WILLIAM H. ORRICK, District Judge.
Plaintiff Sean Gilbert DeVries brings this class action suit under the Fair Credit Reporting Act ("FCRA") and California law against defendant Experian Information Solutions, Inc. ("EIS") for its alleged failure to provide consumers with their annual free credit reports. EIS now moves to compel arbitration on an individual basis and stay this action pending arbitration. I find that DeVries agreed to the 2014 Terms and Conditions, which were later superseded by the 2016 Terms of Use. Although that latter agreement carves out certain claims arising out of the FCRA, the scope and enforceability of the arbitration provision is delegated to the arbitrator. I have jurisdiction to rule that EIS did not waive its right to arbitrate as a result of its litigation activity here. The motions to compel arbitration and stay this action are GRANTED.
DeVries alleges that on or around September 3, 2014, he attempted to obtain a free credit report from www.annualcreditreport.com, which is operated jointly by Equifax, Inc., TransUnion LLC, and EIS. Complaint (Dkt. No. 1) ¶ 21. He filled out an online form requiring "his full first name and last name; his middle initial; his current address; a previous address if he had moved within the past two years; his full date of birth . . .; any generational information; and his Social Security number." Id. ¶ 22.
DeVries was then routed to www.annualcreditreport.experian.com, which is controlled solely by EIS. Id. There, he was required to answer additional questions, including: "the names of persons he associates with; last four digits of his checking account; names of persons he has lived with in the last ten years; and trick questions regarding non-existent mortgages." Id. ¶ 23. EIS then rejected his request for his free credit report, stating that it could not verify his identity. Id. ¶ 25. EIS requested additional identifying documents, including driver's license, state ID card, utility bill, and bank or insurance statement. Id.
Unable to obtain his free credit report, DeVries visited EIS's website, www.experian.com, on September 2, 2014. Id. ¶ 27. After providing "his first and last name, middle initial, current address, date of birth, any generational information, and Social Security name," he purchased an "Experian credit report" for $10. Id. ¶¶ 27-28; Declaration of David Williams ("First Williams Decl.") (Dkt. No. 34), Ex. E (Dkt. No. 34-1). He alleges that EIS "requires consumers to provide more detailed information than is required by statute to frustrate consumers into believing they cannot obtain a free Credit Report, and thus inducing them to purchase a Credit Report." Compl. ¶ 31.
"At all times in 2014, ordering an Experian credit report over the www.experian.com website required the consumer's acceptance of the Terms and Conditions." First Williams Decl. ¶ 4. When DeVries made his September 2014 purchase, "every consumer was required to complete a two-step order process comprised of order page `Step 1 of 2' and order page `Step 2 of 2.'" Id. ¶ 4. After providing a name, email, and address on the first order page, a consumer then proceeded to order page "Step 2 of 2." Id. ¶¶ 5-6.
On order page "Step 2 of 2," a consumer was required to enter his or her Social Security Number, birthdate, login information, and payment information. First Williams Decl., Ex. C. At the bottom of this page is the following:
Id. Both the "Terms and Conditions" and "Privacy Notice" were in blue, indicating that they were active hyperlinks that the consumer could click to be directed to another webpage. First Williams Decl. ¶ 7. When a consumer clicked on the "Terms and Conditions" hyperlink, "an additional window would open within the consumer's web browser containing the entire text of the Terms and Conditions." Id. ¶ 8.
The Terms and Conditions at the time of DeVries's purchase contained the following arbitration provision:
First Williams Decl., Ex. D.
The Terms and Conditions also contain the following delegation clause:
Id.
Lastly, the Terms and Conditions state that its terms "may be updated from time to time" and "[e]ach time you order, access, or use any of the Products, Product Websites, and/or Content, you signify your acceptance and agreement, without limitation or qualification, to be bound by the then current Agreement." Id.
By April 5, 2016, before this lawsuit was filed in June 2016, EIS's website Terms of Use provided:
Declaration of Michael R. Reese (Dkt. No. 43-1), Ex. G (Dkt. No. 43-9). DeVries accessed www.experian.com and its accompanying subpages on approximately May 18, 2016, and September 16, 2016. Declaration of Sean DeVries (Dkt. No. 43-11) ¶ 2.
