CYNTHIA BASHANT, District Judge.
Plaintiffs Andrea Fagerstrom ("Fagerstrom") and Allen Wiseley ("Wiseley") filed this putative class action against Defendant Amazon.com, Inc. ("Amazon") alleging California state law claims related to false advertising and unfair business practices. (ECF No. 1, Attach. 3) The suit was originally filed in state court and removed to this Court pursuant to the Class Action Fairness Act, 28 U.S.C. § 1332(d). (ECF No. 1.) Amazon now moves to compel arbitration and dismiss Plaintiffs' claims based on the arbitration agreement ("Arbitration Agreement" or "Agreement") Plaintiffs agreed to when they made purchases through Amazon. (ECF No. 11.) Plaintiffs filed an opposition — arguing that the Agreement is illusory or, in the alternative, unconscionable — to which Amazon replied. (ECF No. 16; ECF No. 17.)
The Court finds this motion suitable for decision on the papers and without oral argument. See Civ. L.R. 7.1(d)(1). Accordingly, the Court
This suit arises from the advertising practices of the nation's largest online retailer. Amazon's business model, which emphasizes shipping products from warehouses and distribution centers rather than maintaining traditional brick-and-mortar retail locations, has allowed the company to build a reputation for offering lower prices than its traditional competitors. (First Am. Compl. (FAC) 3:5-18.) To convey to consumers the purported superiority of its prices, Amazon advertises in a way that highlights the discount consumers can expect by purchasing through Amazon rather than from competing retailers. To do this, Amazon follows a basic price listing approach. (FAC 3:19-28.) First, Amazon displays on its website the "list price" of an item — that is, the item's "normal retail price" — with the typeface struck through (e.g. "List Price: $225.00"). Second, Amazon displays the "Amazon price" in contrasting red font (e.g. "Price: $211.68"). And finally, Amazon highlights the amount that a consumer can save by purchasing the item through Amazon by listing the purported cost savings as a dollar amount and as a percentage (e.g. "You Save: $13.32 (6%)").
Plaintiffs Fagerstrom and Wiseley are both California residents who purchased products through Amazon. (FAC 5:10-6:8.) Fagerstrom alleges that when she purchased a Vitamix blender from Amazon in September 2014, Amazon displayed a "list price" of $329, an "Amazon price" of $299, and savings of $30.00 or 9%. Fagerstrom alleges, among other things, that this price listing amounts to false and deceptive advertising in violation of California law because the "Amazon price" of $299 was actually the normal retail price being offered by other retailers, such as Target.com, and by the manufacturer itself. (FAC 5:17-24.) In other words, Fagerstrom claims that Amazon's "discount" was no discount at all.
Plaintiff Wiseley purchased a digital to analog audio converter from a third-party seller on Amazon in April 2013. (FAC 5:25-27.) Wiseley alleges that when he purchased the converter, Amazon displayed a "list price" of $59, a third-party seller's price of $21, and purported savings of $48.00 or 64%. (FAC 5:27-6:8.) Wiseley alleges that this price listing constitutes false and deceptive advertising in violation of California law partly because "[s]imilar digital to analog audio converters currently sell for substantially less than $59 in the online retail market." (FAC 6:5-6.) According to Plaintiffs, Amazon creates a false impression of considerable cost savings by cherry-picking the highest price it can find for the item and using that price to create a significant price discrepancy between the Amazon price and list price. (FAC 4:4-8.) Plaintiffs allege that this price-listing practice violates California's False Advertising Law, Cal. Bus. & Prof.Code §§ 17500 et seq.; Unfair Competition Law, Cal. Bus. & Prof.Code §§ 17200 et seq.; and Consumer Legal Remedies Act, Cal. Civ.Code §§ 1750 et seq.
Like all customers making purchases through Amazon, Plaintiffs were required to complete their orders by reviewing a final checkout page and clicking a "Place
Amazon's Arbitration Agreement states in part:
(Weitmann Decl., Exh. A at 8) (emphasis in original.)
The Arbitration Agreement also incorporates a choice-of-law provision applicable to the COUs as a whole. That provision states:
Id.
Finally, the COUs include a change-in-terms provision that applies to the Arbitration Agreement. The change-in-terms provision states in part:
Id.
Amazon argues that Plaintiffs' state law claims concerning Amazon's price-listing practices must be submitted to arbitration pursuant to the Agreement because (1)
The Federal Arbitration Act ("FAA") provides that contractual arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The Act reflects a "national policy favoring arbitration," Preston v. Ferrer, 552 U.S. 346, 349, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008) (citation omitted), and emphasizes that valid arbitration agreements must be "rigorously enforced" according to their terms. Am. Exp. Co. v. Italian Colors Rest., 570 U.S. ___, 133 S.Ct. 2304, 2309, 186 L.Ed.2d 417 (2013); see also AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S.Ct. 1740, 1748, 179 L.Ed.2d 742 (2011) ("The `principal purpose' of the FAA is to `ensure[e] that private arbitration agreements are enforced according to their terms.'") (citation omitted). In light of this clear federal policy, and the mandatory terms of the Act itself, "a district court has little discretion to deny an arbitration motion" once it determines that a claim in litigation is covered by a written and enforceable arbitration agreement. Republic of Nicar. v. Std. Fruit Co., 937 F.2d 469, 475 (9th Cir.1991). Thus, the court's role under the FAA is limited to determining (1) whether a valid arbitration agreement exists and, if so, (2) whether the scope of the agreement encompasses the dispute at issue. Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir.2000). "If a party seeking arbitration establishes these two factors, the court must compel arbitration." Farrow v. Fujitsu Am., Inc., 37 F.Supp.3d 1115, 1119 (N.D.Cal.2014) (citing Chiron Corp., 207 F.3d at 1130); see also 9 U.S.C. § 4 ("The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.") (emphasis added).
