Norcia v. Samsung Telecommunications America, LLC et al, No. 3:2014cv00582 - Document 41 (N.D. Cal. 2014)

Court Description: FINDINGS OF FACT AND CONCLUSIONS OF LAW, AND ORDER DENYING MOTION TO COMPEL ARBITRATION. Plaintiff is directed to file an amended complaint within 10 days of this order, and defendants are directed to answer or otherwise respond to the amended complaint within 21 days of its filing. A case management conference is set for November 5, 2014 at 1:30 p.m. (jdlc2S, COURT STAFF) (Filed on 9/18/2014)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 DANIEL NORCIA, on his own behalf and on behalf of all other similarly situated, 8 9 10 United States District Court Northern District of California 11 Plaintiff, v. SAMSUNG TELECOMMUNICATIONS AMERICA, LLC, et al., Case No. 14-cv-00582-JD FINDINGS OF FACT AND CONCLUSIONS OF LAW, AND ORDER DENYING MOTION TO COMPEL ARBITRATION Re: Dkt. No. 18 Defendants. 12 13 INTRODUCTION 14 In this putative class action under California state law, named plaintiff Daniel Norcia 15 alleges that the Samsung Galaxy S4 phone he bought from Verizon in 2013 does not have the 16 performance, speed and memory storage capacity Samsung advertised. Samsung contends that 17 Mr. Norcia agreed to arbitrate this dispute under terms contained in Samsung’s warranty for the 18 phone, and moved to compel arbitration. Mr. Norcia claimed that he had never received the 19 warranty booklet containing the arbitration provision because the Verizon salesperson had 20 unboxed the phone and handed the phone to Mr. Norcia without the packaging that contained the 21 warranty booklet. 22 Because the parties disputed the formation of an agreement to arbitrate, the Court held a 23 bench trial to resolve the issue. The Court concludes that no arbitration agreement was formed 24 between Samsung and Mr. Norcia. Although the facts establish that Mr. Norcia voluntarily 25 declined the box and must therefore be treated as though he received it and the warranty booklet, 26 the inconspicuous placement of the arbitration provisions in the warranty booklet, and Samsung’s 27 failure to inform consumers in any way about the proposal to require arbitration, bar a finding that 28 a valid and enforceable contract to arbitrate was formed. 1 BACKGROUND 2 Samsung manufactured the Galaxy S4 cell phone that Mr. Norcia owns and uses on 3 Verizon’s wireless network. The class action complaint alleges that Samsung1 engaged in 4 manipulative acts and misrepresentations relating to the Galaxy S4’s speed, performance and 5 memory capacity. Dkt. No. 1. Among other things, the complaint alleges that Samsung 6 “intentionally programmed the Galaxy S4 to fool benchmark apps and to create false perceptions 7 regarding the speed and performance of these devices.” Id. ¶ 2. In lieu of an answer, Samsung moved to compel arbitration of the dispute, invoking an 8 9 arbitration provision contained in its own warranty for the phone. Dkt. No. 18. Mr. Norcia claimed in opposition that he had never seen nor been made aware of the arbitration provision and 11 United States District Court Northern District of California 10 had not agreed to it, and that he should therefore not be bound by it. Dkt. No. 20. Finding “the 12 making of the arbitration agreement . . . [to] be in issue,” the Court summarily proceeded to a 13 bench trial on this issue as directed by the Federal Arbitration Act, 9 U.S.C. § 4. Dkt. No. 33. The Court now makes the following findings of fact and conclusions of law based on the 14 15 bench trial, and denies defendants’ motion to compel arbitration for lack of contract formation. 16 FINDINGS OF FACT 17 The following facts that are relevant to this order were established at the bench trial:2 18 1. Mr. Norcia purchased his Galaxy S4 phone from a Verizon store in San Francisco, 19 California on May 23, 2013. He stopped in the store on his way to work in the morning, and he 20 knew exactly which phone he wanted to buy -- i.e., the Galaxy S4 (“S4”). Mr. Norcia had been a 21 long-time Verizon customer, and he purchased the S4 as an “upgrade.” 22 23 24 1 25 26 27 28 There are two named defendants -- Samsung Telecommunications America, LLC and Samsung Electronics America, Inc. -- but the parties have not drawn any distinctions between the two in connection with the pending motion to compel arbitration. The Court consequently treats them as singular and refers to them together as “Samsung” in this order. 2 This order will not cite to the record, finding it unnecessary and cumbersome to do so, except in instances where citation may be of particular utility. See N. Cal. River Watch v. City of Healdsburg, No. C01-04686WHA, 2004 WL 201502, at *1 n.1 (N.D. Cal. Jan. 23, 2004). 