The 2016 Terms of Use Agreement contains an arbitration provision, but includes the following carve-out:
Reese Decl., Ex. G. Outside of this carve-out provision, the agreement to arbitrate includes "claims that arose before this or any prior Agreement." Id. The Terms of Use also provide:
Id. The 2016 Terms of Use contain the same delegation clause as the 2014 Terms and Conditions.
In addition to the Terms of Use, the arbitration provision carve-out for disputes arising out of the FCRA relating to information in consumer disclosures or reports is also included in an updated version of CIC's Terms and Conditions. See Reese Decl., Ex. H; Declaration of Edward S. Chang (Dkt. No. 46-2). The Terms and Conditions were updated in September 2015 and published on the American Arbitration Association's (AAA) online Consumer Clause Registry on December 23, 2015. Chang Decl. ¶¶ 3-4.
On June 2, 2016, DeVries filed this class action suit asserting five causes of action under: (1) the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681g(a); (2) the FCRA, 15 U.S.C. § 1681j; (3) the California Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 et seq.; (4) the California Consumer Legal Remedies Act ("CLRA"), Cal. Civ. Code § 1750 et seq.; and (5) the California Consumer Credit Reporting Agencies Act, Cal. Civ. Code § 1785.1 et seq. Complaint (Dkt. No. 1). On August 16, 2016, EIS filed its answer, asserting 14 affirmative defenses (not including arbitration) and reserving its right to assert additional defenses "as may become available or apparent during the course of discovery." Answer (Dkt. No. 26) at 17. I issued an order governing the treatment of confidential discovery. Dkt. No. 28. EIS now moves to compel arbitration (Dkt. No. 31) and stay the action (Dkt. No. 33). I granted EIS's request to stay discovery pending the resolution of this motion. Dkt. No. 38.
The Federal Arbitration Act ("FAA") governs the motion to compel arbitration. 9 U.S.C. §§ 1 et seq. Under the FAA, a district court determines (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue. Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004). "To evaluate the validity of an arbitration agreement, federal courts should apply ordinary state-law principles that govern the formation of contracts." Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003) (internal quotation marks and citation omitted). If the court is "satisfied that the making of the arbitration agreement or the failure to comply with the agreement 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." 9 U.S.C. § 4. "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration[.]" Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (U.S. 1983).
Under § 3 of the FAA, "[i]f any suit or proceeding is brought in a court of the Unites States upon any issue referable to arbitration under such an agreement . . ., the court. . . shall . . . stay the trial of the action." 9 U.S.C. § 3; see also AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011). Where plaintiffs assert both arbitrable and nonarbitrable claims, district courts have "discretion whether to proceed with the nonarbitrable claims before or after the arbitration and have authority to stay proceedings in the interest of saving time and effort for itself and litigants." Nitsch v. DreamWorks Animation SKG Inc., 100 F.Supp.3d 851, 870 (N.D. Cal. 2015) (internal quotation marks and citations omitted); see also Leyva v. Certified Grocers of California, Ltd., 593 F.2d 857, 863-64 (9th Cir. 1979). "A stay is not a matter of right, even if irreparable injury might otherwise result[, but] is instead an exercise of judicial discretion, and the propriety of its issue is dependent upon the circumstances of the particular case." Nken v. Holder, 556 U.S. 418, 433 (2009) (internal quotation marks and citations omitted). "The party requesting the stay bears the burden of showing that the circumstances justify an exercise of that discretion." Id. at 433-34.
EIS moves to compel arbitration on an individual basis and stay this action. DeVries presents four arguments against compelling arbitration: (1) he did not consent to the 2014 Terms and Conditions; (2) even if he did consent, his claims fall within the carve-out to the superseding 2016 Terms of Use arbitration provision; (3) EIS waived its right to compel arbitration; and (4) the arbitration agreement is a violation of public policy. EIS argues that DeVries did consent to the 2014 Terms and Conditions and that his remaining three arguments are for the arbitrator to decide.
