The class action continues to die by a thousand cuts: herein of splitting injunctive relief claims

Stout v. Grubhub Inc., 2021 WL 5758889, No. 21-cv-04745-EMC (N.D. Cal. Dec. 3, 2021)

Stout sued Grubhub over an allegedly false promise to provide “Unlimited Free Delivery” to Grubhub+ subscribers. Grubhub sought to enforce its arbitration agreement. Concluding that the complaint sought private injunctive relief in part and public injunctive relief in part, the court found the claim severable under the arbitration agreement, which had a severability clause. These contortions occur because of California’s rule that a right to public injunctive relief can’t be waived, whether by arbitration agreements or otherwise. So the private relief (the request not to charge Grubhub+ subscribers extra for delivery under any circumstance) has to be arbitrated, but not the pure claim “don’t advertise ‘Unlimited Free Delivery’ while actually sometimes charging for delivery.”

This split result occurred because the Ninth Circuit has narrowed the concept of “public injunctive relief” to only things that could in theory benefit anyone, not things that benefit a specific existing class of people (e.g., current Grubhub+ subscribers). I’m not entirely sure why that means a split result in this case, though—the court reasoned that anyone could become a Grubhub+ subscriber, and thus an injunction against falsely advertising the program benefits the public. But by the same logic, wouldn’t a ban on actually charging extra delivery fees to Grubhub+ subscribers in the future benefit the public, any one of whom could join Grubhub+?

This all stems from Hodges v. Comcast Cable Communications, LLC, 12 F.4th 1108 (9th Cir. 2021), which interpreted the California rule (from a case called McGill) as holding that public injunctive relief: (1) is usually future-directed, (2) does not require the class action mechanism, and (3) is distinguished from private injunctive relief, which provides benefits “to an individual plaintiff – or to a group of individuals similarly situated to the plaintiff,” by involving diffuse benefits to the “general public” as a whole. The paradigmatic example of public injunctive relief is an injunction against false advertising aimed at the general public.

Thus, injunctive relief that only benefits people who become customers is private injunctive relief (although injunctive relief that only benefits another subset of the public, such as those eligible for free tax filing services, is not). An order enjoining Grubhub “from continuing to engage, use, or employ [its] practice of misrepresenting [its] delivery fees.”

The court rejected plaintiff’s argument that there were two ways to address the false advertising—either to change the advertising or to make it true--so it was all public injunctive relief. “[T]he fact that the alleged underlying misconduct concerns false advertising does not mean that any requested injunctive relief affecting the accuracy of that advertising is automatically deemed public in nature,” since a court should consider “who primarily benefits from the injunctive relief requested and who is only incidentally benefited.”

I think the “primarily” consideration here is more understandable as being about forward-looking versus backwards-looking; otherwise the logic that false advertising, while targeted at the world at large, actually has a chance of harming only a subset of people should mean that both types of relief are “private.” Either form of relief would benefit the public, who are generally invited to join Grubhub+.

Still, even though Grubhub+ is only available to Grubhub account holders, “there is no indication that Grubhub+ is only advertised to existing Grubhub customers, as opposed to the broader public. Nor is there any showing that one must first be a Grubhub customer before buying a Grubhub+ subscription.” Thus, half of the case stays in federal court as seeking public injunctive relief.

However, the court noted, Stout might lack standing to pursue the “don’t charge the delivery fee” remedy, since he is no longer a Grubhub+ subscriber.  The arbitrator could decide on plaintiff’s standing to seek an end to the putative delivery charges.

a rare freestanding UCL unfairness claim re: service termination that rendered cameras nonfunctional

Soo v. Lorex Corp., 2020 WL 5408117, No. 20-cv-01437-JSC (N.D Cal. Sept. 9, 2020)

Plaintiffs brought California and New York consumer protection claims based on what happened to their home security Flir cameras; defendants moved to compel arbitration, which was denied because defendants failed to prove by a preponderance of the evidence that plaintiffs agreed to arbitrate. Defendants’ motion to dismiss was partly granted and partly denied.

