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January 30, 2020

Predominant Issues – January 2020


Ninth Circuit Rejects Mobile App Arbitration Agreement in Case of First Impression

On December 20, 2019, the Ninth Circuit affirmed a Washington district court’s order denying Huuuge Inc.’s bid to arbitrate claims brought on behalf of a putative class of all smartphone users of its casino gaming application. The court held that the plaintiff did not have actual or constructive notice of the app’s terms and conditions, including a binding arbitration provision and class action waiver.

  • Huuuge’s casino gaming app allows smartphone users to gamble with a limited number of free chips or with chips purchased through the app.  After downloading the app and playing it for over a year, Plaintiff Sean Wilson sued Huuuge on behalf of a putative class for alleged violations of Washington state gambling and consumer protection laws.
  • Huuuge moved to compel arbitration, asserting that Wilson had constructive notice of the app’s terms.  Both the district court and the Ninth Circuit disagreed. 
  • The Ninth Circuit noted that online contracts fall into two broad categories: (1) “clickwrap” agreements that require users to affirmatively assent to terms and conditions before they can access services; and (2) “browsewrap” agreements that do not.  Huuuge’s app was an unambiguous browsewrap agreement, in which users could choose to review the terms before downloading the app (after scrolling through multiple screens of text) or during game play (by clicking through the app’s setting menu). 
  • Quipping that “the user would need Sherlock Holmes’s instincts” to discover the app’s terms, the Ninth Circuit concluded that the app did not give reasonably prudent users constructive notice of the arbitration provision.  The court rejected Huuuge’s argument that Wilson’s repeated use of the app placed him on constructive notice, observing that “[o]nly curiosity or dumb luck might bring a user to discover the Terms” since “there is no reason to assume users will click on the settings menu simply because it exists.” 
  • The Ninth Circuit also denied Huuuge’s request for additional discovery on whether Wilson had actual notice of the arbitration provision.  The court concluded that Huuuge’s two-line request in a footnote of its district court reply brief was “too little, too late,” noting that Huuuge “rolled the dice and chose not to pursue additional discovery at the outset, instead moving to stay discovery pending the motion to compel arbitration.”
  • The Ninth Circuit’s decision reiterates the need to consider traditional contract principles when designing apps and other online products.  Because the burden generally falls on app operators to place users on notice, companies that choose to forgo clickwrap agreements should carefully consider the conspicuousness and placement of their terms and conditions if they seek to bind users to arbitration and class waiver provisions.   
  • The case is Sean Wilson v. Huuuge Inc., case number 18-36017, and you can read more here.

Supreme Court Declines to Resolve Circuit Split on TCPA Standing

On December 16, 2019, the Supreme Court denied DISH Network’s petition for certiorari seeking to overturn a $61 million judgment for Telephone Consumer Protection Act (“TCPA”) violations based on telemarking calls made to consumers on the Do-Not-Call registry.

  • The lawsuit was filed as a class action against DISH, alleging TCPA violations on behalf of all persons who received calls on numbers listed in the Do-Not-Call registry.  After the district court certified the class, the case went to trial, where the jury returned a verdict in favor of the plaintiffs and awarded damages of $400 per call.  Thereafter, the district court concluded the violations were willful and trebled the damages award, resulting in an aggregate judgment of more than $61 million.     
  • DISH appealed to the Fourth Circuit, challenging, in part, the district court’s ruling that plaintiffs had Article III standing to sue.  DISH relied on Spokeo v. Robins, in which the Supreme Court held that plaintiffs must prove a “de facto” injury—or an injury that “actually exists” separate from a bare alleged statutory violation—to establish standing.  DISH argued that plaintiffs who sue to redress statutory violations, without establishing an actual injury, do not satisfy Article III.
  • The Fourth Circuit agreed that Spokeo governed the issue, but disagreed with DISH about whether a violation of the TCPA itself constituted a cognizable harm, citing the TCPA’s private right of action, which itself “plainly satisfies the demands of Article III.”
  • The court explained that the plaintiffs had established standing by proving a statutory violation, noting their class definition hewed “tightly to the language of the TCPA’s cause of action,” which “itself recognizes a cognizable constitutional injury.”
  • The court rejected DISH’s argument that Article III’s injury-in-fact requirement is not met until the plaintiff’s alleged harm has risen to a level that would support a common law cause of action, explaining that “[t]his sort of judicial grafting is not what Spokeo had in mind.”
  • The Fourth Circuit’s holding mirrors the Second, Third, and Ninth Circuits’ treatment of the issue; each have held that a TCPA violation is itself sufficient to establish standing.  On the other side of the spectrum, the Eleventh Circuit held in September 2019 that a TCPA violation by itself does not constitute an injury in fact, as we reported in our September edition.
  • By declining to take the appeal, the Supreme Court will leave this circuit split unresolved for now.  The case is Krakauer v. DISH Network.  Read more here.