DeVries contends that he did not agree to the arbitration provision contained in the 2014 Terms and Conditions when he purchased his credit report online and, therefore, the required element of mutual assent is missing. "[M]utual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract." Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014) (citing Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 29 (2d Cir.2002)). "Mutual assent may be manifested by written or spoken words, or by conduct, and acceptance of contract terms may be implied through action or inaction." Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014) (internal citations and quotation marks omitted) (applying California law).
In general, "[c]ontracts formed on the Internet come primarily in two flavors: `clickwrap' (or `click-through') agreements, in which website users are required to click on an `I agree' box after being presented with a list of terms and conditions of use; and `browsewrap' agreements, where a website's terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen." Nguyen, 763 F.3d at 1175-76.
Here, on order page "Step 2 of 2," directly above the "Submit Secure Order" button, EIS stated:
First Williams Decl., Ex. C. The phrases "Terms and Conditions" and "Privacy Notice" were in blue, a different color than the rest of the text, indicating that they were active hyperlinks that the consumer could click to be directed to another webpage. First Williams Decl. ¶ 8. When a consumer clicked on the "Terms and Conditions" hyperlink, "an additional window would open within the consumer's web browser containing the entire text of the Terms and Conditions," including the arbitration provision. Id. Thus, the Terms and Conditions "are somewhat like a browsewrap agreement in that the terms are only visible via a hyperlink, but also somewhat like a clickwrap agreement in that the user must do something else—click ["Submit Secure Order"]—to assent to the hyperlinked terms." Fteja v. Facebook, Inc., 841 F.Supp.2d 829, 838 (S.D.N.Y. 2012).
The Ninth Circuit has held that "where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice." Nguyen, 763 F.3d at 1178-79. However, "[c]ourts have also been more willing to find the requisite notice for constructive assent where the browsewrap agreement resembles a clickwrap agreement—that is, where the user is required to affirmatively acknowledge the agreement before proceeding with use of the website." Id. at 1176. A court may find that an individual assented to an electronic agreement if "a reasonably prudent user" would have been put "on inquiry notice of the terms of the contract." Id. at 1177.
DeVries argues that he did not consent to or have notice of the arbitration provision "by clicking on a button that did not mention, display, link to, or otherwise reference the Terms and Conditions." Oppo. at 4. This argument is unpersuasive. The text containing the Terms and Conditions hyperlink was located directly above that button and indicated that clicking "Submit Secure Purchase" constituted acceptance of those terms. In Tompkins v. 23andMe, Inc., the court found that the plaintiffs had received adequate notice of the Terms of Service ("TOS") where "during the account creation and registration processes, each named Plaintiff clicked a box or button that appeared near a hyperlink to the TOS to indicate acceptance of the TOS." No. 13-cv-05682-LHK, 2014 WL 2903752, at *8 (N.D. Cal. June 25, 2014), aff'd, No. 14-16405, 2016 WL 6072192 (9th Cir. Oct. 13, 2016). The court explained that "[t]he fact that the TOS were hyperlinked and not presented on the same screen does not mean that customers lacked adequate notice." Id. (citing Fteja, 841 F.Supp.2d 829).
Similarly, in Graf v. Match.com, LLC, the court held that a plaintiff assented to an arbitration clause where evidence showed that all website users "were required to affirmatively agree to the Terms of Use when they clicked on a `Continue' or other similar button on the registration page where it was explained that by clicking on that button, the user was affirming that they would be bound by the Terms of Use, which were always hyperlinked and available for review." No. CV 15-3911 PA (MRWx), 2015 WL 4263957, at *4 (C.D. Cal. July 10, 2015). See also Crawford v. Beachbody, LLC, No. 14-cv-1583-GPC (KSC), 2014 WL 6606563, at *3 (S.D.Cal. Nov. 5, 2014) (noting that "[c]ourts have held that a modified or hybrid clickwrap/browsewrap agreement constitutes a binding contract where the user is provided with an opportunity to review the terms of service in the form of a hyperlink immediately under the `I Accept' button and clicks that button," and enforcing such an agreement in that case).
