Tompkins v. 23andMe, Inc., No. 5:2013cv05682 - Document 109 (N.D. Cal. 2014)

Court Description: ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION.Associated Cases: 5:13-cv-05682-LHK, 5:14-cv-00294-LHK, 5:14-cv-00429-LHK, 5:14-cv-01167-LHK, 5:14-cv-01191-LHK, 5:14-cv-01258-LHK, 5:14-cv-01348-LHK, 5:14-cv-01455-LHK, 5:14-cv-02414-LHK(lhklc5S, COURT STAFF) (Filed on 6/25/2014)

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Tompkins v. 23andMe, Inc. Doc. 109 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 United States District Court For the Northern District of California 8 SAN JOSE DIVISION 11 12 13 14 15 16 17 18 DAVID TOMPKINS, an individual, on behalf of ) himself and others similarly situated, ) ) Plaintiffs, ) v. ) ) 23ANDME, INC., ) ) Defendant. ) ) ) ) ) ) Case No.: 5:13-CV-05682-LHK Consolidated and Related Cases: 5:14-CV-00294-LHK 5:14-CV-00429-LHK 5:14-CV-01167-LHK 5:14-CV-01191-LHK 5:14-CV-01258-LHK 5:14-CV-01348-LHK 5:14-CV-01455-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 19 This case involves putative class action claims related to Defendant 23andMe, Inc.’s 20 (“23andMe”) advertising and marketing of its Personal Genome Service. 23andMe filed an 21 Omnibus Motion to Compel Arbitration and to Dismiss or Alternatively Stay the Action in Favor 22 of Arbitration. ECF Nos. 69, 69-1 (“Mot.”). Plaintiffs oppose the Motion. ECF No. 103 23 (“Opp’n”). 23andMe filed a Reply in support of the Motion. ECF No. 104 (“Reply”). 24 Having considered the parties’ arguments, the Court found this matter appropriate for 25 resolution without a hearing pursuant to Civil Local Rule 7-1(b). Because the Court determines 26 that Plaintiffs’ claims must be arbitrated, the Court hereby GRANTS 23andMe’s motion to compel 27 arbitration and DISMISSES all of Plaintiffs’ claims without prejudice. 28 1 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION Dockets.Justia.com 1 I. 2 BACKGROUND A. 3 Factual Allegations 1. 4 Personal Genome Service (“PGS”) and the FDA Warning Letter 23andMe is a personal genetics company founded in 2006 that offers to provide customers 5 hereditary information from a genetic sample. See ECF No. 23-1. The product at issue in the 6 instant case is 23andMe’s Personal Genome Service (“PGS”). PGS is a service that consists of a 7 DNA saliva collection kit (“DNA kit”) and DNA test results with certain genetic information 8 derived from a customer’s saliva sample. To use PGS, customers first purchase DNA kits online at 9 23andMe’s website, http://www.23andMe.com. 1 The price of a DNA kit is currently $99, not United States District Court For the Northern District of California 10 including shipping fees. Upon purchase, 23andMe ships the DNA kit to the customer with a pre- 11 addressed return box and instructions on how to return a saliva sample to 23andMe. Id. 23andMe 12 then receives the saliva sample and has the DNA tested at a certified laboratory. When 23andMe 13 receives the DNA results from the laboratory, 23andMe posts the customer’s DNA information 14 online to the customer’s personal genome profile. The customer receives an e-mail notification 15 when DNA results are ready to view. Id. 16 The DNA results from PGS have had two components: the health component and the 17 ancestry component. ECF No. 23-8. The health component informs customers about how their 18 genetics impact their health by providing data on health risks, inherited conditions, drug responses, 19 and genetic traits. Id. The ancestry component offers a variety of features such as tracing ancestry 20 and identifying relatives, including a DNA comparison to other 23andMe users. Id. 21 1 22 23 24 25 26 27 28 The parties do not dispute that the key portions of the website have not changed since the relevant times when Plaintiffs allegedly performed the transactions at issue. 23andMe relies on excerpts from a February 2014 version of the website (see ECF No. 70-9), while Plaintiffs use excerpts dated April 2014 (see ECF No. 103-2). However, the Court takes judicial notice of the Internet Archive (http://archive.org) version of 23andMe’s website as of November 20, 2013, the full version of the website archived right before the FDA warning letter of November 22, 2013 (discussed below). The Court applies the doctrine of incorporation by reference to the instant case. See Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994) (“[D]ocuments whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss.”); see also Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (taking judicial notice of linked webpages because “a computer user necessarily views web pages in the context of the links through which the user accessed those pages”). 2 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 On November 22, 2013, the Food and Drug Administration (“FDA”) sent a “Warning 2 Letter” to 23andMe. ECF No. 103-2. The letter informed 23andMe that the company was 3 violating the Food, Drug and Cosmetic Act by selling PGS without marketing clearance or 4 approval. The FDA detailed a number of concerns with the health component of PGS. The letter 5 further noted that 23andMe had expanded the uses of PGS beyond those submitted to the FDA and 6 broadened its marketing campaigns without FDA authorization. Id. The FDA required 23andMe 7 to discontinue marketing PGS until 23andMe received marketing clearance and approval for the 8 product. Id. On December 6, 2013, 23andMe stopped offering the health component of PGS to 9 new customers. See Tompkins Compl. (ECF No. 1) ¶ 1. The FDA allowed 23andMe to continue United States District Court For the Northern District of California 10 to provide new customers with the ancestry component of PGS in addition to raw genetic data. See 11 Mot. at 2. Customers who purchased PGS before November 22, 2013 could receive their initial 12 health results without updates. Id. at 3. According to the company’s website, 23andMe now 13 provides full refunds to anyone who purchased a DNA kit between November 22, 2013 and 14 December 5, 2013. 15 16 2. 23andMe’s Terms of Service The present dispute about arbitration of the Plaintiffs’ claims turns on a purported 17 agreement between the parties. The last section of 23andMe’s online Terms of Service (“TOS”) is 18 a “Miscellaneous” section numbered 28. Section 28b of this Miscellaneous section is an arbitration 19 provision that reads as follows: 20 21 22 23 24 25 26 Applicable law and arbitration. Except for any disputes relating to intellectual property rights, obligations, or any infringement claims, any disputes with 23andMe arising out of or relating to the Agreement (“Disputes”) shall be governed by California law regardless of your country of origin or where you access 23andMe, and notwithstanding of any conflicts of law principles and the United Nations Convention for the International Sale of Goods. Any Disputes shall be resolved by final and binding arbitration under the rules and auspices of the American Arbitration Association, to be held in San Francisco, California, in English, with a written decision stating legal reasoning issued by the arbitrator(s) at either party’s request, and with arbitration costs and reasonable documented attorneys’ costs of both parties to be borne by the party that ultimately loses. Either party may obtain injunctive relief (preliminary or permanent) and orders to compel arbitration or enforce arbitral awards in any court of competent jurisdiction. 27 ECF No. 70-10 § 28b (the “arbitration provision”). At all relevant times, the TOS have been 28 accessible via hyperlink at the bottom of 23andMe’s homepage under the heading “LEGAL.” ECF 3 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 No. 22-3. The user must scroll through a significant amount of information to view the TOS 2 hyperlink at the bottom of the homepage. Other pages such as “Refund Policy” and “Privacy 3 Policy” also include the TOS hyperlink, but reference to the TOS never appears in the text, sidebar, 4 or at the top of the webpage prior to purchase of a DNA kit. The TOS hyperlink appears at the 5 bottom of many, but not all, of 23andMe’s website pages. The words always appear in standard 6 font size, in blue or gray font, on a white background. 7 When customers buy and obtain PGS, they perform two steps on 23andMe’s website. First, 8 a customer must order and pay for a DNA kit. The ordering webpage has no requirement that 9 customers view the TOS or click to accept the TOS. In other words, customers can enter their United States District Court For the Northern District of California 10 payment information and purchase DNA kits online without seeing the TOS. See Opp’n at 4. The 11 only opportunity for a full refund is a 60-minute cancellation window after purchase. See ECF 12 103-2 Ex. 4 (“The cancellation option is available for 60 minutes after you place your order from 13 both the order confirmation page and the order confirmation email.”). Customers can receive 14 partial refunds within 30 days of purchase, provided they have not already sent their saliva to the 15 laboratory. Id. Customers have 12 months from the date of purchase to use the DNA kit. 16 Second, after purchase of a DNA kit, in order to send in a DNA sample to the laboratory 17 and receive genetic information, customers must both create accounts and register their DNA kits 18 online. See Hillyer Decl. (ECF No. 71) ¶ 3. The account creation page requires customers to 19 check a box next to the line, “Yes, I have read and agree to the Terms of Service and Privacy 20 Statement.” The TOS and Privacy Statement appear in blue font and are hyperlinks to the full 21 terms: 22 23 24 25 26 27 Hillyer Decl. ¶ 4, Ex. A. Similarly, during the registration process, customers must view a page with the title “To continue, accept our terms of service” written in large font at the top of the page. The registration 28 4 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 page provides a hyperlink to the full TOS next to the line: “When you sign up for 23andMe’s 2 service you agree to our Terms of Service. Click here to read our full Terms of Service.” 