2 1 2. Mr. Norcia’s time in the store was brief -- about ten minutes -- and he interacted 2 with just two Verizon employees. First, there was a greeter at the door, to whom Mr. Norcia 3 stated his desire to purchase an S4 phone. 4 3. Another Verizon employee then got the phone and brought it to Mr. Norcia. She 5 unpacked the phone, and helped Mr. Norcia transfer his contacts, among other things. Transcript, 6 Dkt. No. 34 (“Tr.”) at 73:17-74:4. She also operated the cash register to complete the transaction. 7 Id. at 66:13-67:5. 8 4. 9 10 United States District Court Northern District of California 11 At the end of the transaction -- after the phone had already been unpacked by the second Verizon employee -- Mr. Norcia “picked up the phone charger, the headphones, and the earbuds that came with it, and then [he] left.” Id. at 74:7-8. 5. The Verizon employee offered to give Mr. Norcia the box that his phone had come 12 in, but he “declined.” Id. at 74:9-10. He felt that he knew how to use this kind of phone (an 13 “Android” phone), and he was in a hurry to get to work. Id. at 96:8-15, 101:14-19. 14 15 16 6. The outside of the box for the S4 indicates that the “Package Contains” a “Product Safety & Warranty Brochure.” Trial Exhibit (“Tr. Ex.”) 101. 7. Inside of the box, there is a 101-page booklet entitled “Product Safety & Warranty 17 Information.” Tr. Ex. 102 (“warranty booklet”). Information on the phone’s warranty begins on 18 page 70 of the booklet, and includes the following language: 19 Standard Limited Warranty 20 What is covered and for how long? SAMSUNG TELECOMMUNICATIONS AMERICA, LLC (“SAMSUNG”) warrants that SAMSUNG’s handsets and accessories (“Products”) are free from defects in material and workmanship under normal use and service for the period commencing upon the date of purchase by the first consumer purchaser and continuing for the following specified period of time after that date: 21 22 23 24 25 26 27 28 Phone 1 Year ... What is the procedure for resolving disputes? ALL DISPUTES WITH SAMSUNG ARISING IN ANY WAY FROM THIS LIMITED WARRANTY OR THE SALE, CONDITION OR PERFORMANCE OF THE PRODUCTS SHALL 3 1 BE RESOLVED EXCLUSIVELY THROUGH FINAL AND BINDING ARBITRATION, AND NOT BY A COURT OR JURY. 2 ... 3 You may opt out of this dispute resolution procedure by providing notice to SAMSUNG no later than 30 calendar days from the date of the first consumer purchaser’s purchase of the Product. To opt out, you must send notice by e-mail . . . . Alternatively, you may opt out by calling . . . . These are the only two forms of notice that will be effective to opt out of this dispute resolution procedure. Opting out of this dispute resolution procedure will not affect the coverage of the Limited Warranty in any way, and you will continue to enjoy the benefits of the Limited Warranty. 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 8. Mr. Norcia saw the box, but he did not see the warranty booklet at the time of purchase. Tr. at 97:14-17, 97:21-98:1. 9. No Verizon employee informed Mr. Norcia about Samsung’s product warranty or that it contained an arbitration provision. Tr. at 111:21-112:15. 10. Mr. Norcia signed two receipts provided by Verizon: one entitled a “Customer 14 Agreement” and the other an “Equipment Receipt,” both of which were e-mailed to him shortly 15 after his purchase. Tr. Exs. 113 & 1; Tr. at 103:3-6. The Customer Agreement references a 16 “1 YR. MFG. WARRANTY” as an “Item,” but neither receipt makes express reference to 17 Samsung’s warranty, Samsung’s Product Safety & Warranty Information booklet, or to the 18 arbitration provision contained in it. 19 11. The Verizon receipt that is labeled as the “Customer Agreement” identifies an 20 arbitration provision proposed by Verizon itself in capitalized letters in a section captioned 21 “Agreement” that appears above a blank line for the customer to sign. Tr. Ex. 113 (“I AGREE TO 22 THE CURRENT VERIZON WIRELESS CUSTOMER AGREEMENT . . . . I UNDERSTAND 23 THAT I AM AGREEING TO . . . SETTLEMENT OF DISPUTES BY ARBITRATION AND 24 OTHER MEANS INSTEAD OF JURY TRIALS, AND OTHER IMPORTANT TERMS IN THE 25 CUSTOMER AGREEMENT.”). Under the line provided for the “Account Owner Signature” 26 (which Mr. Norcia signed), the receipt states: “Contract Acceptance Date: 5/23/2013[.] Thank 27 You!” Id. The receipts do not refer to or mention the Samsung arbitration provision. 28 4 12. 1 Samsung maintained, at the time of Mr. Norcia’s purchase, a product web page 2 about the “Samsung Galaxy S4 (Verizon).” Tr. Ex. 110. The web page included clickable links 3 called “Warranty: Find out what’s covered” (which, when clicked, would take users to a two-page 4 document entitled “Standard Limited Warranty”) and “Owner’s Manual: Download the PDF” 5 (which, when clicked, would take users to a 212-page User Manual). Both documents contained 6 the same arbitration provision quoted in paragraph 7 above. 