DeVries relies on two out of circuit cases, Nicosia v. Amazon.com, Inc., 834 F.3d 220 (2d Cir. 2016) and Meyer v. Kalanick, No. 15 CIV. 9796, 2016 WL 4073071 (S.D.N.Y. July 29, 2016). Both are distinguishable.
In Meyer, the court found no mutual assent where an Uber registration screen "did not adequately call users' attention to the existence of the Terms of Service, let alone to the fact that, by registering to use Uber, a user was agreeing to them." 2016 WL 4073071, at *9. Below fields to enter credit card information, a "Register" button, a "PayPal" button, and a "Google Wallet" button, the registration screen provided, "By creating an Uber account, you agree to the Terms of Service & Privacy Policy" in small font. Id. at *4. Although the "Register" button was "very user-friendly and obvious," the "statement about `Terms of Service' appears far below and in much smaller font,"—indeed, in "a font that was barely legible on the smartphone device that a would-be Uber registrant could be expected to use." Id. at *6, 8. Here, the relevant language's proximity to the "Submit Secure Order" button and font size adequately call a reasonably prudent user's attention to the existence of the Terms and Conditions.
For these reasons, I conclude that DeVries accepted the 2014 Terms and Conditions when he purchased his credit report from EIS, and I reject DeVries's argument that no arbitration agreement exists with EIS.
DeVries argues that even if he did agree to the arbitration provision in the 2014 Terms and Conditions, that agreement has been superseded by EIS's Terms of Use in effect by April 5, 2016. Oppo. at 10. The 2016 Terms of Use arbitration provision contains a carve-out for disputes "arising out of the [FCRA] relating to the information contained in your consumer disclosure or report, including but not limited to claims for alleged inaccuracies." Reese Decl., Ex. G. The Terms of Use also provide:
Reese Decl., Ex. G. Notably, the 2014 Terms and Conditions contained a change-in-terms provision, stating that its terms "may be updated from time to time by posting revised Terms and Conditions on the Product Websites" and that "[e]ach time you order, access, or use any of the Products, Product Websites, and/or Content, you signify your acceptance and agreement, without limitation or qualification, to be bound by the then current Agreement." First Williams Decl., Ex. D. DeVries asserts that because he visited EIS's website on approximately May 18, 2016, and September 16, 2016 (once before he filed this lawsuit, and once after), the 2016 Terms of Use is the operative agreement governing his claims with EIS. DeVries Decl., ¶ 2. Neither party argues that DeVries did not assent to this agreement.
In general, courts have enforced new terms where prior agreements included change-in-terms provisions. For instance, in Daugherty v. Experian Information Solutions, Inc., the defendant bank mailed to credit cardholders a written change-in-terms notice to inform cardholders that it "was making certain changes to the cardholder agreement, including changes regarding binding arbitration of disputes and the law governing their credit cards" in 2003. 847 F.Supp.2d 1189, 1191 (N.D. Cal. 2012) (Armstrong, J.). The notice also included a change of terms provision, allowing defendant to make changes to the agreement at any time and providing that such changes are binding unless the cardholder notifies the defendant that he or she does not agree within 25 days. Id. at 1192. In 2006, the defendant notified the plaintiff of changes to the terms governing his agreement, including the arbitration provision. Id. More than 25 days later, the defendant received a letter from the plaintiff, requesting that his account be cancelled. Id. In 2011, the plaintiff filed suit under the FCRA and California state law against the defendant bank, as well as several credit reporting agencies, for alleged inaccuracies in his 2008 and 2009 credit reports. Id. at 1192-93. The defendant moved to compel arbitration under the 2006 cardholder agreement. Id. at 1193. Granting the motion to compel, the court found that the defendant had expressly reserved its right to change the terms of the credit card agreement and that plaintiff had failed to cancel his account before the new agreement became effective. Id. at 1195-96. See also Cayanan v. Citi Holdings, Inc., 928 F.Supp.2d 1182, 1188, 1200 (S.D. Cal. 2013) (granting motion to compel based on arbitration provision contained in notice of change of terms where the credit cardholder did not opt-out).
