitration agreement is adhesive.” Mohamed v. Uber Techs., Inc., 848

9

F.3d 1201, 1210 (9th Cir. 2016) (quoting Nagrampa, 469 F.3d at 1281 (alterations and internal

10

quotation marks omitted)). “[I]f there is an opportunity to opt out,” the arbitration agreement is

11

United States District Court
Northern District of California

1

not adhesive, and thus not procedurally unconscionable. Id.

12

This Court finds that the 2017 TOS provided a meaningful opportunity to opt out of the

13

arbitration provision. Accord Adtrader, Inc. v. Google LLC, No. 17-CV-07082-BLF, 2018 WL

14

1876950, at *5 (N.D. Cal. Apr. 19, 2018) (“[A]n advertiser’s decision to decline the September

15

2017 AdWords Agreement to avoid being subject to the new arbitration provision is a voluntary

16

choice given that he or she can easily opt out from that provision . . . .”). Trudeau does not

17

meaningfully dispute the voluntariness of the opt out procedure. Thus, the arbitration provision is

18

not procedurally unconscionable and thus not unconscionable. As a result, the Court dismisses

19

Trudeau’s claim for declaratory relief under Rule 12(b)(6). Because the Court has taken judicial

20

notice of the facts relevant to Trudeau’s unconscionability argument—namely, the existence of

21

and procedure for the voluntary opt-out, as well as the 2017 TOS—the Court finds further

22

amendment would be futile and DISMISSES WITH PREJUDICE the claim for declaratory relief.

23

Instead, Trudeau argues that the arbitration provision does not apply retroactively for three

24

reasons: (1) the plain language of Section 13(A) in the 2017 TOS “does not say that the new

25

Dispute Resolution Agreement . . . will apply retroactively to already-accrued claims”; (2) the

26

retroactivity provisions in the past versions of the TOS bound Google to making only

27

prospectively applicable changes in future versions of the TOS; and (3) California law,

28

specifically the covenant of good faith and fair dealing, “prohibits the retroactive enforcement of
8

1

late-added contractual terms, at least as to claims that ha[ve] ‘accrued’ before the clause was

2

added.” The Court addresses each argument in turn.

3

A.

The Plain Language of the 2017 Terms of Service

4

Trudeau argues that, “on its face, the new arbitration clause in Section 13(A) does not

5

apply retroactively.” Opp. at 10. Section 12 of the 2017 TOS states in part that “[o]ther than

6

changes made under Section 13(G), changes to the Terms will not apply retroactively . . . .” 2017

7

TOS § 12. And Section 13(G) covers only future changes to Section 13’s arbitration provision.

8

Id. § 13(G). Trudeau argues that Section 12’s application exclusively to Section 13(G) indicates

9

that it does not apply to Section 13(A) (the arbitration provision), such that the 2017 TOS

10

United States District Court
Northern District of California

11

arbitration provision does not apply retroactively. See Opp. at 10–11.
At the same time, Trudeau recognizes that Section 13(A)(2) “seems to imbue [Section

12

13(A)] with retroactive effect, by providing that the new dispute resolution clause applies to, inter

13

alia, ‘claims that arose before Customer or Advertiser first accepted any version of these Terms

14

containing an arbitration provision.’” Opp. at 11 (quoting 2017 TOS § 13(A)(2)). Trudeau argues

15

that Section 13(A)(2) must be read in light of Section 12’s “general intent” that no term apply

16

retroactively except for changes made pursuant to Section 13(G). Id. He also argues that to the

17

extent Section 12 and Section 13(A)(2) can be said to conflict, the only way to reconcile them is to

18

understand Section 13(A)(2) as applying to claims raised under future changes made pursuant to

19

Section 12. Id. At the very least, he claims, the contracts’ terms are uncertain and should be

20

construed against Google, the drafter, under Cal. Civ. Code § 1654.