Although the FAA evinces a strong presumption in favor of arbitration, the Act "does not confer a right to compel arbitration of any dispute at any time." Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 474, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). The final phrase of 9 U.S.C. § 2 permits courts to declare an arbitration agreement unenforceable "upon such grounds as exist at law or in equity for the revocation of any contract." This savings
There are two exceptions to the general rule that courts decide questions concerning the validity of an arbitration agreement. First, where the parties have "clearly and unmistakably" delegated the question of arbitrability to the arbitrator, the validity of the arbitration agreement is a question for the arbitrator to decide, rather than the court. AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); see also Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir.2015). Second, when a party's challenge is to the contract as a whole, rather than specifically to an arbitration agreement contained within it, the arbitrator decides the validity of the contract, and by extension the validity of constituent provisions such as the arbitration clause. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) ("[U]nless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance."); Bridge Fund Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1000 (9th Cir.2010).
To determine whether a challenge is to an arbitration provision alone or to an entire contract, courts evaluate the "crux of the complaint" or, under appropriate circumstances, the arguments made in a party's opposition to a motion to compel. See Bridge Fund, 622 F.3d at 1002 ("[W]e look not only to the complaint, but to Plaintiffs' motion papers, to determine if Plaintiffs' objections to the arbitration clause are severable from Plaintiffs' challenge to the validity of the ... agreement as a whole."). When the "substantive basis of the challenge" is to the arbitration provision, the court resolves the question. Bridge Fund, 622 F.3d at 1001; see also
"Before a federal court may apply state-law principles to determine the validity of an arbitration agreement, it must determine which state's laws to apply." Pokorny v. Quixtar, Inc., 601 F.3d 987, 994 (9th Cir.2010). Where, as here, a court exercises diversity jurisdiction, it makes that determination by applying the choice-of-law rules of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). In this case, the forum state is California, while the choice of law the parties have agreed to is Washington state law. Thus, the Court applies California choice-of-law rules to determine whether California or Washington law will govern here.
California courts apply the principles of the Restatement (Second) of Conflict of Laws, section 187, to determine the enforceability of contractual choice-of-law provisions. Nedlloyd Lines B.V. v. Super. Ct., 3 Cal.4th 459, 11 Cal.Rptr.2d 330, 834 P.2d 1148 (1992). Where the parties have agreed that another jurisdiction's laws will govern their disputes, the Restatement approach strongly favors enforcing that choice. Nedlloyd, 11 Cal.Rptr.2d 330, 834 P.2d at 1149 ("[T]he choice-of-law rules derived from California decisions and the Restatement Second of Conflict of Laws... reflect strong policy considerations favoring the enforcement of freely negotiated choice-of-law clauses."); see also Restatement (Second) of Conflict of Laws, § 187, cmt. e (1971) (explaining that "letting the parties choose the law to govern the validity of the contract and the rights created thereby" helps "protect the justified expectations of the parties" and "make[s] it possible for them to foretell with accuracy what will be their rights and liabilities under the contract").
Under the Nedlloyd/Restatement approach, the court must first determine: (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties' choice of law. Nedlloyd, 11 Cal.Rptr.2d 330, 834 P.2d at 1152. If there is neither a substantial relationship nor a reasonable basis, "that is the end of the inquiry and the court need not enforce the parties' choice of law." Id. However, if either test is met, the court must apply the following analysis:
Id. (emphasis in original). The burden is on the party opposing the choice-of-law provision to establish both the "fundamental conflict" and "materially greater interest" prongs. Wash. Mut. Bank, FA v. Super. Ct., 24 Cal.4th 906, 103 Cal.Rptr.2d 320, 15 P.3d 1071 (2001). This is a high
As a threshold matter, the Court must address Amazon's argument that Plaintiffs' challenge to the validity of the Arbitration Agreement is actually a challenge to the COUs as a whole, and so is a question for the arbitrator, rather than the Court. Specifically, Amazon contends that because Plaintiffs' argument that the Agreement is illusory is based on a change-in-terms provision applicable to the COUs as a whole, Plaintiffs are in effect challenging the entire contract. (Def.'s Reply 1:26-3:3.) This Court disagrees. It is clear from Plaintiffs' opposition that "the substantive basis of the challenge" is to the Arbitration Agreement, not to the COUs as a whole. Bridge Fund, 622 F.3d at 1002. For example, Plaintiffs argue that by reserving the right to make changes to the COUs at any time, "Amazon can enforce the arbitration agreement against a consumer regarding virtually any dispute, but is free to strike the Arbitration Clause when it benefits its own interest." (Pls.' 12:16-18.) Plaintiffs also contend that the discretion reserved to Amazon under the change-in-terms provision means that "there is no modicum of mutuality within Amazon's Arbitration Clause rendering it [i.e., the arbitration clause] unenforceable as a matter of law." (Pls.' 13:6-7.) Put simply, the crux of Plaintiffs' argument is that the change-in-terms provision renders the Arbitration Agreement illusory and unenforceable; Plaintiffs at no point argue that the COUs as a whole are invalid, or that the change-in-terms provision renders them such. See Buckeye, 546 U.S. at 444, 126 S.Ct. 1204 ("[A]s a matter of substantive federal arbitrational law, an arbitration provision is severable from the remainder of the contract."). Thus, Plaintiffs' challenge is "specifically [to] the validity of the agreement to arbitrate," and is a matter properly decided by this Court. Id.