Courts have also consistently applied arbitration agreements retroactively where the agreements explicitly subsume prior agreements or facially apply to disputes arising prior to the agreement. In re Verisign, Inc., Derivative Litigation is instructive. See 531 F.Supp.2d 1173 (N.D. Cal. 2007) (Hamilton, J.). There, shareholders brought a derivative action on behalf of VeriSign against several defendants, including VeriSign's independent auditor, KPMG, for violations related to alleged backdating of stock option grants. Id. at 1179, 1181. KPMG audited VeriSign's financial statements for fiscal years 1998 through 2005. Id. at 1223. A separate engagement letter governed KPMG's services to VeriSign for each fiscal year. Id. The 2005 engagement letter contained an arbitration clause, but all previous engagement letters did not. Id. The arbitration provision applied to "any dispute or claim arising out of or relating to the engagement between the parties, the services provided thereunder, or any other services provided by or on behalf of KPMG." Id. The court rejected plaintiffs' argument that the arbitration provision did not apply because the events underlying their claims occurred before the parties executed the 2005 engagement letter. Id. at 1224. In particular, the court emphasized that the engagement letter covered not just disputes arising out of that agreement, but also "any other services provided by or on behalf of KPMG." Id.
EIS argues that these cases are distinguishable because they involved continuing business relationships but cites no law in support of this proposition. If EIS argued that the provision was unenforceable because of the nature of DeVries's visits in 2016, I might be more sympathetic. But EIS contends that DeVries's credit report order underlying this lawsuit (along with the 2014 Terms and Conditions, with the exception of the arbitration provision) expired after 30 days, and so there is nothing for the 2016 Terms of Use to supersede. Reply at 10. The 2014 Terms and Conditions provide only that a consumer could access his or her credit report or score for 30 days from the date of payment; it does not say that the Terms and Conditions expire in 30 days. First Williams Decl., Ex. D. Instead, the final section of the Terms and Conditions, entitled "Entire Agreement," provides that the "Terms and Conditions are effective until terminated by CIC." Id. Moreover, the 2016 Terms of Use are broadly written to include any visit, whether it resulted in a transaction or not. Reese Decl., Ex. G.
Equally unpersuasive is EIS's argument that that the Terms of Use govern only claims that DeVries may assert arising from his 2016 visits to the website. Reply at 10. The Terms of Use explicitly include in its agreement to arbitrate "claims that arose before this or any prior Agreement," unless such claims fall within the carve-out provision. Reese Decl., Ex. G. Therefore, I find that the 2016 Terms of Use is the operative agreement.
DeVries offers three additional arguments against the motion to compel arbitration: (1) the claims fall within the 2016 Terms of Use arbitration carve-out; (2) EIS waived its right to enforce the arbitration provision; and (3) the arbitration provision is a violation of public policy. However, EIS asserts that I cannot decide these issues because the arbitration provision delegates questions of arbitrability to the arbitrator. Reply at 8.
"The [FAA] establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone, 460 U.S. at 24-25. Nevertheless, "so-called `question[s] of arbitrability' [ — ] which include certain gateway matters, such as whether parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a [particular] controversy [ — ] are presumptively for courts to decide." Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064, 2068 n.2 (2013) (some internal quotation marks omitted); see also Momot v. Mastro, 652 F.3d 982, 987 (9th Cir. 2011) (issues that "contracting parties would likely have expected a court to have decided" are "gateway questions of arbitrability" to be determined by the court, not the arbitrator). This rule flows from the "principle that a party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 945 (1995).