3 Customers must then click a large blue icon that reads “I ACCEPT THE TERMS OF SERVICE” 4 before finishing the registration process and receiving their DNA information: 5 6 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Hillyer Decl. ¶ 5, Ex. B. As explained below, all named Plaintiffs in the instant action created accounts and registered their DNA kits online. See ECF No. 105 ¶ 2. However, it is possible for a customer to buy a DNA kit, for example, as a gift for someone else, so that the purchasing customer never needs to create an account or register the kit, and thus is never asked to acknowledge the TOS. B. Procedural History Following the FDA letter, between November 27, 2013 and March 27, 2014, multiple Plaintiffs filed class action complaints against 23andMe across several venues, alleging a variety of claims related to false advertising, unfair competition, and consumer protection. All pending litigations in federal district courts have been transferred to this Court and consolidated for pretrial purposes. See ECF Nos. 28, 33, 45 (orders consolidating cases). Additionally, according to the parties, there are at least three arbitrations pending before the American Arbitration Association (“AAA”) involving class claims. See ECF No. 53 at 8 (listing proceedings); Mot. at 4. On February 25, 2014, in the case involving Plaintiff David Tompkins (No. 13-CV-05682), 23andMe moved to compel arbitration. ECF No. 20. The parties agreed to postpone briefing and 28 5 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 resolution of that motion pending transfer and consolidation of the other co-pending litigations. 2 ECF No. 25. 23andMe subsequently withdrew its initial motion regarding arbitration and, on April 3 28, 2014, filed the current “omnibus” motion to compel all Plaintiffs to arbitrate all claims. ECF 4 No. 69. On May 28, 2014, Plaintiffs filed an Opposition. ECF No. 103. On June 4, 2014, 5 23andMe filed a reply. ECF No. 104. Additionally, following briefing and argument, the Court 6 appointed interim class counsel on May 14, 2014. ECF No. 100. 7 II. LEGAL STANDARDS 8 A. Federal Arbitration Act 9 The Federal Arbitration Act (“FAA”) applies to arbitration agreements in any contract United States District Court For the Northern District of California 10 affecting interstate commerce. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001); 9 11 U.S.C. § 2. Enacted for the purpose of making valid and enforceable written agreements to 12 arbitrate disputes, the FAA embodies “the basic precept that arbitration ‘is a matter of consent, not 13 coercion.’” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1773 (2010) (quoting 14 Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989)). In 15 accordance with this principle, the Supreme Court has held that parties may agree to limit the 16 issues subject to arbitration, Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 17 614, 628 (1985); to arbitrate according to specific rules, Volt, 489 U.S. at 479; and to limit with 18 whom a party will arbitrate its disputes, Stolt-Nielsen, 130 S. Ct. at 1773. Section 4 of the FAA 19 ensures that “‘private agreements to arbitrate are enforced according to their terms,’” id. (quoting 20 Volt, 489 U.S. at 479), by expressly authorizing a party to an arbitration agreement to petition a 21 U.S. District Court for an order directing that “arbitration proceed in the manner provided for in 22 such agreement,” 9 U.S.C. § 4. In addition, the FAA contains a mandatory stay provision. Id. § 3. 23 Under the FAA, arbitration agreements “shall be valid, irrevocable, and enforceable save 24 upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. 25 Arbitration is a matter of contract, and the FAA places arbitration agreements “on an equal footing 26 with other contracts.” Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010). The 27 interpretation of an arbitration agreement is therefore generally a matter of state law, see Arthur 28 Andersen LLP v. Carlisle, 129 S. Ct. 1896, 1901-02 (2009), unless application of state-law rules 6 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 would “stand as an obstacle to the accomplishment of the FAA’s objectives,” AT&T Mobility LLC 2 v. Concepcion, 131 S. Ct. 1740, 1748 (2011). 3 B. Arbitrability 4 Parties can agree to delegate arbitrability—or “gateway” issues concerning the scope and 5 enforceability of the arbitration agreement, and whether the dispute should go to arbitration at all— 6 to the arbitrator. The Supreme Court has held that the question of “who has the power to decide 7 arbitrability,” the court or the arbitrator, “turns upon what the parties agreed about that matter.” 8 First Options of Chicago v. Kaplan, 514 U.S. 938, 943 (1995) (emphasis in original). “An 9 agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party United States District Court For the Northern District of California 10 seeking arbitration asks the federal court to enforce, and the FAA operates on this additional 11 arbitration agreement just as it does on any other.” Rent-A-Center, 561 U.S. at 70. The Supreme 12 Court recognizes a heightened standard for an arbitrator to decide arbitrability issues. See AT&T 13 Techs. v. Commc’ns Workers, 475 U.S. 643, 649 (1986) (“Unless the parties clearly and 14 unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be 15 decided by the court, not the arbitrator.”); Kaplan, 514 U.S. at 944 (“Courts should not assume that 16 the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that 17 they did so.”). Rent-A-Center acknowledges that while courts may consider enforceability 18 challenges that are specific to the delegation clause in an arbitration agreement, the arbitrator is to 19 consider challenges to the arbitration agreement as a whole. 561 U.S. at 73. In cases where the 20 parties “clearly and unmistakably intend to delegate the power to decide arbitrability to an 21 arbitrator,” the Court’s inquiry is “limited . . . [to] whether the assertion of arbitrability is ‘wholly 22 groundless.’” Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1371 (Fed. Cir. 2006) (applying 23 Ninth Circuit law). 24 C. Unconscionability 25 When evaluating defenses to arbitration agreements, such as unconscionability, courts 26 generally apply state contract law. See Arthur Andersen, 129 S. Ct. at 1901-02; 9 U.S.C. § 2. In 27 this case, California law governs 23andMe’s arbitration agreement. See TOS § 28b (“any disputes 28 . . . shall be governed by California law”). Under California law, “unconscionability has both a 7 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 ‘procedural’ and a ‘substantive’ element.” Armendariz v. Found. Health Psychcare Servs., Inc., 24 2 Cal. 4th 83, 114 (2000) (citation omitted). California courts have explained the interplay between 3 procedural and substantive unconscionability as follows: 4 The procedural component focuses on the factors of oppression and surprise. Oppression results where there is no real negotiation of contract terms because of unequal bargaining power. “Surprise” involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in a prolix printed form drafted by the party seeking to enforce the disputed terms. The substantive component of unconscionability looks to whether the contract allocates the risks of the bargain in an objectively unreasonable or unexpected manner. To be unenforceable there must be both substantive and procedural unconscionability, though there may be an inverse relation between the two elements. 5 6 7 8 9 United States District Court For the Northern District of California 10 11 12 Patterson v. ITT Consumer Fin. Corp., 14 Cal. App. 4th 1659, 1664 (1993) (citations omitted). III. DISCUSSION The parties dispute several issues regarding the TOS. The Court addresses these in turn, starting with whether a contract between the parties exists at all. 13 A. 14 Plaintiffs contend that there is no valid arbitration agreement because (1) they did not agree 15 to the TOS when they purchased the DNA kits, and (2) they received no consideration for agreeing 16 to the TOS when they subsequently created accounts or registered their kits. See Opp’n at 14-16. 17 23andMe responds that the TOS are valid and enforceable clickwrap agreements that each named 18 Plaintiff accepted by clicking a box or button on the website. See Reply at 13-15. The Court 19 agrees with Plaintiffs that they did not agree to the TOS at the purchasing stage, but agrees with 20 23andMe that the TOS took effect upon account creation and/or registration. 