Ninth Circuit Grants Mandamus to Vacate Discovery Order Intended to Help Plaintiff’s Counsel Find Named Plaintiff to Pursue Class Claims

On mandamus review, the Ninth Circuit recently vacated a district court order directing Defendant Williams-Sonoma to produce a list of California consumers, as the order improperly sought to aid plaintiff’s counsel in finding a California named plaintiff to pursue class claims.

  • Plaintiff William Rushing, a Kentucky resident, filed a putative consumer class action against Williams-Sonoma, alleging that the company made misrepresentations about the thread count of the bedding he had purchased.
  • The district court determined that Plaintiff did not have standing to bring a claim under California law and that his claim was governed by Kentucky consumer law, which prohibits class actions.
  • Plaintiff opted to pursue his claim individually under Kentucky law but sought and obtained a discovery order requiring Williams-Sonoma to produce a list of California consumers.  The purpose of the order was to aid counsel in finding a named plaintiff with standing to bring class claims under California law.
  • The Ninth Circuit held that the district court’s discovery order was “clearly erroneous as a matter of law” based on the Supreme Court’s opinion in Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340 (1978).  In Oppenheimer, the Supreme Court held that an “attempt to obtain [] class members’ names and addresses cannot be forced into the concept of ‘relevancy’” under FRCP 26. 
  • Relying on Oppenheimer—and subsequent amendments to Rule 26 that were “intended to restrict, not broaden, the scope of discovery”—the Ninth Circuit held that “using discovery to find a client to be the named plaintiff before a class action is certified is not within the scope of Rule 26(b)(1).”  The court then determined that Williams-Sonoma had no other adequate means for relief and that “the disclosure and damage to its (and its customers’) interest would be complete” before a direct appeal could be taken.  Accordingly, the Ninth Circuit granted the petition for a writ of mandamus and vacated the district court’s order.    
  • Judge Paez dissented, concluding that the district court had not erred, let alone committed “clear and indisputable error.”  According to Judge Paez, Oppenheimer was distinguishable because it dealt with post-certification class notice under Rule 23(c), whereas Rule 23(d) provides district courts with “‘substantial residual powers’ to regulate communications with absent class members outside of formal notice requirements.”  
  • The case is In re: Williams-Sonoma, Inc.; Williams-Sonoma Advertising, Inc.; Williams-Sonoma DTC, Inc., and the opinion is available here.

Ninth Circuit Holds That Use of the Word “Diet” to Describe Soft Drinks Would Not Mislead Reasonable Consumer

On December 30, 2019, the Ninth Circuit held that Dr. Pepper’s use of the word “diet” to describe one of its soft drinks was not an implicit weight-loss promise that would deceive a reasonable consumer.  

  • In October 2017, Plaintiff Shana Becerra sued Dr. Pepper/Seven Up, Inc. in the Northern District of California, alleging that the company violated various California consumer protection laws by using the word “diet” in its product branding.  Specifically, she alleged that the Diet Dr. Pepper label misled consumers by promising that the soft drink would assist in weight loss or, at a minimum, not cause weight gain.  She relied on studies to argue that the artificial sweetener in Diet Dr. Pepper was likely to cause weight gain or posed no weight-loss benefit.
  • The district court granted Dr. Pepper’s motion to dismiss, concluding that no reasonable consumer would believe that the word “diet” on a soft drink label promises weight loss or healthy weight management.  Even if that were not the case, the court held that the plaintiff had not sufficiently alleged that any such promise was false, since she failed to plead adequate facts showing that aspartame caused weight gain.  The court dismissed her claims with prejudice.
  • In affirming the district court on appeal, the Ninth Circuit addressed only whether the word “diet” would mislead a reasonable consumer and declined to consider whether the plaintiff adequately alleged that aspartame caused weight gain. 
  • The court relied on dictionary definitions of the word “diet” and the context in which that term was used to conclude that no reasonable consumer would believe that a “diet” soft drink promises weight loss or management.  Instead, the word “diet” is understood as a relative claim about the calorie count of a diet soft drink as compared to the regular version. 
  • The court also rejected the plaintiff’s argument that her “plausible misunderstanding” of the word “diet” could render the label actionable, concluding that the reasonable consumer test requires that a “significant portion of the general consuming public” could be misled. 
  • The court also rejected the plaintiff’s use of a survey showing that over seventy percent of California consumers expected diet soft drinks to help them lose or maintain weight, as that survey did not address whether a reasonable consumer would understand “diet” to be a relative claim in the soft drink context.
  • The Ninth Circuit’s decision follows the Second Circuit’s recent dismissal of similar “diet soft drink” complaints under New York’s consumer fraud laws.  See Geffner v. Coca-Cola Co., 928 F.3d 198 (2d Cir. 2019) (per curiam).  Read the Ninth Circuit’s decision here.