"Although gateway issues of arbitrability presumptively are reserved for the court, the parties may agree to delegate them to the arbitrator." Momot, 652 F.3d at 987. In other words, parties can "agree to arbitrate" questions of arbitrability. Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68-69 (2010) (internal quotation marks omitted). For arbitration agreements governed by the FAA, courts considering whether the parties have agreed to arbitrate questions of arbitrability "should apply federal arbitrability law absent clear and unmistakable evidence that the parties agreed to apply nonfederal arbitrability law." Cape Flattery Ltd. v. Titan Mar., LLC, 647 F.3d 914, 921 (9th Cir. 2011) (internal quotation marks omitted). Under federal arbitrability law, "[w]hen deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts . . . should apply ordinary state law principles that govern the formation of contracts." First Options, 514 U.S. at 944. Because questions of arbitrability are presumptively for courts to decide, however, courts "apply a more rigorous standard in determining whether the parties have agreed to arbitrate [such] question[s]." Momot, 652 F.3d at 987. "Courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so." First Options, 514 U.S. at 944 (internal quotations marks and alterations omitted).
The Ninth Circuit has found certain language to be "clear and unmistakable evidence" of parties' intent to arbitrate questions of arbitrability. For instance, in Momot, the delegation clause provided:
Momot, 652 F.3d at 988 (original emphasis). The court held that the italicized language delegating to arbitrators the authority to decide "the validity or application of any provisions of" the arbitration clause constituted a clear and unmistakable agreement to arbitrate the question of arbitrability. Id.
In Mohamed v. Uber Technologies, Inc., the relevant arbitration provisions stated:
No. 15-16178, 2016 WL 7470557, at *3 (9th Cir. Dec. 21, 2016). The Ninth Circuit, noting that this language was "more expansive" than that in Momot, held that this delegation provision "also clearly and unmistakably indicates the parties' intent for the arbitrators to decide the threshold question of arbitrability." Id. at *4 (internal quotation marks omitted).
I find that the delegation provision here resembles that in Mohamed and constitutes clear and unmistakable evidence that the parties agreed that the arbitrator will decide the questions of arbitrability. The 2016 Terms of Use state:
Reese Decl., Ex. G.
In regards to DeVries's argument about the carve-out provision, there is no question that claims within the carve-out provision are for the court, rather than the arbitrator, to decide. But the delegation clause reserves for the arbitrator the issues of scope and enforceability. Therefore, the determination of which, if any, of DeVries's claims fall within the carve-out is an issue that the parties clearly and unmistakably delegated to the arbitrator to decide in the first instance. See Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069, 1076 (9th Cir. 2013) (holding that the determination of whether claims fell within the arbitration provision carve-out was delegated to the arbitrator). Similarly, the issue of whether the arbitration agreement violates public policy goes to whether the arbitration agreement is enforceable, void, or voidable and is, therefore, also for the arbitrator to decide.
However, the parties did not clearly and unmistakably delegate to the arbitrator the issue of waiver by litigation conduct. In Cox v. Ocean View Hotel Corp., the arbitration agreement provided that "[a]ny controversy . . . involving the construction or application of the terms, provisions, or conditions of this Agreement or otherwise arising out of or related to this Agreement shall likewise be settled by arbitration." 533 F.3d 1114, 1117 (9th Cir. 2008). Evaluating this language, the Ninth Circuit found that the court, not the arbitrator, should decide the issue of waiver. Id. at 1121. In Martin v. Yasuda, the Ninth Circuit similarly found that an agreement providing that "[a]ll determinations as to the scope, enforceability and effect of this arbitration agreement shall be decided by the arbitrator, and not by a court" was "insufficient to show intent that an arbitrator decide the waiver by litigation conduct issue and to overcome the presumption to the contrary." 829 F.3d 1118, 1120, 1124 (9th Cir. 2016). Because the delegation provision at issue here resembles that at issue in Martin, I should resolve the issue of waiver.
EIS argues that the issue of waiver is left to the arbitrator because the Terms and Conditions incorporate the American Arbitration Association's (AAA) Commercial Dispute Resolution Procedures and the Supplementary Procedures for Consumer Related Disputes. Rule 7(a) of the Commercial Rules states that the "arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim." Reply at 9 n.6. Evaluating the same language, the Ninth Circuit has held that "incorporation of the AAA rules constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability." Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015).