21 22 Existence of Agreement 1. Agreement Upon Purchase Plaintiffs first argue that they never agreed to the TOS when they purchased PGS. As 23 explained above, Plaintiffs’ reference to the “PGS” conflates two items: the physical DNA kits and 24 the subsequent provision of genetic information. Customers perform a bifurcated transaction in 25 which they purchase the DNA kit online, and then obtain hereditary data after creating an account, 26 registering the kit, and submitting a saliva sample. Here, Plaintiffs contend that 23andMe did not 27 provide the TOS “as part of the checkout process” (Opp’n at 16), which implicates the step of 28 buying the DNA kits. The Court agrees that the TOS were not effective upon purchase of the kits. 8 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 The existence of an agreement between 23andMe and its customers implicates the law of 2 Internet-based contract formation. An increasing number of courts and commentators have 3 addressed the circumstances under which parties may form contracts online. In particular, 4 “shrinkwrap,” “clickwrap,” and “browsewrap” agreements are relevant here. A shrinkwrap 5 agreement generally refers to a situation where a customer buys and receives a product, the written 6 agreement is presented with the product after purchase, and the customer implicitly accepts by 7 opening and keeping the product. See Specht v. Netscape Commc’ns Corp., 306 F.3d 17, 32 (2d 8 Cir. 2002). A clickwrap agreement “presents the user with a message on his or her computer 9 screen, requiring that the user manifest his or her assent to the terms of the license agreement by United States District Court For the Northern District of California 10 clicking on an icon.” Id. at 22 n.4 (quotation and citation omitted). By contrast, as this Court 11 recently explained: 12 13 14 15 Browsewrap agreements are those that purport to bind the users of websites to which the agreements are hyperlinked. Generally, the text of the agreement is found on a separate webpage hyperlinked to the website the user is accessing. The browsewrap agreements are generally entitled “Terms of Use” or “Terms of Service.” The defining feature of browsewrap agreements is that the user can continue to use the website or its services without visiting the page hosting the browsewrap agreement or even knowing that such a webpage exists. 16 Be In, Inc. v. Google Inc., No. 12-CV-03373-LHK, 2013 U.S. Dist. LEXIS 147047, at *23 (N.D. 17 Cal. Oct. 9, 2013). Courts have enforced certain clickwrap and browsewrap agreements, 18 depending on the nature of the parties, type of notice provided, and other factors. See generally 19 Mark A. Lemley, Terms of Use, 91 Minn. L. Rev. 459, 459-60 (2006). In general, courts enforce 20 inconspicuous browsewrap agreements only when there is evidence that the user has actual or 21 constructive notice of the site’s terms. See Sw. Airlines Co. v. BoardFirst, L.L.C., No. 3:06-CV- 22 0891-B, 2007 WL 4823761 (N.D. Tex. Sept. 12, 2007); see also Lemley, supra, at 477 (“Courts 23 may be willing to overlook the utter absence of assent only when there are reasons to believe that 24 the defendant is aware of the plaintiff’s terms.”). 25 Here, at the purchase stage, the TOS on 23andMe’s website closely resembled a 26 browsewrap agreement and provided insufficient notice to customers who bought DNA kits. There 27 is no dispute that 23andMe’s website did not require customers to acknowledge the TOS during 28 purchase. 23andMe does not specifically argue that Plaintiffs accepted the TOS upon purchasing 9 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 the kits, but does argue that it was “impossible to register for and receive the Service without 2 clicking ‘I ACCEPT’ to the TOS.” Reply at 15. However, 23andMe uses the term “Service” 3 ambiguously in its briefs and in the TOS. The TOS provides the following definition: 4 5 6 “Service” or “Services” means 23andMe’s products, software, services, and website (including but not limited to text, graphics, images, and other material and information) as accessed from time to time by the user, regardless if the use is in connection with an account or not. TOS § 1 (emphases added). The TOS also states: “You can accept the TOS by . . . actually using 7 the Services.” Id. § 2 (emphasis added). Thus, according to the plain language of the TOS, a 8 customer accepted the terms merely by using a product (such as the DNA kit) or visiting the 9 website, even without creating an account. As a result, 23andMe’s contention in its Reply that it United States District Court For the Northern District of California 10 was “impossible to . . . receive the Service without clicking ‘I ACCEPT’” (italics added) is 11 misleading. 12 23andMe cannot rely on purported acceptance of the TOS upon purchase to demonstrate a 13 valid agreement. As explained above, during checkout, the website did not present or require 14 acceptance of the TOS. Rather, the only way for a customer to see the TOS at that stage was to 15 scroll to the very bottom of the page and click a link under the heading “LEGAL.” See Hillyer 16 Decl. ¶ 6, Ex. C. Such an arrangement provided insufficient notice to customers and website 17 visitors. For example, in Be In, this Court held that “mere use of a website” could not demonstrate 18 users’ assent, and that the “mere existence of a link” failed to notify users of terms of service. 19 2013 U.S. Dist. LEXIS 147047, at *33. Other courts have held that similar browsewrap-style 20 agreements are ineffective. E.g., Specht, 306 F.3d at 20, 32 (finding that a “reasonably prudent 21 Internet user” would not have seen “a reference to the existence of license terms on a submerged 22 screen”); Jerez v. JD Closeouts, LLC, 943 N.Y.S.2d 392, 398 (Dist. Ct. 2012) (“[E]-commerce 23 merchants cannot blithely assume that the inclusion of sale terms, listed somewhere on a 24 hyperlinked page on its website, will be deemed part of any contract of sale.”); Hines v. 25 Overstock.com, Inc., 668 F. Supp. 2d 362, 367 (E.D.N.Y. 2009) aff’d, 380 F. App’x 22 (2d Cir. 26 2010) (holding online retail store did not provide adequate notice when the website did not prompt 27 customer to review the site’s “Terms and Conditions” and the link to the terms was not 28 10 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 prominently displayed). 23andMe’s customers may have been unfamiliar with the website, and the 2 website’s layout never directed customers to view the TOS prior to purchase. Thus there is no 3 evidence that Plaintiffs had or should have had knowledge of the TOS when they purchased their 4 DNA kits online. 5 Accordingly, 23andMe’s TOS would have been ineffective to bind website visitors or 6 customers who only purchased a DNA kit without creating an account or registering a kit. The 7 Court finds that 23andMe’s practice of obscuring terms of service until after purchase—and for a 8 potentially indefinite time—is unfair, and that a better practice would be to show or require 9 acknowledgement of such terms at the point of sale. United States District Court For the Northern District of California 10 11 12 2. Post-Purchase Agreement Plaintiffs next argue that any acceptance of the TOS after the purchasing stage was also ineffective for multiple reasons. The Court addresses each of these arguments. 13 Initially, Plaintiffs imply that none of the named Plaintiffs ever clicked “I ACCEPT” to the 14 TOS, claiming that “23andMe has not submitted competent evidence that plaintiffs ever agreed to 15 the Terms of Service.” Opp’n at 16. This argument is unavailing. Plaintiffs rely on Comb v. 16 PayPal, Inc., but in that case, the parties disputed whether the relevant agreement contained an 17 arbitration provision at certain times, which is not at issue here. 218 F. Supp. 2d 1165, 1171-72 18 (N.D. Cal. 2002). Plaintiffs do not dispute that the 23andMe website requires each person who 19 creates an account or registers a kit to indicate acceptance of the TOS before receiving any test 20 results, nor do Plaintiffs dispute that the TOS contained the same arbitration provision at all 21 relevant times. Various Plaintiffs have alleged that they received test results after purchasing kits. 22 See, e.g., Tompkins Compl. ¶ 15; Dilger Decl. (ECF No. 103-3) ¶¶ 5-6. Thus, these Plaintiffs must 23 have clicked “I ACCEPT THE TERMS OF SERVICE” when creating an account and registering. 24 Plaintiffs also submit a declaration from named Plaintiff Vernon Stanton stating that he in fact 25 agreed to the TOS. See Stanton Decl. (ECF No. 103-4) ¶¶ 4-5. Moreover, 23andMe has submitted 26 records with its Reply showing that each named Plaintiff created an account and registered a kit. 27 See Hillyer Supp. Decl. (ECF No. 105) ¶ 2, Exs. A-M; Reply at 14 n.20. Other courts have found 28 that user access to portions of websites that require indicating assent to be sufficient evidence that 11 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 the user clicked “I Accept.” See Feldman v. Google, Inc., 513 F. Supp. 2d 229, 237 (E.D. Pa. 2 2007) (“Clicking ‘Continue’ without clicking the ‘Yes’ button would have returned the user to the 3 same webpage. If the user did not agree to all of the terms, he could not have activated his account, 4 placed ads, or incurred charges.”). Thus, Plaintiffs cannot credibly claim ignorance as to whether 5 they actually clicked the appropriate checkboxes. 6 Next, Plaintiffs argue that any post-purchase acceptance of the TOS (during account 7 creation or registration) was ineffective because customers had by then already paid for the DNA 8 kits and received no additional consideration for accepting the TOS. See Opp’n at 17. Plaintiffs 9 contend that the TOS was either a clickwrap agreement that lacked adequate consideration, or a United States District Court For the Northern District of California 10 shrinkwrap agreement that provided “no adequate right to return the product.” Id. 23andMe 11 responds that customers received adequate consideration in the form of 23andMe’s agreement to 12 arbitrate and certain intellectual property concessions. See Reply at 14-15. The parties also 13 disagree as to whether post-purchase agreement to the TOS constituted a clickwrap or browsewrap 14 agreement, as courts have tended to enforce the former but not the latter. Compare Opp’n at 17 15 with Reply at 15; see also Lemley, supra, at 459-60. 