As noted above, the COUs contain a choice-of-law provision stating that the Arbitration Agreement is governed by the FAA and the laws of Washington state. The parties concur that the Nedlloyd/Restatement approach provides the appropriate analytical framework for determining whether California or Washington law applies. They also agree that under the Restatement analysis Washington has a "substantial relationship to the parties or their transaction" because Washington is Amazon's principal place of business. (Pls.' Opp'n 7:22-23.) The parties differ, however, in their assessment of whether applying Washington law to review the validity of the Arbitration Agreement would contradict a fundamental policy of California. Plaintiffs suggest, without arguing directly, that applying Washington law would undermine California's fundamental policy against unconscionable consumer contracts. (Pls.' Opp'n 8:19-9:15.) Amazon contends that "the two states' unconscionability laws are parallel" and that Plaintiffs have not met their burden to establish that Washington law would violate a fundamental policy of California. (Def.'s Reply 5, n. 7.) This Court agrees with Amazon.
Plaintiffs assert that California has a fundamental public policy prohibiting the inclusion of unconscionable terms "specifically within consumer agreements." (Pls.' Opp'n 8:21-24.) In Plaintiffs' view this
A review of California and Washington laws concerning consumer protection and unconscionability suggests why Plaintiffs were reluctant to draw a comparison explicitly in their brief. If the two state's laws are not equally protective of consumers, and equally hostile to unconscionable terms in consumer contracts, they are certainly close. The Washington Supreme Court has stated that it is "the strong public policy of Washington's Consumer Protection Act [CPA] that consumers be able to vindicate their right to be free of unfair and deceptive practices in consumer transactions." McKee v. AT & T Corp., 164 Wn.2d 372, 191 P.3d 845, 853 (2008); see also Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 719 P.2d 531, 534-35 (1986) (providing a brief history of Washington's robust consumer protection laws); Testo v. Russ Dunmire Oldsmobile, Inc., 16 Wn.App. 39, 554 P.2d 349, 358 (1976) ("The declared purpose of the Consumer Protection Act is to compliment the federal trade laws in order to protect the public and foster fair and honest competition, and to that end the act must be liberally construed."). This policy is advanced, among other ways, through "Washington's laws regarding the formation of consumer contracts," in which unconscionability doctrine plays a key role. McKee, 191 P.3d at 853; Mellon v. Reg'l Tr. Servs. Corp., 182 Wn.App. 476, 334 P.3d 1120, 1126-27 (2014) (holding that the act of advancing a substantively or procedurally unconscionable contract term can qualify as an unfair act or practice that violates the CPA); State v. Kaiser, 161 Wn.App. 705, 254 P.3d 850, 859-60 (2011) (noting that grossly unfair or unconscionable contracts violate Washington's CPA). In both Washington and California, unconscionability doctrine is rooted in the same policy concerns, involves a similar doctrinal test, and is applied in similar fashion. Compare Armendariz v. Found. Health Psychcare Services, Inc., 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669, 690 (2000); and Stirlen v. Supercuts, Inc., 51 Cal.App.4th 1519, 60 Cal.Rptr.2d 138 (1997), with Adler v. Fred Lind Manor, 153 Wn.2d 331, 103 P.3d 773 (2004). Washington's Uniform Commercial Code (UCC), which applies to transactions in goods, contains a provision on unconscionable contracts that mirrors exactly the California Civil Code's provision on the subject.
Under Washington law, which generally follows the Restatement approach, "[a]n illusory promise is one that is so indefinite that it cannot be enforced, or by its terms makes performance optional or entirely discretionary on the part of the promisor." Lane v. Wahl, 101 Wn.App. 878, 6 P.3d 621, 624 (2000) citing King County v. Taxpayers of King County, 133 Wn.2d 584, 949 P.2d 1260 (1997); see also Sandeman v. Sayres, 50 Wn.2d 539, 314 P.2d 428, 429 (1957); Spooner v. Reserve Life Ins. Co., 47 Wn.2d 454, 287 P.2d 735, 738 (1955). "Generally an agreement that reserves the right for one party to cancel at his or her pleasure cannot create a contract." Lane, 6 P.3d at 624; see also 2 Corbin on Contracts § 5.28 (rev. ed. 1995) ("If A makes an illusory promise, A's words leave A's future action subject to A's own future whim, just as it would have been had A said nothing at all."). One of the primary reasons that an illusory promise is unenforceable is because the indefiniteness of such a promise precludes the court from being able to "fix exactly the legal liability of the parties" to the contract. Sandeman, 314 P.2d at 429.