Although Brennan stated that it did "not foreclose the possibility that this rule could also apply to unsophisticated parties or to consumer contracts," the court limited its holding to the facts of its case involving an arbitration agreement between sophisticated parties. Id. at 1130-31. The Ninth Circuit "has not determined whether incorporation of the AAA rules can be clear and unmistakable evidence of delegation of arbitrability where one party is an unsophisticated consumer." Ingalls v. Spotify USA, Inc., No.16-cv-3533-WHA, 2016 WL 6679561, at *3 (N.D. Cal. Nov. 14, 2016) (original emphasis). However, "[e]very district court decision in our circuit to address the question since Brennan has held that incorporation of the AAA rules was insufficient to establish delegation in consumer contracts involving at least one unsophisticated party." Id. (collecting cases). EIS has not argued that DeVries is a sophisticated party rather than an ordinary consumer. And "[e]ven in circuits that have concluded that incorporation of the AAA rules constitutes a clear and unmistakable agreement that the parties will arbitrate arbitrability, courts have properly addressed the question of waiver through litigation conduct despite incorporation of the AAA rules." Money Mailer, LLC v. Brewer, No. C15-1215RSL, 2016 WL 1393492, at *3 (W.D. Wash. Apr. 8, 2016) (citing Plaintiff's Shareholders Corp. v. S. Farm Bureau Life Ins. Co., 486 Fed. Appx. 786, 789-90 (11th Cir. 2012)); see also Cox, 533 F.3d at 1117, 1121 (court resolving waiver by litigation issue despite delegation clause and where the arbitration provision incorporated the AAA Model Employment Arbitration Procedures). Incorporation of the AAA Rules here does not require that the issue of waiver be decided by the arbitrator.
In sum, the issues of whether DeVries's claims fall within the arbitration carve-out and whether the arbitration agreement violates public policy are for the arbitrator. I will resolve the issue of waiver below.
"A determination of whether the right to compel arbitration has been waived must be conducted in light of the strong federal policy favoring enforcement of arbitration agreements." Martin, 829 F.3d at 1124 (internal quotation marks omitted). A party arguing waiver of the ability to arbitrate "bears a heavy burden of proof" and must demonstrate three factors: "(1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts." Id. (citing Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986)).
DeVries asserts that EIS knew of its right to arbitrate because it drafted the Terms and Conditions of the arbitration provision. Oppo. at 14. He also argues that EIS had all the necessary information to determine whether it could arbitrate DeVries's claims because the Complaint provided Devries's name and city of residence. Oppo. at 15. Every person who purchased an Experian credit report in 2014—when DeVries bought his report—had to accept the Terms and Conditions, which included an arbitration provision. Oppo. at 15 (citing First Williams Decl. ¶ 4). DeVries contends that EIS "could easily have checked its accounting records to determine whether DeVries made a purchase." Oppo. at 15.
EIS contends that it did not have the information it needed to determine whether DeVries had entered into a contract with an arbitration provision. Reply at 12. "In order to verify that a particular consumer purchased products from CIC, CIC needs additional identifying information beyond a consumer's name, such as the address, date of birth or social security number entered in the order process." First Williams Decl. ¶ 16. Despite repeated requests from EIS starting June 17, 2016, DeVries's counsel did not provide this information until September 13, 2016. Declaration of Kerry C. Fowler (Dkt. No. 31-1) ¶¶ 3-12. Once EIS received this information, it was able to determine that DeVries had agreed to arbitrate its claims. Id. ¶ 13.
DeVries filed his Complaint on June 2, 2016. EIS filed its answer on August 16, 2016, asserting 14 affirmative defenses and reserving its right to assert additional defenses "as may become available or apparent during the course of discovery." Answer at 17. It did not plead arbitration as an affirmative defense. The parties have also engaged in meet and confer discussions on several occasions concerning discovery and case management scheduling. Reese Decl. ¶ 3. I issued an order governing the treatment of confidential discovery (Dkt. No. 28). On September 8, 2016, DeVries served its First Set of Interrogatories and First Set of Requests for Production of Documents. Reese Decl. ¶ 5. On September 13, 2016, DeVries's counsel responded to EIS's requests for his identifying information in a document titled "Plaintiff's Response to Defendant's Discovery Request (Interrogatory No. 1). Reese Decl. ¶ 4; Fowler Decl., ¶¶ 3-12. On September 19, 2016, the parties served their respective initial disclosures pursuant to Federal Rule of Civil Procedure 26(a). Reese Decl. ¶¶ 8-9. EIS filed its motion to compel arbitration on September 21, 2016, and I granted its request to stay discovery pending the resolution of this motion.