16 The Court concludes that there was adequate consideration for customers’ acceptance of the 17 TOS post-purchase. Under California contract law (which governs under the TOS and is not 18 disputed by the parties), “[a] written instrument is presumptive evidence of a consideration,” Cal. 19 Civ. Code § 1614, and “all the law requires for sufficient consideration is the proverbial 20 ‘peppercorn,’” San Diego City Firefighters, Local 145 v. Bd. of Admin., 206 Cal. App. 4th 594, 619 21 (2012). The Ninth Circuit has held, in the employment context and under California law, that a 22 “promise to be bound by the arbitration process itself serves as adequate consideration.” Circuit 23 City Stores, Inc. v. Najd, 294 F.3d 1104, 1108 (9th Cir. 2002). Under this precedent, 23andMe’s 24 agreement to accept arbitration provided acceptable consideration to its customers. The TOS also 25 provided certain rights to customers, such as a “limited license” to use 23andMe’s “Services” as 26 defined in the agreement. See TOS ¶ 9. Furthermore, in exchange for clicking “I ACCEPT,” 27 customers received the health and ancestry results from their DNA samples. Accordingly, 28 Plaintiffs received sufficient consideration for agreeing to the TOS. 12 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 The Court also determines that Plaintiffs received adequate notice regarding the TOS. As 2 noted above, during the account creation and registration processes, each named Plaintiff clicked a 3 box or button that appeared near a hyperlink to the TOS to indicate acceptance of the TOS. In this 4 respect, the TOS resemble clickwrap agreements, where an offeree receives an opportunity to 5 review terms and conditions and must affirmatively indicate assent. See Specht, 306 F.3d at 22 n.4. 6 The fact that the TOS were hyperlinked and not presented on the same screen does not mean that 7 customers lacked adequate notice. For example, in Fteja v. Facebook, Inc., the court dealt with a 8 similar website agreement that required users to click “Sign Up” and presented only a link to the 9 relevant terms and conditions. 841 F. Supp. 2d 829, 834-35 (S.D.N.Y. 2012). The court noted that United States District Court For the Northern District of California 10 the agreement possessed characteristics of both clickwrap and browsewrap agreements: “Thus 11 Facebook’s Terms of Use are somewhat like a browsewrap agreement in that the terms are only 12 visible via a hyperlink, but also somewhat like a clickwrap agreement in that the user must do 13 something else—click ‘Sign Up’—to assent to the hyperlinked terms. Yet, unlike some clickwrap 14 agreements, the user can click to assent whether or not the user has been presented with the terms.” 15 Id. at 838. Nevertheless, Fteja concluded that the website provided adequate notice because courts 16 have long upheld contracts where “the consumer is prompted to examine terms of sale that are 17 located somewhere else.” Id. at 839; see also Swift v. Zynga Game Network, Inc., 805 F. Supp. 2d 18 904, 911-12 (N.D. Cal. 2011) (enforcing arbitration clause where “Plaintiff was provided with an 19 opportunity to review the terms of service in the form of a hyperlink immediately under the ‘I 20 accept’ button”). 21 Plaintiffs’ analogy to a typical shrinkwrap agreement—and a supposed requirement to 22 provide a full refund—is misplaced here. Plaintiffs argue that the TOS resemble a shrinkwrap 23 agreement because the customer received terms only after paying for the product. In ProCD, Inc. 24 v. Zeidenberg, one of the seminal cases on shrinkwrap contracts, the Seventh Circuit upheld such 25 contracts in part because the customers there had “a right to return the software for a refund if the 26 terms are unacceptable.” 86 F.3d 1447, 1451 (7th Cir. 1996). Here, 23andMe’s Refund Policy was 27 restrictive: customers could “cancel” (receive a full refund) only within 60 minutes of purchasing a 28 DNA kit, and could obtain a partial refund “subtracting a) $25 per kit and b) your original shipping 13 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION and handling charges” only within 30 days of purchase and before the laboratory received a DNA 2 sample. ECF No. 103-2 Ex. 4. However, the shrinkwrap analogy does not apply here because 3 23andMe does not argue that the TOS took effect when customers failed to return the DNA kits 4 after a certain period. In typical shrinkwrap cases, the customer tacitly accepts contractual terms 5 by not returning the product within a specified time. E.g., Hill v. Gateway 2000, Inc., 105 F.3d 6 1147, 1148 (7th Cir. 1997) (upholding contract that became effective when customer did not return 7 product within 30 days). In this case, each named Plaintiff actually agreed to the TOS by affirming 8 “I ACCEPT THE TERMS OF SERVICE,” not by keeping the DNA kit beyond a certain time. 2 9 Thus, Plaintiffs’ argument that 23andMe’s refund policy was too restrictive does not negate their 10 United States District Court For the Northern District of California 1 affirmative assent to the TOS. Certain named Plaintiffs claim not to remember seeing the TOS or 11 Section 28b (the arbitration agreement). See Stanton Decl. ¶¶ 5-6; Dilger Decl. ¶¶ 5-6. Even if 12 true, that does not change the fact that they received adequate notice of the relevant terms and 13 clicked the “I ACCEPT THE TERMS OF SERVICE” button. See, e.g., Merkin v. Vonage Am. 14 Inc., No. 2:13-cv-08026, 2014 U.S. Dist. LEXIS 14055, at *8 (C.D. Cal. Feb. 3, 2014) (“But 15 plaintiffs’ failure of recollection as to whether or not they agreed to the TOS does not create a 16 genuine dispute in light of Vonage’s evidence that agreeing to the TOS is required during the 17 registration process.”). Furthermore, California contract law is clear that “[a] party cannot avoid 18 the terms of a contract on the ground that he or she failed to read it before signing.” Marin Storage 19 & Trucking, Inc. v. Benco Contracting & Eng’g, Inc., 89 Cal. App. 4th 1042, 1049 (2001). 20 For the reasons above, the Court concludes that the named Plaintiffs accepted the TOS 21 when they created accounts or registered their DNA kits, and rejects Plaintiffs’ argument that no 22 arbitration agreements exist with 23andMe. 23 B. Arbitrability 24 Plaintiffs argue that the arbitration provision in the TOS is unconscionable and cannot be 25 enforced. However, 23andMe contends that this Court cannot decide unconscionability because 26 2 27 28 The result may differ for putative unnamed plaintiffs who only purchased a DNA kit without creating an account or registering the product. As noted above, any such customers were not required to accept the TOS, and did not otherwise receive adequate notice of the TOS, before giving 23andMe their money. 14 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 the arbitration provision delegates those issues to an arbitrator, such that questions of arbitrability 2 must themselves be arbitrated. See Mot. at 1-6. The Court concludes that the arbitration provision 3 fails to show that the parties clearly and unmistakably consented to delegate arbitrability, and that 4 the Court must decide Plaintiffs’ unconscionability defense. 5 1. Applicable Law 6 The parties dispute even the threshold question of what law applies to determine if 7 questions of arbitrability must go to a court or an arbitrator. Plaintiffs’ position is that California 8 law applies to this issue because the arbitration provision says that “any disputes with 23andMe 9 arising out of or relating to the Agreement (“Disputes”) shall be governed by California law.” See United States District Court For the Northern District of California 10 Opp’n at 6 (emphasis in original). 23andMe responds that federal law applies because federal 11 courts have resolved the issue of delegation of arbitrability without expressly relying on state law. 12 See Reply at 1-2. 13 The Court concludes that the federal law of arbitrability applies in these circumstances. 14 Interpretation of arbitration agreements generally turns on state law. See Arthur Andersen, 129 S. 15 Ct. at 1901-02. However, the U.S. Supreme Court has held that “the first task of a court asked to 16 compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute,” 17 and that “[t]he court is to make this determination by applying the federal substantive law of 18 arbitrability, applicable to any arbitration agreement within the coverage of the Act.” Mitsubishi, 19 473 U.S. at 626. In the Ninth Circuit, parties may agree “to have arbitrability governed by non- 20 federal arbitrability law,” but this requires “clear and unmistakable evidence” of the parties’ intent 21 to do so. Cape Flattery Ltd. v. Titan Maritime, 647 F.3d 914, 921 (9th Cir. 2011) (“Courts should 22 apply federal arbitrability law absent ‘clear and unmistakable evidence’ that the parties agreed to 23 apply non-federal arbitrability law.”). 