Plaintiffs argue that the Arbitration Agreement is illusory because Amazon, pursuant to the COUs, reserves the right to make changes to the Agreement at any time without prior notice. (Pls.' Resp. 12:11-13.) Plaintiffs contend that because there are no restrictions on Amazon's ability to amend the Agreement, Amazon's performance obligations are, in fact, entirely optional, while Plaintiffs are bound to perform. This imbalance in performance obligations, Plaintiffs emphasize, violates the bedrock principle of contract law that there can be no valid agreement without mutuality of obligation. (Pls.' Resp. 12:9-13:7.)
Amazon raises two primary arguments in response. First, Amazon argues that the Agreement is not illusory because both Plaintiffs and Amazon have incurred performance obligations under the Agreement, and those obligations remain fixed. (Def.'s Reply 2:7-3:3.) Second, Amazon argues that the Agreement is not illusory because even if Amazon invoked the change-in-terms provision, it would be bound by the duty of good faith to carry out its contractual obligations. (Def.'s Reply 5:9-11.) The Court agrees with Amazon on both points and thus finds that the Arbitration Agreement is not illusory.
Although Amazon retains discretion to make changes to the Arbitration Agreement, such discretion does not make the Agreement illusory. Here, both Plaintiffs and Amazon have incurred performance obligations under the Agreement, and those performance obligations remain in place based on the assent manifested by the parties and the consideration exchanged. Restatement (Second) of Contracts § 71 (1979) ("A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise."); Restatement (Second) of Contracts § 231, cmt. a ("Ordinarily when parties make such an agreement [involving an exchange of promises], they not only regard the promises themselves as the subject of an exchange, but they also intend that the performances of those promises shall subsequently be exchanged for each other."). Plaintiffs have paid money to Amazon and promised to arbitrate disputes, and Amazon has processed the payments and made a return promise to arbitrate. Consideration has been exchanged; obligations have been triggered on both sides. This makes the contract enforceable. See SAK & Assocs., Inc. v. Ferguson Const., Inc., 189 Wn.App. 405, 357 P.3d 671, 675 (2015) (explaining that when consideration has been exchanged, "Washington courts will not give effect to interpretations that would render contract obligations illusory"); 13 Corbin on Contracts § 68.9, at 247-48 (rev. ed. 1995) ("As long as the party with the reserved power to terminate is irrevocably bound for any period of time or has materially changed any of its legal relations or otherwise rendered some performance capable of operating as a consideration, consideration has been given and the other's promise is enforceable."). Furthermore, while on its face the change-in-terms provision grants Amazon unrestricted discretion to modify the Agreement, this provision must be viewed in light of the Agreement as a whole. See Adler v. Fred Lind Manor, 153 Wn.2d 331, 103 P.3d 773, 784-85 (2004) ("The context rule requires that we determine the intent of the parties by viewing the contract as a whole, which includes the subject matter and intent of the contract, examination of the circumstances surrounding its formation, [and] subsequent acts and conduct of the parties[.]"). When viewed accordingly, it is clear that the bilateral promise to arbitrate disputes is a fundamental part of the Agreement — a core obligation on which the rest of the Agreement hinges. Under these circumstances, the Court finds it inappropriate to adopt an interpretation that would allow a boilerplate change-in-terms provision applicable to the COUs as a whole to nullify a core obligation of the Agreement. See, e.g., 2 Corbin on Contracts § 5.32 ("When words are put in promissory form, courts are loath to give them an interpretation that makes them empty in fact and misleading to others."); Restatement (Second) of Contracts § 203 ("[A]n interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect[.]").
There is another reason why Amazon's discretion under the Agreement is not as unrestricted as Plaintiffs suggest. Under Washington law, "[t]here is in every contract an implied duty of good faith and
The restriction on Amazon's discretion imposed by the duty of good faith and fair dealing saves the Agreement from being illusory. 2 Corbin on Contracts § 5.28 ("If there is a restriction, express or implied, on the promisor's ability to terminate or to refuse to perform, the promise is not illusory.... An implied obligation to use good faith is enough to avoid the finding of an illusory promise."). Here, Amazon made a promise to Plaintiffs that "any dispute or claim ... will be resolved by binding arbitration." Plaintiffs are justified in expecting Amazon to carry out this core obligation should a dispute or claim arise, just as Amazon is attempting to do here. See 2 Corbin on Contracts § 1.13 ("A promise is an expression of commitment to act in a specified way, or to bring about a specified result in the future ... communicated in such a way that the addressee of the expression may justly expect performance and may reasonably rely thereon."). As the party who retains discretion to make changes to the Arbitration Agreement, Amazon must exercise this discretion in a manner consistent with "the spirit of the bargain" and Plaintiffs' justified expectations under the contract. Scribner v. Worldcom, Inc., 249 F.3d 902, 910 (9th Cir.2001); see also Restatement (Second) § 205, cmt. d ("Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified."). Thus, Plaintiffs' concern that Amazon could modify the Agreement to avoid pending arbitration if Amazon determined that arbitration was no longer in its interest is unfounded. Amazon could not, in fact, interpret the Agreement to allow Amazon to arbitrate or not arbitrate particular disputes as it saw fit, and Washington courts will not give effect to an interpretation that would produce such a result. See SAK & Assocs., 357 P.3d at 675-77; Taylor v. Shigaki, 84 Wn.App. 723, 930 P.2d 340, 344 (1997) (applying the duty of good faith and fair dealing to uphold a contract and explaining that "the court will not give effect to interpretations that would render contract obligations illusory"); see also 2 Corbin on Contracts § 5.32 ("When it appears to a court's satisfaction that the parties have believed themselves to be making a contract and to be affecting their legal relations with each other, sound practical policy requires that their mutual expressions be given an interpretation that will effectuate their belief and intention.").