21

The Court finds that Trudeau’s argument misses the mark, as argued by Google. See

22

Reply at 8–10, ECF 35. Rather than starting with Section 12, the Court starts with the plain

23

language of the arbitration provision. Section 13(A)(2) expressly covers “claims that arose before

24

Customer and Advertiser first accepted any versions of these terms containing an arbitration

25

provision.” 2017 TOS § 13(A)(2). On its face then, the arbitration provision applies to claims

26

arising before the 2017 TOS. Trudeau muddies the point by calling this a “retroactive” application

27

of Section 13(A)(2). “Retroactivity” as it relates to this contract is a question of timing: Does the

28

provision apply as if it had been enacted at some time prior to the time of its actual enactment?
9

1

Section 13(A)(2) does not apply retroactively—that is, it does not apply as if it had been enacted

2

prior to the time of its actual enactment. Instead, it applies prospectively from the time of

3

enactment. That the scope of Section 13(A) covers claims that accrued prior to enactment does

4

not mean that the Section itself has retroactive application.
This distinction is made clear by Section 12. Section 12 states that Google “may make

5
6

non-material changes to these [2017] Terms at any time without notice, but Google will provide

7

advance notice of any material changes to these Terms. . . . Other than changes made under

8

Section 13(G), the changes to the Terms will not apply retroactively . . . .” Put simply, Section 12

9

states that any future changes to the 2017 Terms will not apply as if they had been present in the
original 2017 Terms, i.e., as if they had been present in the contract before they were actually

11

United States District Court
Northern District of California

10

enacted. The exception to this provision is for future changes made to the Section 13 Dispute

12

Resolution Agreement pursuant to Section 13(G). Section 12 instructs that those changes can

13

have retroactive application, as if they had been present in the TOS all along.
Nothing about the potential retroactivity or nonretroactivity of future changes to the 2017

14
15

TOS changes the fact that Section 13(A)’s scope, by its plain terms, covers claims that accrued

16

prior to enactment. That is, Section 13(A) need not apply retroactively in order to cover

17

previously accrued claims. As such, the Court finds no conflict or ambiguity in the terms of the

18

2017 TOS and holds that Section 12 does not preclude Section 13(A) from covering previously

19

accrued claims.

20

B.

21

The Impact of Non-Retroactivity Provisions in Previous Versions of the Terms
of Service

Trudeau next argues that even if the 2017 TOS does not bar previously accrued claims by
22
its own terms, the existence of non-retroactivity provisions in previous versions of the TOS, which
23
24
25

Trudeau signed, precluded the 2017 TOS from covering such claims.2 See Opp. at 13–14. As a
representative example, Section 11 of the 2013 TOS states that “[c]hanges [to the terms] will not
apply retroactively and will become effective no sooner than fourteen days after they are posted.”

26
27
28

The Court address Trudeau’s argument about the expectations created by these provisions in the
next section on the covenant of good faith and fair dealing.
10
2

1

See 2013 TOS § 11; accord Trudeau Decl., Ex. 2 (March 2012 TOS); Id., Ex. 3 (November 2013);

2

Id., Ex. 4 (April 2014); Id., Ex. 5 (October 2017). Trudeau claims that any application of the 2017

3

TOS to previously accrued claims would render meaningless Section 11 of the 2013 TOS because

4

the 2017 provision would apply retroactively in direct contradiction to the terms of the 2013 TOS.

5

See Opp. at 13–14 (citing California case law requiring that contract terms be construed so as not

6

to be superfluous). Finally, Trudeau argues that the existence of the opt out provision does not

7

somehow waive the previous non-retroactivity requirement.
Google claims that this argument is wrong for two key reasons. First, the 2017 TOS is “a

9

novation that extinguished the prior 2013 Terms, including former Section 11.” Opp. at 3 (citing

10

Cal. Civ. Code § 1531). Because Google gave the advertisers notice and the ability to opt out, the

11

United States District Court
Northern District of California

8

2017 TOS constituted a new contract that superseded the terms of the 2013 TOS in full. Id. (citing

12

James v. Comcast Corp., No. 16-cv-02218-EMC, 2016 WL 4269898, at *3 (N.D. Cal. Aug 15.