24 In this case, federal arbitrability law applies presumptively because the parties agree that 25 the FAA covers the TOS arbitration provision. See 9 U.S.C. § 2 (FAA applies to “a contract 26 evidencing a transaction involving commerce”). The TOS arbitration provision does not clearly 27 and unmistakably show that California law of arbitrability should apply because it states only that 28 disputes “arising out of or relating to the Agreement” are governed by California law. In Cape 15 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 Flattery, the Ninth Circuit held that nearly identical language—a provision that “[a]ny dispute 2 arising under this Agreement shall be settled by arbitration . . . in accordance with the English 3 Arbitration Act 1996”—was “ambiguous concerning whether English law also applies to determine 4 whether a given dispute is arbitrable in the first place.” 647 F.3d at 921. By the same token, the 5 23andMe provision is similarly “ambiguous” because it does not expressly designate the law that 6 governs arbitrability, and thus federal arbitrability law applies by default. 3 7 2. 8 9 Incorporation of AAA Rules 23andMe’s primary argument is that any challenges to the validity of the TOS arbitration provision—including Plaintiffs’ unconscionability theories—are questions that the parties United States District Court For the Northern District of California 10 delegated to an arbitrator, and not the courts. 23andMe bases this argument on the reference to the 11 AAA rules in Section 28b (the arbitration provision) of the TOS. 12 The TOS arbitration provision refers to the “rules and auspices of the American Arbitration 13 Association.” TOS § 28b. However, there are multiple layers of ambiguity about which AAA 14 rules govern. The AAA maintains multiple sets of rules for different types of disputes, such as 15 commercial, consumer, and employment. See https://www.adr.org/aaa/faces/rules. Section 28b 16 does not identify any of these specific rules. Even 23andMe’s counsel is inconsistent about which 17 AAA rules apply. In its opening brief, 23andMe takes the position that the AAA Commercial 18 Arbitration Rules apply to Plaintiffs’ claims. See Mot. at 7 n.4. However, in its Reply, 23andMe 19 states that the Commercial Arbitration Rules would be “supplemented by the AAA’s 20 Supplementary Procedures for Consumer-Related Disputes.” Reply at 3 n.4, 12. 21 22 The AAA rules themselves indicate that one or more sets of rules may apply, at the AAA’s discretion. Rule R-1(a) of the AAA’s Commercial Arbitration Rules and Mediation Procedures 23 24 25 26 27 28 3 Additionally, the recent decision in Tiri v. Lucky Chances, Inc., 226 Cal. App. 4th 231 (2014), suggests that arbitrability should be analyzed similarly under both California and federal law. The California Court of Appeal addressed the issue of delegating arbitrability to the court or an arbitrator, and the question of whether state or federal law applies to that issue. Id. at 239. The court stated that “the FAA’s applicability is immaterial because our decision in this case would be the same under either the FAA or the CAA [California Arbitration Act],” and noted that California courts “have specifically looked to the FAA when considering delegation clauses and have long held that the rules governing these clauses are the same under both state and federal law.” Id. at 239-40 (citations omitted). 16 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 (“Commercial Rules”) states that the Commercial Rules apply when the parties refer generically to 2 AAA rules but do not specify a particular ruleset: 3 4 5 6 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 The parties shall be deemed to have made these rules a part of their arbitration agreement whenever they have provided for arbitration by the American Arbitration Association (hereinafter AAA) under its Commercial Arbitration Rules or for arbitration by the AAA of a domestic commercial dispute without specifying particular rules. AAA, “Commercial Arbitration Rules and Mediation Procedures” at 10 (effective Oct. 1, 2013), available at: http://go.adr.org/LP=307. However, Rule C-1(a) of the AAA’s Supplementary Procedures for the Resolution of Consumer-Related Disputes (“Consumer Rules”) states that both the Commercial and Consumer Rules apply to “an agreement between a consumer and a business where the business has a standardized, systematic application of arbitration clauses with customers.” AAA, “Supplementary Procedures for the Resolution of Consumer-Related Disputes” at 8 (effective Mar. 1, 2013), available at: https://www.adr.org/aaa/faces/aoe/gc/consumer. However, Rule C-1(a) further states that “[t]he AAA will have the discretion to apply or not to apply the Supplementary Procedures.” Id. (emphasis added). Accordingly, in the instant case, there are at least two ambiguities in the arbitration provision’s reference to the AAA rules: lack of identification of specific AAA rules, and uncertainty as to whether the Consumer Rules apply in addition to the Commercial Rules. Under the AAA’s Commercial Rules, Rule R-7(a) states that the arbitrator decides questions of arbitrability: “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.” Id. at 13. Based on these rules, 23andMe claims that the TOS require an arbitrator to decide arbitrability. In recent years, case law has developed regarding how courts should determine if questions of arbitrability should go to an arbitrator. The default rule is that courts adjudicate arbitrability: “Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.” AT&T Techs., 475 U.S. at 649. “Courts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] 28 17 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 and unmistakabl[e]’ evidence that they did so.” Kaplan, 514 U.S. at 944 (citation omitted). 2 However, parties can agree to arbitrate arbitrability through a so-called delegation provision in a 3 contract. “The delegation provision is an agreement to arbitrate threshold issues concerning the 4 arbitration agreement.” Rent-A-Center, 561 U.S. at 68. 5 More specifically, an arbitration agreement can incorporate a delegation provision by 6 referencing separate arbitration rules that provide for delegation. Generally, when the contracting 7 parties are commercial entities, incorporation of AAA rules in an arbitration agreement constitutes 8 “clear and unmistakable evidence” that the parties intended to arbitrate arbitrability because—as 9 explained above—Rule R-7(a) of the Commercial Arbitration Rules transfers that responsibility to United States District Court For the Northern District of California 10 11 the arbitrator. E.g., Contec Corp. v. Remote Solution Co., 398 F.3d 205, 208 (2d Cir. 2005). However, Plaintiffs advocate a different result in the consumer context. Plaintiffs contend 12 that “nearly all” cases finding that an arbitrator must decide arbitrability as a result of the AAA 13 rules “involve transactions between sophisticated commercial entities,” while none involves “a 14 consumer who has no understanding of the ‘rules and auspices of the American Arbitration 15 Association.’” Opp’n at 13-14. Plaintiffs also point out that the arbitration provision lacks an 16 express delegation provision on its face, so a consumer would have to look up the AAA rules to 17 find Rule R-7(a). See id. at 10. In response, 23andMe argues that there is no recognized exception 18 for consumers. See Reply at 3. 19 In this case, the Court agrees with Plaintiffs that a bare reference to the AAA rules in 20 23andMe’s online contract does not show that the parties clearly and unmistakably intended to 21 delegate arbitrability. Less than a year ago, the Ninth Circuit indicated that the principle of 22 incorporating a delegation provision by citing third-party arbitration rules may not apply to 23 consumers. In Oracle America, Inc. v. Myriad Group A.G., the Ninth Circuit addressed the 24 question of whether incorporation of the UNCITRAL (United Nations Commission on 25 International Trade Law) arbitration rules served to delegate arbitrability. 724 F.3d 1069 (9th Cir. 26 2013). Noting that this was “an issue of first impression in the Ninth Circuit,” the court surveyed 27 other Circuits’ holdings regarding incorporation of both the UNCITRAL and AAA rules, and 28 concluded that incorporation in the contract at issue was effective. Id. at 1073-75. However, 18 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 Oracle expressly limited its holding: “We hold that as long as an arbitration agreement is between 2 sophisticated parties to commercial contracts, those parties shall be expected to understand that 3 incorporation of the UNCITRAL rules delegates questions of arbitrability to the arbitrator.” Id. at 4 1075. Moreover, the court stated: “We express no view as to the effect of incorporating arbitration 5 rules into consumer contracts.” Id. at 1075 n.2. Thus, the Ninth Circuit declined to hold that 6 incorporation of arbitration rules shows “clear and unmistakable evidence” of an agreement to 7 delegate arbitrability when consumers are involved. 8 9 There is good reason not to extend this doctrine from commercial contracts between sophisticated parties to online click-through agreements crafted for consumers. While United States District Court For the Northern District of California 10 incorporation by reference is generally permissible under ordinary contract principles, see Williams 11 Constr. Co. v. Standard-Pacific Corp., 254 Cal. App. 2d 442, 454 (1967), incorporation of the 12 AAA rules does not necessarily amount to “clear and unmistakable” evidence of delegation, 13 particularly when the party asked to accept the agreement is a consumer. Indeed, the Supreme 14 Court held that by default, courts should decide arbitrability because the question of “who 15 (primarily) should decide arbitrability” is “rather arcane,” and “[a] party often might not focus 16 upon that question or upon the significance of having arbitrators decide the scope of their own 17 powers.” Kaplan, 514 U.S. at 945. The “clear and unmistakable” test thus established a 18 “heightened standard” to evince delegation. Rent-A-Center, 561 U.S. at 69 n.1. 