Plaintiffs' long string of federal and California case citations do not save their
In sum, the Court finds that Amazon's discretion to change the terms of its Arbitration Agreement (1) does not impact the enforceability of Amazon's core obligation under the Agreement to arbitrate disputes, and (2) is governed by an implied duty of good faith and fair dealing that obligates Amazon to exercise its discretion in a manner consistent with Plaintiffs' reasonable expectations. Accordingly, the Court finds that Amazon's Arbitration Agreement is not illusory.
Plaintiffs argue that even if the Arbitration Agreement is not illusory, it is unenforceable because it is unconscionable. Washington courts recognize two categories of unconscionability, procedural and substantive. Zuver v. Airtouch Commc'ns, Inc., 153 Wn.2d 293, 103 P.3d 753, 759 (2004) (citation omitted). Procedural unconscionability is present when there is a "lack of a meaningful choice, considering all the circumstances surrounding the transaction," including (1) "the manner in which the contract was entered," (2) whether the party had "a reasonable opportunity to understand the terms of the contract," and (3) whether "the important terms [were] hidden in a maze of fine print." Schroeder v. Fageol Motors, Inc., 86 Wn.2d 256, 544 P.2d 20, 23 (1975) (quoting Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (D.C.Cir.1965)). "Substantive unconscionability involves those cases where a clause or term in the contract is alleged to be one-sided or overly harsh[.]" Adler, 103 P.3d at 781 (quoting Schroeder, 544 P.2d at 23). Terms used to define substantive unconscionability include "shocking to the conscience," "monstrously harsh," and "exceedingly calloused." Zuver, 103 P.3d at 759. "In Washington, either substantive or procedural unconscionability is sufficient to void a contract." Gandee, 293 P.3d 1197, 1199 (Wash.2013); see also Hill v. Garda CL Nw., Inc., 179 Wn.2d 47, 308 P.3d 635, 638 (2013). The party attacking the contract or contract terms bears the burden of proving unconscionability. See Tjart v. Smith Barney, Inc., 107 Wn.App. 885, 28 P.3d 823, 830 (2001).
Plaintiffs first argue that the Arbitration Agreement is procedurally unconscionable because it is a contract of adhesion. (Pls.' Opp'n 15:25-16:25.) Washington courts analyze the following factors to determine whether an adhesion contract exists: (1) whether the contract is
The Court agrees with Plaintiffs that the Arbitration Agreement is a contract of adhesion. The Agreement is a standard form contract presented to all customers who place online orders through Amazon. The Agreement was prepared by Amazon and presented to Plaintiffs as a condition of using Amazon's services, i.e., on a "take it or leave it" basis. There is no indication that Plaintiffs enjoyed an "equality of bargaining power" with Amazon such that Plaintiffs could negotiate the terms of the Agreement with the company. "However, the fact that an agreement is an adhesion contract does not necessarily render it procedurally unconscionable." Zuver, 103 P.3d at 760. Whether or not a contract is one of adhesion, the key inquiry for finding procedural unconscionability is whether the party challenging the contract lacked meaningful choice. Id. at 761.
Plaintiffs set forth three main arguments to demonstrate a lack of meaningful choice. First, Plaintiffs contend that customers are not put on sufficient notice of the COUs because the notice is in smaller font than the surrounding text and is not located directly adjacent to the "Place your order" button.
As to Plaintiffs' first two arguments, this Court agrees with Amazon — Plaintiffs were on sufficient notice of both the existence and contents of the Arbitration Agreement. As to Plaintiffs' third argument, the Court finds that while the reference to the AAA rules is somewhat ambiguous, the degree of ambiguity involved did not deprive Plaintiffs of a reasonable opportunity to understand the terms of the Agreement such that Plaintiffs were denied meaningful choice. Thus, the Arbitration Agreement is not procedurally unconscionable.