13. 7 The Samsung product web page does not contain the words “arbitration” or 8 “dispute resolution” and therefore cannot be searched for those words. There is no indication on 9 the product web page itself (Tr. Ex. 110) that the documents available at the “Warranty” or 10 “Owner’s Manual” links contain provisions relating to arbitration and dispute resolution. 14. United States District Court Northern District of California 11 12 and that the contrary allegation in his complaint was a “mistake.” Tr. at 91:18-92:4, 65:12-66:3. 15. 13 14 16. Mr. Norcia did not contact Samsung for any reason within 30 days of purchasing the phone, and he did not opt out of the arbitration clause. Tr. at 110:24-111:4. 17. 17 18 Prior to his purchase of the phone in May 2013, Mr. Norcia did not know anything about Samsung’s arbitration agreement. Tr. at 67:16-18. 15 16 Mr. Norcia testified that he did not visit Samsung’s website prior to his purchase, Mr. Norcia has never had any communications directly with a phone manufacturer about warranties. Id. at 87:21-25. 18. 19 Mr. Norcia testified that he understands the term “warranty” to mean that “a 20 product is covered if something happens to it,” and that “it’s a protection on a product you buy.” 21 Tr. at 115:8-10, 117:20-23. That was the entirety of what he understood and expected a warranty 22 to be. Id. at 117:22-23. CONCLUSIONS OF LAW 23 24 25 I. THE CONTRACT INQUIRY UNDER THE FEDERAL ARBITRATION ACT Under the Federal Arbitration Act (“FAA”), “[a] party aggrieved by the alleged failure, 26 neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition” 27 the district court for “an order directing that such arbitration proceed in the manner provided for in 28 such agreement.” 9 U.S.C. § 4. “[U]pon being satisfied that the making of the agreement for 5 1 arbitration or the failure to comply therewith is not in issue, the court shall make an order directing 2 the parties to proceed to arbitration in accordance with the terms of the agreement.” Id. If the 3 making of the arbitration agreement is in issue, then “the court shall proceed summarily to the trial 4 thereof.” Id. 5 The Supreme Court has made crystal clear in recent years that it is “beyond dispute that the 6 FAA was designed to promote arbitration” and “embod[ies] [a] national policy favoring 7 arbitration.” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745-49 (2011) (internal 8 quotation marks omitted). But it has made equally clear -- as does the FAA itself -- that the 9 existence of an agreement to arbitrate is the essential condition that must be satisfied before the rest of the FAA comes into play. See id. at 1748 (“The ‘principal purpose’ of the FAA is to 11 United States District Court Northern District of California 10 ‘ensur[e] that private arbitration agreements are enforced according to their terms.’”); see also 12 AT&T Techs., Inc. v. Commc’ns. Workers of Am., 475 U.S. 643, 648 (1986) (“[A]rbitration is a 13 matter of contract and a party cannot be required to submit to arbitration any dispute which he has 14 not agreed so to submit.”) (internal quotation marks omitted). 15 Our Circuit has also instructed that “whether a valid agreement to arbitrate exists” is the 16 first question the Court should ask when deciding a motion to compel arbitration brought under 17 the FAA. Kilgore v. KeyBank, Nat’l Ass’n, 718 F.3d 1052, 1058 (9th Cir. 2013). In making this 18 threshold inquiry, there is no thumb on the scale in favor of finding an arbitration agreement to 19 exist. The “liberal federal policy regarding the scope of arbitrable issues is inapposite” when the 20 question is “whether a particular party is bound by the arbitration agreement.” Comer v. Micor, 21 Inc., 436 F.3d 1098, 1104 n.11 (9th Cir. 2006) (further citing Fleetwood Enters., Inc. v. Gaskamp, 22 280 F.3d 1069, 1073 (5th Cir. 2002) for the principle that “[the] federal policy favoring arbitration 23 does not apply to the determination of whether there is a valid agreement to arbitrate between the 24 parties; instead ‘[o]rdinary contract principles determine who is bound.’”). See also Chiron Corp. 25 v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000) (“We begin our analysis by 26 recognizing that an agreement to arbitrate is a matter of contract: ‘it is a way to resolve those 27 disputes -- but only those disputes -- that the parties have agreed to submit to arbitration.’” ) 28 (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995)). 6 1 The parties here agree that Samsung, as the party seeking to compel arbitration, bears the 2 burden of establishing the existence of a valid agreement to arbitrate. See Dkt. No. 18 at 7; Tr. at 3 3:16-18. 