4 19 The California Court of Appeal has expressed strong doubts about whether mere reference 20 to AAA rules provides adequate notice to an individual employee: “In our view, while the 21 incorporation of AAA rules into an agreement might be sufficient indication of the parties’ intent 22 in other contexts, we seriously question how it provides clear and unmistakable evidence that an 23 employer and an employee intended to submit the issue of the unconscionability of the arbitration 24 provision to the arbitrator, as opposed to the court.” Ajamian, 203 Cal. App. 4th at 790. Moreover, 25 4 26 27 28 The Supreme Court has not decided whether incorporation by reference of the AAA rules always meets this heightened standard. In Rent-A-Center, the employment arbitration agreement contained an express delegation provision, and the parties did not dispute the existence of the delegation provision. Therefore, Rent-A-Center did not address whether invocation of AAA rules effectively incorporates a delegation provision by reference, or whether such a provision would bind consumers. 19 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION “[t]here are many reasons for stating that the arbitration will proceed by particular rules, and doing 2 so does not indicate that the parties’ motivation was to announce who would decide threshold 3 issues of enforceability.” Id.; see also Patterson, 14 Cal. App. 4th at 1666 (“While [the National 4 Arbitration Forum]’s rules and fees might be fairly applied to business entities or sophisticated 5 investors and to claims for substantial dollar amounts, those same procedures become oppressive 6 when applied to unsophisticated borrowers of limited means in disputes over small claims.”); A & 7 M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 489 (1982) (noting that businessmen 8 generally have “substantially more economic muscle than the ordinary consumer”). Although 9 California law regarding arbitrability does not control here, the Court finds this reasoning 10 United States District Court For the Northern District of California 1 persuasive in the current context, particularly because California courts have indicated that 11 California and federal arbitrability law are congruent. See supra n.3. 12 In other contexts, courts have required specificity when incorporating external arbitration 13 rules to ensure adequate notice. For example, at least one other court in this district has refused to 14 apply Rule R-7(a) in a case involving franchise agreements where the “agreements themselves do 15 not quote this portion of Rule 7, nor do they even refer specifically to Rule 7.” Moody v. Metal 16 Supermarket Franchising Am., Inc., No. 13-CV-5098-PJH, 2014 U.S. Dist. LEXIS 31440, at *10 17 (N.D. Cal. Mar. 10, 2014). The Moody Court determined that a reference to the “then current 18 commercial arbitration rules of the AAA” was insufficient evidence of “clear and unmistakable” 19 intent to delegate arbitrability, contrasting this language with an express delegation provision. Id. 20 at *11. 5 21 In addition, a generic reference to the AAA rules does not necessarily incorporate all future 22 versions of the rules. In Gilbert Street Developers, LLC v. La Quinta Homes, LLC, the disputed 23 arbitration agreement incorporated the AAA rules, but the AAA rule delegating arbitrability did not 24 exist when the agreement was signed. 174 Cal. App. 4th 1185, 1189 (2009). The court refused to 25 5 26 27 28 Other courts in this district have analyzed this issue in different ways. See Bernal v. Sw. & Pac. Specialty Fin., Inc., No. 12-CV-05797-SBA, 2014 U.S. Dist. LEXIS 63338, at *14 (enforcing Rule R-7(a) in an online loan agreement); Crook v. Wyndham Vacation Ownership, Inc., No. 13CV-03669-WHO, 2013 U.S. Dist. LEXIS 160705, at *4, 16 (N.D. Cal. Nov. 8, 2013) (same, in a time share agreement); Kimble v. Rhodes Coll., Inc., No. 10-CV-05786-EMC, 2011 U.S. Dist. LEXIS 59628, at *7-8 (N.D. Cal. June 2, 2011) (same, in a college enrollment agreement). 20 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 enforce the delegation provision because the agreement merely incorporated “the possibility of a 2 future rule by reference.” Id. at 1193-94. Thus, courts have recognized that a plain recitation of 3 the AAA rules does not always suffice to delegate arbitrability, even between relatively 4 sophisticated parties. 5 Returning to the facts here, 23andMe’s arbitration provision does not amount to clear and unmistakable evidence of delegation. The agreement states only that “[a]ny Disputes shall be 7 resolved by final and binding arbitration under the rules and auspices of the American Arbitration 8 Association.” TOS § 28b. As explained above, 23andMe’s website provided minimal notice of the 9 TOS to customers. Critically, the arbitration provision contains no express delegation language, 10 United States District Court For the Northern District of California 6 and its mention of the “rules and auspices” of the AAA creates multiple ambiguities about which 11 rules ultimately apply. This language forces a customer to comprehend the import of the “rules 12 and auspices” of the AAA; locate those rules independently; determine that the AAA’s 13 Commercial Rules apply by operation of Rule R-1(a); and then specifically identify Rule R-7(a) to 14 learn of the delegation provision. The possibility that the Consumer Rules might also apply creates 15 an additional ambiguity. The problem is further compounded by the fact that the TOS purport to 16 bind users who are never asked to view the TOS and click “I ACCEPT.” For example, as noted 17 above, the TOS purport also to bind users who merely visit 23andMe’s website even if the user 18 lacks an account. See TOS §§ 1, 2, (states that users accept by “actually using the Services,” and 19 defining “Services” to include use of the website “regardless if the use is in connection with an 20 account or not”). 21 If it wanted to avoid any doubt about delegation, 23andMe certainly could have included 22 explicit delegation language, or simply reproduced or cited Rule R-7(a). For example, in Rent-A- 23 Center, the disputed arbitration agreement had an express delegation clause that stated: “‘[t]he 24 Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to 25 resolve any dispute relating to the interpretation, applicability, enforceability or formation of this 26 Agreement including, but not limited to any claim that all or any part of this Agreement is void or 27 voidable.’” 561 U.S. at 66. Although case law holds in the commercial context that express 28 language is not required for the AAA’s delegation rules to take effect, Oracle declined to extend 21 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 this result to consumers. 23andMe’s arbitration provision does not refer to Rule R-7(a), or even a 2 specific version of the Commercial Rules (as opposed to numerous other AAA rulesets). See 3 Moody, 2014 U.S. Dist. LEXIS 31440, at *10 (finding no delegation even where agreement 4 referred to “then current commercial” rules). Therefore, nothing puts consumers on notice that 5 such a vague reference in the arbitration provision demonstrates their “clear and unmistakable” 6 intent to delegate arbitrability to an arbitrator. 7 Some jurisdictions have held that incorporation of the AAA rules in a consumer arbitration 8 agreement satisfies the “clear and unmistakable” test for a delegation provision. In Fallo v. High- 9 Tech Institute, students sued their for-profit vocational school, which sought to enforce an United States District Court For the Northern District of California 10 arbitration agreement that incorporated the AAA Commercial Rules. 559 F.3d 874, 877 (8th Cir. 11 2009). The Eighth Circuit held that reference to the AAA rules effectively incorporated Rule R- 12 7(a)’s delegation provision. Id. at 878. However, Fallo is not binding authority and was decided 13 before the Ninth Circuit’s Oracle decision. Moreover, in Oracle, the Ninth Circuit cited Fallo 14 when surveying authority from other Circuits; nonetheless, the Ninth Circuit declined to follow 15 Fallo and declined to extend the Oracle holding to consumers. See 724 F.3d at 1074. If the Ninth 16 Circuit had found Fallo dispositive in the consumer context, the Ninth Circuit would not have left 17 open the question of whether incorporation of AAA rules delegates arbitrability to an arbitrator. 18 Id. at 1075 n.2. 19 23andMe argues that two of this Court’s previous decisions compelling arbitration of 20 arbitrability control the outcome here. See Mot. at 7. However, neither case involved consumer 21 contracts, and both pre-date Oracle. In Guidewire Software, Inc. v. Chookaszian, this Court 22 addressed an arbitration clause in a letter agreement for a corporate board member to purchase 23 stock options, finding a delegation provision incorporated by reference. No. 12-CV-03224-LHK, 24 2012 WL 5379589 (N.D. Cal. Oct. 31, 2012). In reaching its holding, this Court relied exclusively 25 on precedent involving arbitration agreements in commercial contract disputes. See id. at *4. In 26 Yahoo! Inc. v. Iversen, this Court held that an employment agreement’s reference to “the then 27 current American Arbitration Association (‘AAA’) National Rules for the Resolution of 28 Employment Disputes” effectively incorporated a delegation provision requiring an arbitrator to 22 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 decide arbitrability. 