As Plaintiffs acknowledge, assent to a website's terms and conditions is governed by whether the website provides "reasonable notice" to the customer of the terms and conditions. See Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 31-32 (2d Cir.2002) (holding that website users did not assent to an online agreement when they did not have reasonable notice of the terms and conditions); see also In re Zappos.com, Inc., Customer Data Sec. Breach Litigation, 893 F.Supp.2d 1058, 1064 (D.Nev.2012) ("Where, as here, there is no evidence that plaintiffs had actual knowledge of the agreement, the validity of a browsewrap contract hinges on whether the website provides reasonable notice of the terms of the contract."). Here, the Court finds that Plaintiffs did have reasonable notice. The text of the notice, which reads "By placing your order, you agree to Amazon.com's privacy notice and conditions of use," is the first line of the checkout page entitled "Review your order." (Weitmann Decl., Exh. C at 18.) The notice is located directly underneath the "Review your order" header such that it is clearly visible when viewing the page. Id. The text is somewhat smaller than the text beneath it, but the hyperlink to the COUs is set off in blue-colored font. See Nicosia v. Amazon.com, Inc., 84 F.Supp.3d 142, 152 (E.D.N.Y.2015) (finding that Plaintiff was, at a minimum, on inquiry notice of Amazon's COUs in part because of "the conspicuous placement of the hyperlink to the current Conditions of Use [at the top of] the checkout page"); see also Nguyen v. Barnes Noble Inc., 763 F.3d 1171, 1177 (9th Cir.2014) ("[W]here the website contains an explicit textual notice that continued use will act as a manifestation of the user's intent to be bound, courts have been more amenable to enforcing browsewrap agreements."). Plaintiffs need not scroll to another part of the checkout page or click on any additional link to be put on notice that they are bound by the COUs when they place an order. See Specht, 306 F.3d at 32 (finding that internet users had insufficient notice that they were binding themselves to contract terms when they were required to scroll through multiple screens to locate the notice). The notice of the COUs may not dominate the entire checkout page display, but it is reasonable notice, and that is all that is required. Accordingly, the Court finds that the size and placement of the textual notice does not support a finding of procedural unconscionability.
Plaintiffs' argument that the incorporation of the COUs and location of the Arbitration Agreement is "the electronic equivalent of fine print" is similarly unpersuasive. Here, a blue-colored hyperlink at the top of the checkout page takes a consumer directly to the COUs. Once the COUs are accessed, it is obvious to a reasonable consumer that the COUs exceed the length of what is initially shown on the screen, and that a consumer would need to
The Court agrees with Plaintiffs that reference to the AAA rules in the Arbitration Agreement is somewhat ambiguous. (Pls.' Opp'n 20:8-22.) As Plaintiffs point out, the Agreement does not specify which set of AAA rules will govern disputes that arise between Amazon and its customers. This lack of clarity is compounded by the fact that different sets of rules appear equally applicable, and the rules themselves are periodically updated. (Pls.' Opp'n 21:1-13.) By not making explicit the specific set of rules that will apply to disputes brought under the Arbitration Agreement, Amazon has complicated Plaintiffs' ability to fully understand the terms of the Agreement.
The test, however, is whether Plaintiffs had a "reasonable opportunity" to understand important terms, not whether Amazon outlined the terms with maximum clarity. Schroeder, 544 P.2d at 23. Plaintiffs acknowledge that the rules referenced in the Arbitration Agreement most likely refer to either the "Consumer Arbitration Rules" or "Commercial Arbitration Rules." (Pls.' Opp'n 20:23-26.) A reasonable consumer would assume that the "Consumer Arbitration Rules" apply, particularly given Amazon's reference to the AAA's "Supplementary Procedures for Consumer-Related Disputes" in the Agreement. (Weitmann Decl., Exh. A at 8.) The Consumer Rules appear on the first page of the AAA website's listing of rules and require no special web-browsing expertise to locate. (Def.'s Reply 9:1-11.) And to the extent that consumers have questions about the applicable rules, they can call the AAA's toll-free number provided by Amazon in the Arbitration Agreement. See Ekin v. Amazon Services, LLC, 84 F.Supp.3d 1172, 1177-78 (W.D.Wash.2014) (failing to find Amazon's reference to the AAA rules ambiguous when customers could obtain the governing rules from the website or toll-free telephone number provided in the arbitration agreement). Thus, the Court finds that
The Arbitration Agreement is a contract of adhesion, and the Agreement's reference to the AAA rules contains a degree of ambiguity. However, having considered whether Plaintiffs were deprived of meaningful choice under the totality of circumstances approach used by Washington courts, the Court finds that the Arbitration Agreement is not unenforceable on the basis of procedural unconscionability.
Plaintiffs contend that the Arbitration Agreement is substantively unconscionable because (1) the Agreement allows Amazon to unilaterally change the terms of the Agreement at any time without notice (Pls.' Opp'n 23:1-11), (2) Amazon expressly exempts certain intellectual-property related claims from arbitration (Pls.' Opp'n 23:20-22), and (3) the Agreement allows Amazon to recover attorney's fees if the arbitrator determines that a claim brought by a consumer is frivolous (Pls.' Opp'n 24:8-17). The Court addresses each of these arguments in turn.
Plaintiffs insist that Amazon's discretion to change the terms of the Arbitration Agreement unfairly allows Amazon to pick and choose which claims to arbitrate, making the Agreement substantively unconscionable. This argument fails, however, for the same reasons the Court discussed when addressing Plaintiffs' claim that the Agreement is illusory, namely (1) the performance obligations of both parties, including the core obligation to arbitrate disputes, is fixed and in effect under the current Agreement, and (2) the implied duty of good faith and fair dealing requires Amazon to exercise its discretion in a manner consistent with the justified expectations of the parties. These limitations on Amazon's discretion mean that the change-in-terms provision is not "unfairly one-sided" or "overly harsh," and thus is not substantively unconscionable.