DeVries argues that EIS acted inconsistently with its right to arbitrate because EIS: (1) failed to plead arbitration as an affirmative defense, and (2) took advantage of the litigation process. Oppo. at 16. EIS responds that it could not have pleaded arbitration as an affirmative defense in good faith without first verifying the existence of an arbitration agreement with DeVries. To do so, it needed DeVries's identifying information, which it did not receive until September 13, 2016. Because EIS was waiting for DeVries's identifying information, I agree with EIS that its failure to plead arbitration as an affirmative defense does not amount to waiver. Absent a showing of prejudice, the fact that EIS "failed to raise an affirmative defense is inadequate by itself to support a claim of waiver of arbitration." Fisher v. A.G. Becker Paribas, Inc., 791 F.2d 691, 698 (9th Cir. 1986).
Additionally, I find that EIS did not take advantage of the litigation process. Courts have found waiver through litigation conduct where a party unreasonably delayed moving to compel arbitration and actively litigated the case. For instance, in Martin, the Ninth Circuit found defendants engaged in conduct inconsistent with their right to arbitrate where they spent 17 months litigating the case, including "devoting `considerable time and effort' to a joint stipulation structuring the litigation, filing a motion to dismiss on a key merits issue, entering into a protective order, answering discovery, and preparing for and conducting a deposition." 829 F.3d at 1126.
In contrast, EIS did not unreasonably delay filing its motion to compel arbitration; rather, the motion was filed less than four months after the complaint, and just one week after obtaining DeVries's identifying information and confirming the existence of an arbitration agreement. Nor has EIS taken advantage of judicial discovery procedures not available in arbitration. At this point, EIS has not served any interrogatories or requests for production. It has only received DeVries's identifying information and his initial disclosure. Further, the parties have not litigated any other motion. EIS's conduct is not inconsistent with its right to arbitrate.
A plaintiff seeking to show waiver of the right to arbitrate must demonstrate that he was prejudiced by litigation conduct inconsistent with the right to arbitrate. The Ninth Circuit has explained:
Martin, 829 F.3d at 1126 (internal citations omitted).
DeVries contends that he is prejudiced because he and his counsel "have expended a significant amount of time and resources." Oppo. at 18. However, he has failed to show that any expenses are more than just "self-inflicted wounds" from suing in federal court. See Martin, 829 F.3d at 1126. DeVries also argues that he is prejudiced because EIS "has used the litigation to receive discovery that it would not receive in arbitration, as well as have court orders and other procedures set in place that it would not be entitled to in arbitration." Oppo. at 18. Not so. EIS has only received DeVries's intial disclosure and his identifying information (his date of birth, address, and Social Security number). DeVries has not shown that EIS received an advantage from this basic information. And there have not been any orders going to the merits of DeVries's claims such that arbitration would prejudice him. DeVries has not met his "heavy burden" to show that EIS waived its right to arbitration.
For the reasons discussed above, EIS's motions to compel arbitration and stay are GRANTED. This action will be stayed pending completion of the arbitration. Should the arbitrator determine that some or all of DeVries's claims fall within the carve-out provision, the parties shall notify the Court within seven days. Otherwise, the parties shall file a Status Report six months from the date of this Order, and every six months thereafter, briefly indicating the progress of the arbitration.
Cox, 533 F.3d at 1124 (citing St. Agnes Med. Ctr. v. PacifiCare of Cal., 31 Cal.4th 1187 (2003)) (alteration in original). EIS argues that this is the appropriate test to apply, rather than the three-factor test applied in Martin. Under either test, I find that EIS did not waive its right to arbitration.