836 F. Supp. 2d 1007, 1009 (N.D. Cal. 2011). Guidewire and Yahoo! did not 2 address the consumer context and were issued before the Ninth Circuit in Oracle explicitly left 3 open the question of whether the principle that incorporation of AAA rules “clearly and 4 unmistakably” delegates arbitrability to an arbitrator should apply to consumers. 5 For the foregoing reasons, the Court determines in this case that 23andMe’s arbitration provision fails to provide clear and unmistakable proof that the parties agreed to delegate 7 arbitrability. Because the purported delegation provision is ineffective, the Court need not reach 8 the parties’ remaining arguments regarding the delegation provision. Accordingly, the Court must 9 decide questions of arbitrability. 10 United States District Court For the Northern District of California 6 3. Unconscionability 11 Plaintiffs’ remaining defense to arbitration is that the arbitration provision is 12 unconscionable under California law. See Opp’n at 18-24. As explained above, California 13 contract law governs such defenses to arbitration agreements. 6 “[T]he core concern of 14 unconscionability doctrine is the absence of meaningful choice on the part of one of the parties 15 together with contract terms which are unreasonably favorable to the other party.” Sonic- 16 Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 1145 (2013) (quotations and citations omitted). 17 “[T]he party opposing arbitration bears the burden of proving any defense, such as unconscion- 18 ability.” Pinnacle Museum Tower Ass’n v. Pinnacle Market Dev. (US), LLC, 55 Cal. 4th 223, 236 19 (2012). For unconscionability, California requires a showing of both procedural and substantive 20 unconscionability, balanced on a sliding scale. See Patterson, 14 Cal. App. 4th at 1664 (noting 21 analytical approaches to unconscionability). The Court examines both prongs of unconscionability 22 and determines that overall, the arbitration provision is not unconscionable. 23 As an initial matter, 23andMe claims that any TOS provisions outside the arbitration 24 provision are irrelevant to unconscionability because they are not part of the arbitration provision 25 itself. See Reply at 6; Mot. at 10. The Supreme Court has held that “unless the challenge is to the 26 arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first 27 6 28 There are multiple cases pending before the California Supreme Court that may affect California’s law on enforceability of arbitration agreements. See Tiri, 226 Cal. App. 4th at 243 n.6. 23 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 instance.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46 (2006); see also Rent- 2 A-Center, 561 U.S. at 71 (“we nonetheless require the basis of challenge to be directed specifically 3 to the agreement to arbitrate before the court will intervene”). California has followed this 4 principle, requiring “a focused challenge to the arbitration provision.” Phillips v. Sprint PCS, 209 5 Cal. App. 4th 758, 774 (2012). Accordingly, the Court considers only arguments that apply to the 6 arbitration provision. 7 8 9 a. Procedural Unconscionability Plaintiffs contend that the arbitration provision is procedurally defective because it is buried at the end of the TOS, 23andMe did not provide customers a copy of the AAA rules, and the TOS United States District Court For the Northern District of California 10 give 23andMe the ability to modify the terms unilaterally. See Opp’n at 19-20. 23andMe 11 disagrees, arguing that the arbitration provision “was not hidden or difficult to understand,” and 12 that customers had a choice of other DNA services. Reply at 8-10. After weighing these 13 arguments, the Court concludes that the provision is procedurally unconscionable. 14 “Unconscionability analysis begins with an inquiry into whether the contract is one of 15 adhesion.” Armendariz, 24 Cal. 4th at 113. An adhesive contract “signifies a standardized 16 contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the 17 subscribing party only the opportunity to adhere to the contract or reject it.” Id. (citation omitted). 18 “If the contract is adhesive, the court must then determine whether other factors are present which, 19 under established legal rules—legislative or judicial—operate to render it unenforceable.” Id. 20 (quotation and citation omitted). California courts also examine the factors of “surprise” and 21 “oppression.” “The procedural element of unconscionability . . . focuses on two factors: 22 oppression and surprise. Oppression arises from an inequality of bargaining power which results in 23 no real negotiation and an absence of meaningful choice. Surprise involves the extent to which the 24 supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the 25 party seeking to enforce the disputed terms.” Tiri, 226 Cal. App. 4th at 245 (quotations and 26 citations omitted); see also id. at 245 n.8 (noting interplay of adhesion and unconscionability). 27 Under California law, 23andMe’s arbitration provision is procedurally unconscionable. As 28 explained above, 23andMe’s website provides minimal notice of the TOS to customers. Under the 24 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 TOS, the arbitration provision supposedly binds any user who visits 23andMe’s website or 2 purchases a DNA kit—even though the website does not require those users to acknowledge the 3 TOS. Customers who purchase DNA kits have only a 60-minute window to cancel their orders and 4 receive a full refund. By the time those customers create accounts and register their DNA kits— 5 when 23andMe first requires them to acknowledge the arbitration provision—they have already 6 paid 23andMe, and the cancellation period may have long expired. Furthermore, even if customers 7 locate and click a hyperlink to the TOS, they must hunt for the arbitration provision because the 8 terms appear at the very end of the TOS as a subparagraph to the final section titled 9 “Miscellaneous.” See TOS § 28. A customer who notices the provision’s reference to the “rules United States District Court For the Northern District of California 10 and auspices of the American Arbitration Association” must still determine the scope of the 11 provision by searching for those rules, ascertain that the Commercial Rules apply, determine that 12 the Consumer Rules may or may not apply (depending on the AAA’s discretion), and identify any 13 objectionable provisions. This opaque arrangement undermines 23andMe’s characterization of the 14 arbitration provision as “not hidden or difficult to understand.” 15 These facts render the arbitration provision procedurally unconscionable. The arbitration 16 provision is a contract of adhesion because it is a standardized clause drafted by 23andMe (who has 17 superior bargaining strength relative to consumers) and presented as a take-it-or-leave-it 18 agreement, giving consumers no opportunity to negotiate any terms. See Gutierrez v. Autowest, 19 Inc., 114 Cal. App. 4th 77, 89 (2003) (finding similar terms in consumer car leases indicative of 20 adhesion). The arbitration provision also involves substantial surprise and oppression. Customers 21 received minimal notice of the arbitration provision, and only after handing over their money. 22 Where an arbitration provision is part of a larger contract, California courts have relied on the 23 degree of notice surrounding the contract to assess the procedural unconscionability of the 24 arbitration provision. E.g., Ajamian, 203 Cal. App. 4th at 796 (“The finding that the arbitration 25 provision was part of a nonnegotiated employment agreement establishes, by itself, some degree of 26 procedural unconscionability.” (emphasis added)). 27 28 23andMe’s arguments are unconvincing. 23andMe contends that the arbitration provision cannot be procedurally unconscionable because the named Plaintiffs actually agreed to the TOS. 25 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 See Reply at 8-9. This conflates the requirements for contract formation with the question of 2 unconscionability. “A contract term may be held to be unconscionable even if the weaker party 3 knowingly agreed to it.” Bruni v. Didion, 160 Cal. App. 4th 1272, 1289 (2008) (overruled on other 4 grounds). If 23andMe were correct that notice is “legally irrelevant” to procedural unconscion- 5 ability when the customer in fact agrees (Reply at 8), then no disputed agreement could ever be 6 procedurally unconscionable. Next, 23andMe claims Plaintiffs “had meaningful market 7 alternatives” because there are other DNA testing services. Id. at 8 & n.11. However, the court in 8 Gutierrez rejected a similar argument that “alternative sources of vehicles were available” because 9 “no evidence was introduced below that other dealers offered automobile lease contracts without United States District Court For the Northern District of California 10 similar arbitration provisions.” 114 Cal. App. 4th at 89 n.8 (emphasis added); see also Dean 11 Witter Reynolds v. Sup. Ct., 211 Cal. App. 3d 758, 772 (1989) (referring to “reasonably available 12 alternative sources of supply from which to obtain the desired goods and services free of the terms 13 claimed to be unconscionable” (emphasis added)). 23andMe has not shown that the available 14 alternative services did not also mandate arbitration. 