The Arbitration Agreement provides that either party "may bring suit in court to enjoin infringement or other misuse of intellectual property rights." (Weitmann Decl., Exh. A at 8.) Plaintiffs argue that this exemption of intellectual property (IP) claims from arbitration unfairly favors Amazon because Amazon is the party with the primary interest in bringing these types of claims, while the average consumer is highly unlikely to bring an IP claim against Amazon. The result, Plaintiffs argue, is a substantively unconscionable term that allows Amazon to retain freedom to litigate in an area of particular interest to Amazon, while forcing Plaintiffs to arbitrate disputes most important to the average consumer. This Court disagrees.
First, the Court finds unpersuasive Plaintiffs' contention that it is "inconceivable" that an Amazon customer would bring an IP claim against Amazon. (Pls.' Opp'n 23:16-24:6.) Amazon customers presumably include authors, artists, amateur inventors, computer programmers, businesses and others, any of whom may have an interest in enjoining Amazon for reselling goods or using computer software in violation of IP rights. A customer may be less likely than Amazon to bring an IP claim, and may face an uphill battle succeeding, but the possibility is not so remote as to make this provision meaningless to Amazon customers and unfairly advantageous to Amazon. Cf. Milo &
Second, even granting that the exemption provision benefits Amazon more than Plaintiffs, there is no indication that this advantage reflects anything more than the normal give-and-take of a contract. Parties to a contract will rarely derive equal benefits from the same provisions, and courts will not disturb the allocation of risks agreed to by the parties as they seek to secure the benefits of their bargain. See Restatement (Second) of Contracts § 208 cmt. d ("A bargain is not unconscionable merely because the parties to it are unequal in bargaining position, nor even because the inequality results in an allocation of risks to the weaker party."); Rev.Code Wash. § 62A.2-302 ("The principle [of unconscionability] is one of the prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power."). Here, where the arbitration exemption does not deprive Plaintiffs of anything or erect a barrier to vindicating their rights, the advantage Amazon derives from the exemption is not "overly harsh." See, e.g., McKee, 191 P.3d at 859 (holding a statute of limitations provision substantively unconscionable because it undermined consumers' ability to vindicate their statutory rights under the CPA); Torgerson v. One Lincoln Tower, LLC, 166 Wn.2d 510, 210 P.3d 318, 323 (2009) (finding that a remedies limitation contained in an arbitration agreement was not substantively unconscionable where both parties were subject to the same limitation). Accordingly, the Court finds that the provision exempting certain IP claims from arbitration is not so one-sided as to justify a finding of substantive unconscionability.
The Arbitration Agreement provides that "Amazon will not seek attorneys' fees and costs in arbitration unless the arbitrator determines the claims are frivolous." (Weitmann Decl., Exh. A at 8.) Plaintiffs contend that this provision is substantively unconscionable because it potentially offers Amazon attorney's fees for which Amazon might not otherwise be eligible. The Court finds Plaintiffs' arguments unpersuasive for at least three reasons.
First, the attorney's fees provision at issue merely restates a basic policy codified in Washington law that a prevailing party may seek expenses for opposing a frivolous claim or defense. Rev.Code Wash. § 4.84.185 ("In any civil action, the court having jurisdiction may, upon written findings by the judge that the action... was frivolous and advanced without reasonable cause, require the nonprevailing party to pay the prevailing party the reasonable expenses, including fees of attorneys, incurred in opposing such action[.]"). Indeed, the attorney's fees provision at issue is arguably redundant because the Agreement already provides that the arbitrator can award the "same damages and relief as a court" applying the applicable law. Given that Washington courts can award attorney's fees pursuant to Rev.Code Wash. § 4.84.185, the arbitrator, by the terms of the Agreement, can do the same. Thus, the provision simply makes explicit a form of relief provided for in Washington law.
Second, to the extent Plaintiffs argue that the attorney's fee provision applies
Finally, the attorney's fees provision here in no way limits Plaintiffs' right to seek attorney's fees under Washington law. Nor does it operate to deter consumers from pursuing relief against Amazon through arbitration. This makes the provision fundamentally different from attorney's fee provisions that Washington courts have found substantively unconscionable. In Adler, for example, the Washington Supreme Court held an attorney's fees provision substantively unconscionable because the provision required the petitioner to waive his right under Washington law to recover attorney's fees and costs. 103 P.3d at 786. In Gandee, the Washington Supreme Court held that a "loser pays" provision was substantively unconscionable partly on the grounds that the provision's fee-shifting effect chilled a borrower's ability to bring suit under Washington's Consumer Protection Act. 293 P.3d at 1200-01. Unlike Adler and Gandee, the provision challenged here neither limits Plaintiffs' access to attorney's fees available under Washington law, nor otherwise contravenes Washington policy. Accordingly, Plaintiffs have not demonstrated that the attorney's fees provision is substantively unconscionable.