Lorex made Flir cameras, which had the ability to upload security footage into cloud storage and a “Rapid Recap” feature, with which users could see a condensed, time-stamped video of activity observed by the camera. Cloud storage and Rapid Recap were made possible by applications managed by Lorex. After selling Flir cameras since 2015, in mid-2019 Lorex announced it was changing technology providers for the apps, rendering the cameras unable to connect to the apps and thus nonfunctional. Lorex then offered consumers a “Lorex Active Deterrence Wi-Fi replacement camera” or a Lorex.com store discount of US $120.00, which plaintiffs alleged were inadequate substitutes.

Defendants contended that the Warranty inside the box that plaintiffs’ cameras came in contained a binding arbitration provision. For purposes of this motion, it was undisputed that Lorex provides a hard copy of the Warranty in the box of every Flir camera it sells. The Warranty in the box advised plaintiffs that if they kept the cameras they were agreeing to the Warranty as well as to binding arbitration.

This was a “shrinkwrap” license [I can hear Eric Goldman sighing from 3000 miles away]. But Lorex’s warranty, unlike that in previous cases, didn’t give consumers any amount of time to examine the product and return it instead of accepting the arbitration agreement, and the included written materials did give the consumer the right to return the camera. “At a minimum, without evidence that Mr. Lauinger had the right to return the camera and thus reject the arbitration provision there can be no agreement to arbitrate formed by ‘keeping the [camera.]’”

Another plaintiff, Soo, “activated” his warranty online. Was that enough? Under California law, “silence or inaction cannot constitute acceptance of an offer,” unless an exception applies, such as “when the offeree has a duty to respond to an offer and fails to act in the face of this duty.” However, even then, a contract offeree’s silence cannot constitute consent to a contract “when the offeree reasonably did not know that an offer had been made.” California courts have held that “even if a customer may be bound by an in-the-box contract under certain circumstances, such a contract is ineffective where the customer does not receive adequate notice of its existence.” Previous case shad held that titles like “Product Safety & Warranty Information” aren’t enough to provide notice of “a freestanding obligation outside the scope of the warranty.” So too here. His online activation doesn’t support a finding that had to or should have been aware of the arbitration agreement. He “could have registered for warranty protection without ever seeing the in-the-box Warranty that contained the arbitration provision in the section entitled ‘State/Provincial Law.’”

Unfairness under the UCL: Courts are divided on how to assess unfairness, but plaintiffs invoked the balancing test: it asks whether the alleged business practice “is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.”

Defendants argued that it wasn’t right to impute an underlying P2P service provider’s cessation of service to them. But plaintiffs alleged that “Defendants changed technology providers knowing that such a decision would cause the Flir Cameras to cease functioning.” And, after changing providers, defendants “have not created their own P2P software to replace OzVision that would continue to provide support for Flir Cameras, or otherwise partnered with another third-party vendor.” The harm could plausibly outweigh the utility of the conduct to defendants.  The cost-benefit analysis of unfairness was “not properly suited for resolution at the pleading stage.”

Fraudulent omission under the UCL: This was predicated on defendants’ failure to disclose that app support for the Flir cameras was contingent on Defendants’ contract with OzVision, and that there was no guarantee OzVision would continue to provide service. Plaintiffs alleged that had defendants disclosed such a fact, they would not have purchased their Flir cameras at all or on the same terms. However, the complaint didn’t plausibly support an inference that, at the time they sold the cameras, defendants knew that the functionality issue existed. This also disposed of the NY consumer protection claims.

California unjust enrichment: It was plausible that the failure of defendants’ replacement program to properly compensate Plaintiffs for the lost value of their cameras with adequate replacement cameras or a comparable store credit may sustain a claim for unjust enrichment at the motion to dismiss stage.