13

2016)). Second, Google argues that even if 2013 TOS Section 11 still governed, it deals only with

14

changes to the Terms unilaterally implemented by Google and then subsequently posted on its

15

website. Id. at 4–5. Because Google did not simply post the 2017 TOS changes to its website, but

16

instead gave the advertisers direct notice and required express acceptance, Section 11 is

17

inapplicable.

18

The Court again agrees with Google. A novation requires (1) a previous valid obligation;

19

(2) the agreement of all parties to the contract; (3) the extinguishment of the old contract; and (4)

20

the validity of the new one. See James, 2016 WL 4269898, at *2. It is clear from the 2017 TOS

21

terms and the context in which it was signed that these requirements are met here. Each of the

22

requirements save the third is undisputed. As to the third, by its plain terms, the 2017 TOS terms

23

represent “the parties’ entire agreement relating to their subject matter and supersede any prior or

24

contemporaneous agreements on those subjects.” 2017 TOS § 14(d); see James, 2016 WL

25

4269898 (finding novation where contract with arbitration provision had similar language). And

26

Section 11 of the 2013 TOS confirms this understanding, as Google points out. The 2017 TOS

27

was not mere changes enacted by Google and then posted on its website, which advertisers were

28

expected to discover by “look[ing] at the[] Terms regularly,” 2013 TOS § 11. Instead, Google
11

1

implemented an extensive notice campaign and required that advertisers expressly accept the new

2

2017 TOS. See Sung Decl. ¶¶ 7–9. Likewise, as admitted by Trudeau, the 2017 TOS was the first

3

“substantial” change since the 2013 TOS. Opp. at 3; see Sung. Decl. ¶¶ 6–7. Unlike the other

4

TOS versions that Trudeau references, which seemingly were mere modifications posted to the

5

website, the 2017 TOS constituted a significant change that he was required to sign. Each of these

6

facts supports the argument that the 2017 TOS was a novation.

7

Given the language of the 2017 TOS and the context in which it was implemented, the

8

Court holds that previous versions of the TOS do not bar the 2017 TOS arbitration provision from

9

applying to previously accrued claims.

10

United States District Court
Northern District of California

11
12

C.

The Applicability of the Covenant of Good Faith and Fair Dealing Under
California Law

Trudeau’s final argument is that the arbitration provision is invalid under California’s
implied covenant of good faith and fair dealing (“covenant”) because “[e]very Court of Appeal to

13
have considered whether a party may unilaterally modify an arbitration clause to retroactively
14

cover claims that have already accrued has agreed” that the covenant bars such retroactive

15
application. Opp. at 5; see id. at 5–9 (citing cases). According to Trudeau, California appellate
16
courts have followed the decision in Peleg v. Neiman Marcus Grp., Inc., 204 Cal. App. 4th 1425
17

(2012), in holding that the covenant “prohibits a party from making unilateral changes to an

18
arbitration agreement that apply retroactively to accrued or known claims because doing so would
19
20

unreasonably interfere with the opposing party’s expectations regarding how the agreement
applied to those claims.” Cobb v. Ironwood Country Club, 233 Cal. App. 4th 960, 966 (Ct. App.

21
2015) (internal quotation marks and alterations omitted).
22
Trudeau seems to argue both that the retroactivity of the 2017 TOS arbitration provision is
23
unenforceable in its own right, see Opp. at 8–9, and that the non-retroactivity provisions in
24
previous versions of the Terms contribute to that conclusion. As to the 2017 TOS themselves, he
25
relies on the Peleg line of cases to argue that the retroactivity of an arbitration provision is barred
26

wholesale. As to the other versions of the TOS, Trudeau argues that Google’s long line of Terms

27
not allowing for retroactive application would have instilled in the advertisers a reasonable
28
12

1

expectation that the 2017 TOS also did not apply retroactively. See id. at 8. And, according to

2

Trudeau, the opt out provision would not have changed those expectations.