4 II. GOVERNING PRINCIPLES OF CALIFORNIA CONTRACT LAW 5 As our Circuit recently confirmed, “[i]n determining whether a valid arbitration agreement 6 exists, federal courts ‘apply ordinary state-law principles that govern the formation of contracts.’” 7 Nguyen v. Barnes & Noble Inc., No. 12-56628, 2014 WL 4056549, at *3 (9th Cir. Aug. 18, 2014). 8 “Federal courts sitting in diversity look to the law of the forum state -- here, California -- when 9 making choice of law determinations.” Id. 10 The Court sits in diversity in this case. See Dkt. No. 1 ¶ 11 (invoking 28 U.S.C. United States District Court Northern District of California 11 § 1332(d)(2) as basis of jurisdiction). And although the arbitration provision at issue itself 12 contains a Texas choice-of-law provision, both sides have addressed contract formation as an issue 13 of California law. Moreover, Samsung states that “the result would be the same under other 14 states’ laws, including Texas law,” Dkt. No. 18 at 11 n.6, which plaintiff does not dispute. 15 Consequently, the Court applies California law to the question of whether a valid agreement to 16 arbitrate was formed between Samsung and Mr. Norcia. 17 Under California law, “[t]here is no contract until there is mutual consent of the parties. 18 The manifestation of mutual consent is generally achieved through the process of offer and 19 acceptance.” Deleon v. Verizon Wireless, LLC, 207 Cal. App. 4th 800, 813 (2012) (internal 20 citations omitted). The mutual consent necessary to form a contract “is determined under an 21 objective standard applied to the outward manifestations or expressions of the parties, i.e., the 22 reasonable meaning of their words and acts, and not their unexpressed intentions or 23 understandings. Although mutual consent is a question of fact, whether a certain or undisputed 24 state of facts establishes a contract is a question of law for the court.” Id. (internal quotation 25 marks and citations omitted). 26 Because “the outward manifestation or expression of assent is the controlling factor,” an 27 offeree, “knowing that an offer has been made to him but not knowing all of its terms, may be held 28 to have accepted, by his conduct, whatever terms the offer contains.” Windsor Mills, Inc. v. 7 1 Collins & Aikman Corp., 25 Cal. App. 3d 987, 992-93 (1972) (internal citations omitted). But 2 contracts cannot be formed on the basis of stealth drafting: “when the offeree does not know that 3 a proposal has been made to him this objective standard does not apply. Hence, an offeree, 4 regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual 5 provisions of which he was unaware, contained in a document whose contractual nature is not 6 obvious.” Id.; see also Specht v. Netscape Commc’ns. Corp., 306 F.3d 17, 29-30 (2d Cir. 2002) 7 (applying California law and quoting Windsor Mills). “Arbitration agreements are no exception to the requirement of manifestation of assent,” 8 9 and “[c]larity and conspicuousness of arbitration terms are important in securing informed assent.” Specht, 306 F.3d at 30. “If a party wishes to bind in writing another to an agreement to arbitrate 11 United States District Court Northern District of California 10 future disputes, such purpose should be accomplished in a way that each party to the arrangement 12 will fully and clearly comprehend that the agreement to arbitrate exists and binds the parties 13 thereto.” Id. (quoting Commercial Factors Corp v. Kurtzman Bros., 131 Cal. App. 2d 133, 134-35 14 (1955)). 3 15 III. MR. NORCIA DID NOT RECEIVE ACTUAL NOTICE As an initial matter, here, as in Specht, plaintiff “testified, and defendants did not refute, 16 17 that plaintiff [was] in fact unaware” of the arbitration provision in Samsung’s warranty. 306 F.3d 18 at 32. Mr. Norcia represented that he did not see -- let alone read -- the warranty booklet 19 containing the arbitration provision at the time he purchased his phone. Samsung has not adduced 20 21 22 23 24 25 26 27 28 3 The Court is mindful of the Supreme Court’s instruction in Concepcion that “courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms,” and that even doctrines that are thought to be generally applicable can be invalid if they are “applied in a fashion that disfavors arbitration.” 