Trespass to chattels: perhaps surprisingly, also survives.  Defendants argued that OzVision, not they, rendered the cameras nonfunctional. But plaintiffs sufficiently pled that it was defendants’ acts that “substantially harmed the functioning” of their devices, which “significantly impaired the devices’ condition, quality, and value.”

can investigating claims bind you to arbitration?

LegalForce RAPC Worldwide, P.C. v. LegalZoom.com, Inc., 2018 WL 1738135, No. 17-cv-07194-MMC (N.D. Cal. Apr. 10, 2018)

LegalZoom, which advertises its ability to help people register trademarks, allegedly makes “false comparisons to attorney led services” and engages in the unauthorized practice of law. The court dismissed Lanham Act false advertising claims because LegalForce (which offers “law firm automation and free trademark search services through its website Trademarkia.com”) failed to allege any injury proximately caused by the allegedly false advertising.  LegalForce even alleged that it “makes no revenue from [the] preparation and filing [of] U.S. trademark applications.” The same problem doomed the California state claims, there under the heading of “lost money or property.”

LegalForce RAPC Worldwide, P.C. v. LegalZoom.com, Inc., 2018 WL 1730333, No. 17-cv-07194-MMC (N.D. Cal. Apr. 10, 2018)

The court enforced LegalZoom’s arbitration clause against LegalForce RAPC and an individual owner, though not against plaintiff/related company LegalForce (see above), on various false advertising-type claims because in the course of investigating LegalZoom’s conduct LegalForce RAPC assented to its website TOS, which has a broad arbitration clause. 

LegalForce RAPC is a law firm that “practices patent and trademark law before the USPTO [United States Patent and Trademark Office]” and is the “sole provider of legal services through the website Trademarkia.com with respect to trademark filings before the USPTO.”

LegalZoom allegedly “surreptitiously practices law,” as demonstrated when plaintiffs filed two applications through its site and “LegalZoom provided legal advice to [p]laintiffs by selecting [a trademark] classification and modifying the goods and services description from [a] template thereby applying specific fact to law.”  Further, with one application, “LegalZoom provided legal advice as to which trademarks found in [a] search report may conflict with [plaintiffs’ mark].” Plaintiffs also alleged that LegalZoom bought law-related search terms such as “trademark attorney” and “trademark lawyer,” and that the “advertising copy in the resulting advertisements is highly misleading, causing a consumer to believe that he or she will be represented by an attorney.”

Plaintiffs didn’t dispute that, in order for a customer to use LegalZoom’s services on its website, the customer must agree to LegalZoom’s TOS, whose arbitration agreement states:

LegalZoom and you agree to arbitrate all disputes and claims between us before a single arbitrator. The types of disputes and claims we agree to arbitrate are intended to be broadly interpreted. It applies, without limitation, to:

· claims arising out of or relating to any aspect of the relationship between us, whether based in contract, tort, statute, fraud, misrepresentation, or any other legal theory;

· claims that arose before these or any prior Terms (including, but not limited to, claims relating to advertising); · claims that are currently the subject of purported class action litigation in which you are not a member of a certified class; and

· claims that may arise after the termination of these Terms.

It was undisputed that plaintiff Raj Abhyanker and LegalForce RAPC employee Ryan Bethell assented to the terms, thus binding them both, even if Ryan Bethell didn’t intend to bind LegalForce RAPC when he acted on its behalf.  However, there was no showing that LegalForce was an agent of Abhyanker or LegalForce RAPC as to the transactions with LegalZoom, and thus LegalForce wasn’t bound.

The validity of the TOS was for the arbitrator; all the claims were within the scope of the contract, including claims for declaratory relief and the Lanham Act false advertising claim given the coverage of “claims relating to advertising.”

So, it seems that doing online investigation of an alleged infringement might send you to binding arbitration if the alleged infringer’s site is set up properly.  Can this be avoided by using an outside investigator?  Courts will hold such investigators’ solicitation of copies to be “unauthorized” when they’re sent by a copyright owner, but that doesn’t really answer the question about agency; an independent contractor plausibly wouldn’t bind the IP owner, but I wonder.