3

Google responds that the Peleg line of cases are inapposite because they apply only to
unilateral changes to the arbitration agreement. See Reply at 6–8. Google argues by way of

5

example that in Peleg, the Court held a contractual term to be illusory because it would have

6

allowed the employer to “amend the contract in anticipation of a specific claim, altering the

7

arbitration process to the employee’s detriment” via mere notice to the employee. Id. at 6; see id.

8

(distinguishing Cobb). Google argues that the circumstances are vastly different here, where the

9

advertisers had to accept the agreement and were given multiple opportunities to opt out. Finally,

10

Google argues that the advertisers could not have reasonably expected the arbitration provision not

11

United States District Court
Northern District of California

4

to govern previously accrued claims because the express terms of the 2017 TOS in Section

12

13(A)(2) demonstrate that such claims are covered. See Reply at 5.

13

The Court agrees with Google that California law does not bar enforcement of the

14

arbitration provision here. The Peleg court was concerned with potentially illusory contract terms

15

by which an employer could change the terms of the arbitration provision at any time, even after a

16

dispute had arisen. 204 Cal. App. 4th at 1446 (analogizing to Texas case in which the contract

17

included a clause allowing the employer to “unilaterally modify any of the contract terms,” such

18

that “nothing [in the contract] would bind the employer to any of its terms”). The cases that rely

19

on Peleg confirm this understanding. See Cobb, 233 Cal. App. 4th at 963 (“When one party to a

20

contract retains the unilateral right to amend the agreement . . . , its exercise of that right is

21

constrained by the covenant of good faith and fair dealing which precludes amendments that

22

operate retroactively to impair accrued rights” (emphasis added)); Avery v. Integrated Healthcare

23

Holdings, Inc., 218 Cal. App. 4th 50, 61 (Ct. App. 2013) (invalidating modification to arbitration

24

provision where employer “unilaterally modified” the agreement based on a provision allowing it

25

to “change or modify [the contract] from time-to-time without advance notice and without the

26

consent of employees.”). The 2017 TOS arbitration provision does not run afoul of this caselaw.

27

Google did not unilaterally change the 2017 TOS to add an arbitration provision. Instead, it

28

provided ample notice to the advertisers, required them to accept or decline, and gave them a valid
13

1

opportunity to opt out. See Sung Decl. ¶¶ 7–9; 16–18. Simply put, there was no unilateral

2

amendment of the contract that might render the provision illusory, and thus warrant application of

3

the covenant.
And as to the reasonable expectations of the advertisers, as explained above, the Court

4
5

does not find the terms of the contract to be uncertain or ambiguous. Section 13(A)(2) expressly

6

applies the arbitration provision to previously accrued claims on its face. The Court finds it would

7

not be reasonable to construe that provision as not applying retroactively, even given the history of

8

the Terms. See Mohamed, 848 F.3d at 1211 (“[O]ne who signs a contract is bound by its

9

provisions and cannot complain of unfamiliarity with the language of the instrument.” (citation
omitted)). Thus, the Court holds that the arbitration provision is not invalid as a matter of

11

United States District Court
Northern District of California

10

California law.
Because none of Trudeau’s arguments is sufficient to rebut the plain language of the 2017

12
13

TOS and because Trudeau expressly accepted those terms and refused to opt out, the Court finds

14

that he is bound by the arbitration provision.

15

IV.

ORDER

16

For the foregoing reasons, Defendant’s Motion to Compel Arbitration is GRANTED.

17

Each claim that Trudeau has asserted in this action, except his claim for declaratory relief, is

18

subject to arbitration according to the terms of the 2017 Terms of Service. Google’s Motion to

19

Dismiss is GRANTED IN PART, as to Trudeau’s claim for declaratory relief that the arbitration

20

provision is unconscionable, and TERMINATED AS MOOT IN PART, as to his other claims

21

which are subject to arbitration. There being no remaining claims outside of arbitration, the entire

22

action is DISMISSED WITHOUT PREJUDICE to filing a later action to confirm or vacate the

23

arbitration award.

24

IT IS SO ORDERED.

25
26
27
28

Dated: October 3, 2018
______________________________________
BETH LABSON FREEMAN
United States District Judge
14