131 S. Ct. at 1745, 1747. Neither Windsor Mills nor Specht turn on any heightened anti-arbitration motivations; nor has Windsor Mills been applied in a way that disfavors arbitration. The continued validity of the Windsor Mills rule that the Court applies in this order has been affirmed by state and federal courts alike postConcepcion. See, e.g., Schnabel v. Trilegiant Corp., 697 F.3d 110, 123 (2d Cir. 2012), Knutson v. Sirius XM Radio Inc., Civil No. 12cv418 AJB (NLS), 2012 WL 1965337, at *3 (S.D. Cal. May 31, 2012), and Rodriguez v. Citigroup Global Markets, Inc., No. B230310, 2012 WL 2354637, at *6 (Cal. Ct. App. July 18, 2012) (unpublished case distinguishing Windsor Mills because respondents had signed the operative document and document contained express acknowledgements, including of receipt of operative document and its inclusion of an arbitration provision). 8 1 any evidence challenging this statement. Consequently, the Court finds Mr. Norcia did not have 2 actual notice of the arbitration terms. 3 IV. 4 5 6 MR. NORCIA DID NOT RECEIVE INQUIRY NOTICE A. BECAUSE HE DECLINED TO TAKE THE BOX WITH HIM, MR. NORCIA MUST BE TREATED AS THOUGH HE RECEIVED THE BOX In its motion to compel arbitration, Samsung argued that because “the phone was packaged in a box that contained a booklet of important terms, including a Standard Limited Warranty 8 [which] contained an arbitration provision,” and because he thereafter failed to opt out within the 9 30 days provided, Mr. Norcia “manifested his assent to be bound by the arbitration provision.” 10 Dkt. No. 18 at 2-3. In response, Mr. Norcia argued that he could not be held to have assented, 11 United States District Court Northern District of California 7 because he “did not receive the arbitration terms Samsung now seeks to enforce.” Dkt. No. 20 at 12 1. This was because, he said, the Verizon salesperson “unboxed the phone,” “handed the phone 13 to” Mr. Norcia, and “did not give [to Mr. Norcia] the box.” Dkt. No. 20-1 at 2. Although 14 Samsung argued in reply that this was because Mr. Norcia had voluntarily left the box behind at 15 the store, see Dkt. No. 21 at 1, it was impossible to tell from the papers. 16 The Court consequently held a bench trial, at which it was undisputed as a factual matter 17 that Mr. Norcia did indeed voluntarily decline the box, even though it had been offered to him. 18 See Findings of Fact ¶ 5. 19 The Court finds that Mr. Norcia should be treated as if he received the box. It is well 20 established that “[c]ompetent adults are bound by . . . documents, read or unread.” Bischoff v. 21 DirecTV, Inc., 180 F. Supp. 2d 1097, 1105 (C.D. Cal. 2002) (quoting Hill v. Gateway 2000, 105 22 F.3d 1147, 1149 (7th Cir. 1997)); see also Nguyen, 2014 WL 4056549, at *6 (the “failure to read a 23 contract before agreeing to its terms does not relieve a party of its obligations under the contract”). 24 A logical extension of that doctrine is that a person who voluntarily declines to take with him a 25 box containing important materials relating to the product he purchased must be treated as though 26 he had received the box (and the materials in it). Declining to read a contract in hand is 27 analytically indistinguishable from declining to take a copy of the contract in the first place, and 28 9 1 the legal effect of holding the person accountable should be the same. Here, voluntarily refusing 2 to accept the box and its contents does not in itself prevent formation of an agreement to arbitrate. 3 B. 4 5 THE WARRANTY BOOKLET IS INSUFFICIENT TO GIVE RISE TO INQUIRY NOTICE UNDER WINDSOR MILLS But that finding does not establish that a valid and enforceable arbitration contract was 6 formed. The Court fully accepts and agrees with the general proposition that “receipt of a physical 7 document containing contract terms or notice thereof is frequently deemed, in the world of paper 8 transactions, a sufficient circumstance to place the offeree on inquiry notice of those terms.” 9 Specht, 306 F.3d at 31 (citing cases). “Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the 11 United States District Court Northern District of California 10 fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact.” Id. 12 (quoting Cal. Civ. Code § 19). Because Mr. Norcia should be treated as though he received the 13 paper warranty booklet in the box that his phone was packaged in, this would normally be the end 14 of the inquiry. 15 However, the particular facts here lead the Court to conclude that this is a case in which 16 Windsor Mills requires a different outcome. Even though plaintiff’s physical receipt (or presumed 17 receipt) of the warranty booklet would ordinarily have placed him on inquiry notice of an offer -- 18 and his subsequent conduct could be deemed an acceptance -- Mr. Norcia “is not bound by 19 inconspicuous contractual provisions of which he was unaware, contained in a document whose 20 contractual nature is not obvious.” 25 Cal. App. 3d at 993. 