Having considered Plaintiffs' challenge to the Arbitration Agreement's provisions regarding Amazon's right to amend the Agreement, the exemption from arbitration for IP-related claims, and Amazon's ability to seek attorney's fees for frivolous claims, the Court finds that none of the cited provisions are unfairly one-sided or overly harsh as to justify a finding of substantive unconscionability.
The Arbitration Agreement is neither illusory, nor procedurally or substantively unconscionable. Thus, the Court finds that (1) the Arbitration Agreement is valid, and (2) as Plaintiffs concede, the dispute falls within the scope of the Agreement.
The FAA provides that when the claims asserted by a party are "referable to arbitration," the court shall "stay the trial of the action until such arbitration has been had." 9 U.S.C. § 3. Amazon, however, asks this Court to dismiss, rather than stay, the case because the Arbitration Agreement encompasses all of Plaintiffs' claims. (Def.'s Reply 14:8-13.)
Dismissal in favor of arbitration is within the discretion of the court. See, e.g., Sparling v. Hoffman Const. Co., Inc., 864 F.2d 635, 638 (9th Cir.1988). Although staying, and not dismissing, is the remedy specifically contemplated by the FAA, it is well-settled that the court "may compel arbitration and dismiss the action" where an arbitration agreement is "broad enough to cover all of a plaintiff's claims." Hopkins & Carley, ALC v. Thomson Elite, No. 10-CV-05806-LHK, 2011 WL 1327359, at *7 (N.D.Cal. Apr. 6, 2011); see also Dixon v. NBCUniversal Media, LLC, 947 F.Supp.2d 390, 405 (S.D.N.Y.2013) ("Where all of the issues raised in the Complaint must be submitted to arbitration, the Court may dismiss an action rather than stay proceedings.") (internal quotation marks and citation omitted). Plaintiffs make no argument that a stay is more appropriate than dismissal. Accordingly, the Court dismisses this action without prejudice.
The purpose of contract law is to facilitate the enforcement of consent-based obligations. However, "[i]n order for contract law to function, it must regulate obligation well beyond explicit consent." Roy Kreitner, Fear of Contract, 2004 Wis. L.Rev. 429, 430 (2004). The doctrine of unconscionability plays a key role in this regard by ensuring that both the process preceding a party's manifestation of assent and the substance of the obligations agreed to are governed by fundamental, if difficult to define, standards of reasonableness and fairness. See John A. Spanogle, Jr., Analyzing Unconscionability Problems, 117 U. Pa. L.Rev. 931, 935-36 (1969) (arguing that unconscionability doctrine can transform and strengthen traditional notions of freedom of contract by allowing courts to examine unbargained terms and subject unilaterally determined terms to special scrutiny). This Court believes that unconscionability doctrine should be liberally construed to effectuate the justifiable expectations of the parties, protect consumers facing a gross inequality of bargaining power vis-à-vis sophisticated business organizations, and prevent stronger parties from unjustly benefiting from bargains built on deception and exploitation. But the Court cannot adjust ex post the risks and rewards of a contract when neither the bargaining process nor substance of the agreement suggest that assent was not genuine or that the consideration exchanged was grossly imbalanced. Here, Plaintiffs agreed to arbitrate disputes relating to Plaintiffs' dealings with Amazon in exchange for the convenience of accessing and using Amazon's online marketplace. Plaintiffs may not have read every word of the Agreement, or even any of the Agreement, but their assent to it cannot be regarded as an assumption of abnormal risk that would justify judicial intervention. See, e.g., John E. Murray, Jr., 31 Pitt. L.Rev. 1, 15 (1969) ("If the risk evidenced by the written clause [of a contract] is either expected or not unexpected, it should apparently control, since the application of either standard does not ask a party to assume an abnormal risk."). This Court views the public policies behind unconscionability
Amazon's Arbitration Agreement is not a paragon of consumer protection. But it is not unconscionable. Plaintiffs had meaningful choice and a reasonable opportunity to understand the Agreement when they assented, and the terms of the Agreement itself are not overly harsh. Nor is the Agreement illusory. Although Amazon retains the discretion to change the terms of the Agreement, the core obligation to arbitrate is fixed, and Amazon's discretion is bounded by the duty of good faith and fair dealing. This Court may hope that Amazon would take every possible step to maximize consumers' ability to make informed decisions. The law of contracts, however, imposes less lofty expectations.
For the foregoing reasons, the Court
It is clear from the case law, however, that what ultimately matters is the sufficiency of the notice provided, not the formalities of the "browsewrap" or "clickwrap" definitions. See, e.g., Van Tassell v. United Marketing Group, LLC, 795 F.Supp.2d 770, 790-91 (N.D.Ill.2011). Plaintiffs themselves acknowledge this, even as they invoke the categorical distinction as the focal point of their argument. (Pls.' Opp'n 17:13-15.) Accordingly, this Court does not attempt to fit the Amazon Agreement into one box or the other, but instead focuses the inquiry on whether reasonable notice was provided. The factors relevant to this inquiry can be considered without resort to the deceptive sense of analytical certainty invited by the "browsewrap" — "clickwrap" distinction.