21 These are the facts in evidence after trial: What was included in the box Mr. Norcia 22 declined was a 101-page booklet entitled “Product Safety & Warranty Information.” At the very 23 front of the booklet, mostly in all capital letters, is a 5-page section on “Disclaimer of Warranties; 24 Exclusion of Liability.” Arbitration or dispute resolution are not mentioned there. Next comes the 25 table of contents; arbitration and dispute resolution are not mentioned there, either. Warranty 26 information starts on page 70, in a question-and-answer format. The first question is: “What is 27 covered and for how long?” After four more questions -- “What is not covered?”; “What are 28 SAMSUNG’s obligations?”; “What must you do to obtain warranty service?”; “What are the 10 1 limits on SAMSUNG’s liability?” -- at last, on page 76 is the question “What is the procedure for 2 resolving disputes?” 3 The answer to that question -- which Samsung presents as the “arbitration agreement” -- 4 begins with these words: “ALL DISPUTES WITH SAMSUNG ARISING IN ANY WAY FROM 5 THIS LIMITED WARRANTY OR THE SALE, CONDITION OR PERFORMANCE OF THE 6 PRODUCTS SHALL BE RESOLVED EXCLUSIVELY THROUGH FINAL AND BINDING 7 ARBITRATION, AND NOT BY A COURT OR JURY.” The answer about the procedure for 8 resolving disputes ends with a notice to consumers about how they may “opt out of this dispute 9 resolution procedure.” Notice must be provided to Samsung, by e-mail or phone, “no later than 30 calendar days from the date of the first consumer purchaser’s purchase of the Product.” 11 United States District Court Northern District of California 10 (Interestingly, and by way of contrast, the section that immediately follows the warranty section in 12 the 101-page booklet is the “End User License Agreement for Software.” That agreement starts 13 by saying, “IMPORTANT. READ CAREFULLY: This End User License Agreement (‘EULA’) is 14 a legal agreement between you . . . and Samsung Electronics Co., Ltd. . . . .” And a little further 15 down, “BY USING THE DEVICE OR ITS PRELOADED SOFTWARE, YOU ACCEPT THE 16 TERMS OF THIS EULA. IF YOU DO NOT ACCEPT THESE TERMS, DO NOT USE THE 17 DEVICE OR THE SOFTWARE. INSTEAD, RETURN THE DEVICE TO THE RETAILER 18 FOR A REFUND OR CREDIT.”) 19 As these facts show, the arbitration provision is not presented as an offer which the 20 consumer is invited to accept or reject. Instead, the warranty, including the “procedure for 21 resolving disputes,” is presumed to apply automatically “upon the date of purchase.” Tr. Ex. 102 22 at 70; see also Tr. at 57:12-17 (Samsung witness testifying that Mr. Norcia accepted the arbitration 23 provision “[w]hen he purchased the phone, the warranty comes with the phone. They’re not 24 separable. So he accepted the warranty and the terms and conditions of the warranty when he puts 25 a credit card down to buy the phone.”). 26 The Court does not quarrel with the proposition that the warranty is “contractual” in the 27 sense that it creates binding, legal obligations on Samsung. It also limits Samsung’s obligations in 28 important ways. But under California law, “[a]ny affirmation of fact or promise made by the 11 1 seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates 2 an express warranty that the goods shall conform to the affirmation or promise.” Cal. Commercial 3 Code § 2313(1)(a). The consumer need not agree to or accept a warranty in order for it to be 4 created, nor does the consumer need to have relied on it. See Bohn and Williams, California Code 5 Comment to Commercial Code § 2313 (West 2002) ¶ 2 (“Under Subdivision (1) of this section 6 ‘no particular reliance on [affirmations of fact] need be shown in order to weave them into the 7 fabric of agreement.’ Official Comment 3.”). All that the consumer needs to do obtain the benefit 8 of the warranty is to buy the product that the seller has made affirmative representations about. 9 An agreement to arbitrate, however, is different in nature, and cannot be created as Samsung has tried to do here -- by stuffing an inconspicuous “Q&A” about the “procedure for 11 United States District Court Northern District of California 10 resolving disputes” into a statement about the scope of the warranty. Windsor Mills bars contract 12 formation through such stealth tactics, and California cases distinguishing that holding have taken 13 pains to point out that the documents they addressed were, unlike here, called a “contract” or 14 required the counter-party’s signature. See Marin Storage & Trucking, Inc. v. Benco Contracting 15 and Engineering, Inc., 89 Cal. App. 4th 1042, 1049-50 (2001) (“Here, the document in question is 16 entitled Work Authorization and Contract. The clause immediately above the customer’s 17 signature states, ‘This is a contract which includes all terms and conditions stated on the reverse 18 side.’ . . . There is simply no basis for a conclusion that the document was unrecognizable as a 19 binding contract.”); Rodriguez v. Am. Techs., Inc., 136 Cal. App. 4th 1110, 1123-24 (2006) 20 (“Windsor Mills involved printed forms entitled ‘Acknowledgement of Order’ that were sent to the 21 buyer as each order of merchandise was received and did not require the buyer’s signature. . . . 22 Here, the agreement is titled ‘WORK PROPOSAL AND AUTHORIZATION,’ and is signed by 23 ATI’s representative and by Kathy Rodriguez underneath a line stating ‘Accepted by Client.’”). 24 Without any words alerting consumers that Samsung’s arbitration term was a “contract” or 25 “agreement,” and without anywhere requiring consumers like Mr. Norcia to sign in order to accept 26 the arbitration provision or at least to acknowledge having received it, the conclusion must be that 27 no reasonable person would “know that a proposal has been made to him.” Windsor Mills, 25 Cal. 28 App. 3d at 993. Indeed, the way that Samsung has structured its arbitration provision within its 12 1 warranty, no proposal was in fact made to the purchaser. Instead, the arbitration provision was 2 disguised as merely a “term” of the warranty, which automatically attaches from the moment of 3 purchase without any additional acceptance or reliance on the part of the purchaser. Samsung has identified no controlling authority that compels a different result. Although 5 Mortensen v. Bresnan Communications, LLC, 722 F.3d 1151 (9th Cir. 2013), is of course binding 6 authority on this Court, there, the issue was not contract formation, but rather the preemptive 7 effect of the FAA on a public policy defense available under Montana state law. In any event, the 8 facts of that case are different than the ones here because there, the document that contained the 9 arbitration clause was entitled the “Bresnan OnLine Internet Service Subscriber Agreement and 10 Acceptable Use Policy.” See id. at 1154-55. Moreover, the beginning of the service agreement 11 United States District Court Northern District of California 4 “direct[ed] customers to, ‘Please read this Agreement very carefully, because by accepting the 12 Service, you agree to all of these terms.’” Id. Two district court opinions that upheld arbitration 13 agreements in the absence of a signature can similarly be distinguished. See Murphy v. DirecTV, 14 Inc., No. 2:07-cv-06465-JHN-VBKx, 2011 WL 3319574, at *2 (C.D. Cal. Aug. 2, 2011) 15 (document containing the arbitration provision was labeled as “the DirecTV Customer 16 Agreement”); Knutson v. Sirius XM Radio Inc., Civil No. 12cv418 AJB (NLS), 2012 WL 17 1965337, at *3 (S.D. Cal. May 31, 2012) (upholding, and finding Windsor Mills exception 18 inapplicable to, arbitration provision contained in “the Agreement, entitled ‘Customer Agreement 19 & Website Terms of Use’”). 20 The Court’s lack of formation finding here is not driven by any single fact -- e.g., that this 21 is a “terms-later” situation, where the terms came inside of the box rather than specifically being 22 disclosed to the consumer at or prior to purchase; or that the method of acceptance was through 23 the practice of “accept-or-return” (or in this case, “return-or-opt-out”), rather than specifically 24 requiring the consumer’s signature. Nor is it driven by the fact that the arbitration provision was 25 contained in a manufacturer’s warranty. There may be other situations where arbitration 26 provisions within manufacturer’s warranties may nevertheless give rise to a true agreement to 27 arbitrate. 28 13 That, however, simply is not the case here. “[T]he ‘whole purpose’ of warranty law is ‘to 1 2 determine what it is that the seller has in essence agreed to sell . . . .’ Therefore, in keeping with 3 this purpose, section 2313 focuses on the seller’s behavior and obligation -- his or her 4 affirmations, promises, and descriptions of the goods -- all of which help define what the seller ‘in 5 essence’ agreed to sell.” Weinstat v. Dentsply Int’l, Inc., 180 Cal. App. 4th 1213, 1228 (2010) 6 (emphasis in original and citations omitted; further observing that any descriptions or affirmations 7 about the product contained in the directions that were sealed in the product package “have 8 already been made by Dentsply at the time the product is delivered to the customer”). Similarly, 9 the affirmations Samsung made about its phone that were contained in the warranty booklet (e.g., that the phone would be “free from defects in material and workmanship under normal use and 11 United States District Court Northern District of California 10 service for” one year from the date of purchase) were made at the time the phone was delivered to 12 Mr. Norcia and gave rise to binding obligations under warranty law. Not so with the arbitration provision that was inconspicuously hidden as an innocuous- 13 14 seeming answer to the question “[w]hat is the procedure for resolving disputes?” The FAA 15 requires a “written agreement for arbitration.” 9 U.S.C. § 4. An agreement requires mutual 16 assent, generally achieved through an offer and acceptance. An offer that no reasonable person 17 would recognize as a proposal, see Windsor Mills, 25 Cal. App. 3d at 993, does not count. 18 Consequently, because Mr. Norcia “had insufficient notice” of Samsung’s arbitration provision 19 contained in its warranty, the Court concludes that he “did not enter into an agreement with” 20 Samsung to arbitrate his claims. See Nguyen, 2014 WL 4056549, at *7.4 21 For the sake of completeness, the Court briefly addresses two other arguments vigorously 22 raised by Samsung that are mainly off point. Samsung argued that Mr. Norcia must be deemed to 23 have received notice through Samsung’s website because Mr. Norcia made a binding admission in 24 his complaint that he looked at Samsung’s website and specifically at Samsung’s product web 25 page relating to the S4. The web page contained links to both the warranty as a free-standing 26 27 28 4 To the extent that the Central District of California court has come to a contrary conclusion in Sheffer v. Samsung Telecommunications America, LLC, Case No. 2:13-cv-03466-GW (AJWx), the Court disagrees with it. 14 1 document as well as a 212-page User Manual that reproduced within it the limited warranty 2 (including the arbitration provision). Samsung asks for too much. Mr. Norcia testified at the 3 bench trial that the complaint’s reference to the web page was a “mistake.” Tr. at 91:18-92:4, 4 65:12-66:3. “Factual assertions in pleadings and pretrial orders, unless amended, are considered 5 judicial admissions conclusively binding on the party who made them.” Am. Title Ins. Co. v. 6 Lacelaw Corp., 861 F.2d 224, 226 (9th Cir. 1988) (emphasis added). The Court concludes that 7 Mr. Norcia needs to amend his complaint, and that he must make sure that the next iteration of his 8 complaint is error-free. The Court also concludes that Samsung’s product web page is not 9 sufficient by itself to constitute inquiry notice -- among other things, it is an additional step removed from the actual limited warranty language, which the Court has already found 11 United States District Court Northern District of California 10 insufficient. 12 Samsung also made a point of bringing out at trial the fact that Mr. Norcia works as a 13 director at a gaming company called BigPoint, and that in that capacity, he is familiar with the 14 concept of terms of service which contain dispute resolution procedures that are accepted by 15 conduct -- in BigPoint’s case, by playing BigPoint’s games. This point, too, is overstated. 16 Samsung’s arbitration provision is contained in a warranty, not “terms of service.” Moreover, just 17 as the Ninth Circuit observed in Nguyen where a similar argument was made, “[w]hether Nguyen 18 has experience with the browsewrap agreements found on other websites such as Facebook, 19 LinkedIn, MySpace, or Twitter, has no bearing on whether he had constructive notice of Barnes & 20 Noble’s Terms of Use. There is nothing in the record to suggest that those browsewrap terms are 21 enforceable by or against Nguyen, much less why they should give rise to constructive notice of 22 Barnes & Noble’s browsewrap terms.” 2014 WL 4056549, at *6. Similarly, here, Mr. Norcia’s 23 familiarity with BigPoint’s Terms of Service are of no moment. There is nothing in the record 24 regarding the enforceability of BigPoint’s Terms of Service, nor why they should give rise to 25 constructive notice of Samsung’s arbitration provision contained in its warranty. 26 27 28 15 CONCLUSION 1 2 For all of these reasons, the Court finds that no agreement to arbitrate was made, and in the 3 absence of an agreement to arbitrate, the Court denies Samsung’s pending motion to compel 4 arbitration. Dkt. No. 18. 5 Looking forward, the Court notes as mentioned above that Mr. Norcia identified at least 6 one inaccuracy in his complaint. Plaintiff is directed to file an amended complaint -- the final 7 draft of which must be reviewed by Mr. Norcia himself and which must be free of further factual 8 inaccuracies -- within 10 days of this order. 9 10 Defendants are directed to answer or otherwise respond to that amended complaint within 21 days of its filing. United States District Court Northern District of California 11 A case management conference is set for November 5, 2014 at 1:30 p.m. 12 IT IS SO ORDERED. 13 14 15 Dated: September 18, 2014 ______________________________________ JAMES DONATO United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28 16

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