15 The parties’ remaining arguments provide little guidance here. Plaintiffs claim that 16 23andMe’s failure to provide the AAA rules contributes to procedural unconscionability. See 17 Opp’n at 20. However, California courts are divided on this issue. See Lane v. Francis Capital 18 Mgmt. LLC, 224 Cal. App. 4th 676, 690-92 (2014) (collecting cases); Tiri, 226 Cal. App. 4th at 246 19 n.9 (declining to resolve “whether the failure to attach the AAA rules supports a finding of 20 procedural unconscionability”). Plaintiffs also note that Sections 26 and 28h of the TOS allow 21 23andMe to unilaterally modify the arbitration provision. See Opp’n at 20. Because those 22 provisions are not specific to arbitration, an arbitrator should address them. See Phillips, 209 Cal. 23 App. 4th at 774. Even setting aside these arguments, the Court concludes that the arbitration 24 provision was procedurally unconscionable. 25 b. Substantive Unconscionability 26 The arbitration provision must also be substantively unconscionable to be deemed 27 unenforceable. Substantive unconscionability arises when a provision is so “overly harsh or one- 28 sided” that it falls outside the “reasonable expectations” of the non-drafting party. See Gutierrez, 26 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 114 Cal. App. 4th at 88 (quoting Armendariz, 24 Cal. 4th at 113-14). It is not enough that the 2 terms are slightly one-sided or confer more benefits on a particular party; a substantively 3 unconscionable term must be so unreasonable and one-sided as to “shock the conscience.” Am. 4 Software, Inc. v. Ali, 46 Cal. App. 4th 1386, 1391 (1996); see also Malone v. Sup. Ct., No. 5 B253891, 2014 Cal. App. LEXIS 524, at *13-14 (June 17, 2014). The Court finds that, although 6 Plaintiffs have established substantial procedural unconscionability, the terms of the arbitration 7 provision as a whole are not substantively unconscionable. 8 9 Plaintiffs focus on five arguments: the choice of 23andMe’s headquarters (San Francisco) as the arbitration forum; a carve out for any claims by 23andMe, including intellectual property United States District Court For the Northern District of California 10 claims; a shortened statute of limitations; 23andMe’s right to alter or terminate the arbitration 11 provision without consent or notice; and limitations on the legal remedies available to consumers. 12 See Opp’n at 22-23. The Court addresses these in turn and finds that the terms are not so unduly 13 harsh or one-sided that they are substantively unconscionable. 14 Forum selection: The Court disagrees with Plaintiffs’ argument that the choice of San 15 Francisco, California places too heavy a burden on consumers. The Ninth Circuit has held that 16 requiring arbitration “at the location of a defendant’s principal place of business” is “presumptively 17 enforceable.” Polimaster Ltd. v. RAE Sys., Inc., 623 F.3d 832, 837 (9th Cir. 2010). California 18 courts have also held that a forum selection clause should be given effect so long as the choice is 19 reasonable and has “some logical nexus to one of the parties or the dispute.” Am. Online, Inc. v. 20 Sup. Ct., 90 Cal. App. 4th 1, 11-12 (2001) (confirming that “California favors contractual forum 21 selection clauses so long as they are entered into freely and voluntarily, and their enforcement 22 would not be unreasonable”); see also Intershop Commc’ns, AG v. Sup. Ct., 104 Cal. App. 4th 191, 23 196 (2002). Here, 23andMe is headquartered in Northern California. Although Plaintiffs are a 24 dispersed putative class from across the country who purchased PGS online, they have failed to 25 prove that arbitrating in San Francisco “will be so gravely difficult and inconvenient that the 26 resisting party will for all practical purposes be deprived of his day in court.” Mitsubishi, 473 U.S. 27 at 632. Forum selection clauses are ubiquitous in online contracts and have the economic benefits 28 of “favoring both merchants and consumers, including reduction in the costs of goods and services 27 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 and the stimulation of e-commerce.” Am. Online, 90 Cal. App. 4th at 12. Additionally, Plaintiffs 2 filed six of the nine related cases in California and voluntarily transferred all cases to San Jose, 3 California. Other plaintiffs with similar claims initiated three arbitration proceedings with the 4 AAA in San Francisco. The fact that numerous plaintiffs chose to assert their claims in Northern 5 California suggests that the stated forum is not overly burdensome or unreasonable. 6 Plaintiffs rely on Comb v. PayPal Inc. to contest the forum-selection clause. 218 F. Supp. 7 2d at 1177. PayPal involved a substantively unconscionable contract that mandated arbitration in 8 Santa Clara County, California. However, the court cited forum selection as only one among 9 multiple factors that contributed to substantive unconscionability (including the inability of United States District Court For the Northern District of California 10 customers to join or consolidate their claims, which is not at issue here), while acknowledging that 11 “forum selection clauses generally are presumed prima facie valid” under California law. Id. The 12 plaintiffs there also presented specific information regarding the costs of arbitration. See id. at 13 1176. In this case, given the presumption that forum selection clauses are enforceable, the reality 14 that multiple claims may require arbitration in a common location, and the lack of specific 15 evidence regarding Plaintiffs’ likely costs of arbitrating in San Francisco (particularly relative to 16 the costs of litigating in federal court in San Jose), the Court cannot say that San Francisco lacks 17 any “logical nexus to one of the parties or the dispute.” Am. Online, 90 Cal. App. 4th at 12; see 18 also King v. Hausfeld, No. 13-CV-00237-EMC, 2013 WL 1435288, at *15 (N.D. Cal. Apr. 9, 19 2013) (“Given the location of the firm’s headquarters, there is a rational basis for selecting a 20 Washington, D.C. forum.”). 21 Restrictions on claims: Plaintiffs’ second assertion—that the arbitration restrictions do not 22 apply to any claims by 23andMe—is unavailing. Plaintiffs posit that the phrase “any disputes with 23 23andMe” includes only claims against 23andMe, so that 23andMe’s affirmative claims are not 24 subject to arbitration. This argument is baseless. The arbitration provision plainly applies equally 25 to both parties, and 23andMe does not take the position that this clause is a one-way street. See, 26 e.g., Bigler v. Harker Sch., 213 Cal. App. 4th 727, 737-38 (2013) (rejecting argument that “‘any 27 dispute involving the School’” was a nonmutual restriction). Contrary to Plaintiffs’ contention, the 28 arbitration provision is distinguishable from the improper agreement in Armendariz that exempted 28 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 claims by an employer. See 24 Cal. 4th at 92, 120 (“I agree as a condition of my employment, that 2 in the event my employment is terminated, and I contend that such termination was wrongful . . . .” 3 (emphasis added)). Plaintiffs also argue that the exclusion for intellectual property disputes 4 (“Except for any disputes relating to intellectual property disputes”) unfairly favors 23andMe. As 5 explained above, the TOS allows consumers to retain certain intellectual property rights to their 6 genetic and self-reported information. See TOS §§ 9, 13. Therefore, consumers may avail 7 themselves of the carve out for intellectual property disputes. 8 Limitations period and unilateral modification: Plaintiffs’ third and fourth arguments depend on contract provisions outside the arbitration provision: the one-year limitations period 10 United States District Court For the Northern District of California 9 (TOS § 28d), and 23andMe’s ability to “modify, supplement or replace” the terms unilaterally 11 (TOS §§ 26, 28h). However, these provisions are separate from the arbitration provision, and 12 Plaintiffs have not shown how those clauses specifically render the arbitration provision 13 substantively unconscionable. See Buckeye, 546 U.S. at 445-46; Phillips, 209 Cal. App. 4th at 774. 14 Fees and costs: Finally, Plaintiffs argue that the agreement unfairly restricts consumers’ 15 available remedies because of a fee-shifting provision. See TOS § 28b (“with arbitration costs and 16 reasonable documented attorneys’ costs of both parties to be borne by the party that ultimately 17 loses”). Plaintiffs argue that this “loser pays” provision disproportionately affects Plaintiffs’ costs 18 of arbitration. However, 23andMe represents that it has formally waived any right to recover 19 attorneys’ fees and costs at the request of the AAA. See Reply at 11. 7 Accordingly, the Court 20 declines to consider whether or not this provision is substantively unconscionable. 21 The Court has considered the parties’ remaining arguments and identifies no additional 22 basis for substantive unconscionability. Plaintiffs challenge the costs of arbitration and the fairness 23 of AAA discovery rules. See Opp’n at 21; Reply at 11-12. For purposes of this motion, the Court 24 accepts Plaintiffs’ assertion that the filing fee is $975 under the AAA Commercial Rules. 25 However, Plaintiffs fail to show that this fee “shocks the conscience,” particularly relative to 26 7 27 28 A district court has found that as long as fee-shifting provisions apply equally to both parties, as is the case here, the term is enforceable. See King, 2013 WL 1435288, at *18 (“[T]he point of a fee shifting clause is that if Plaintiff’s claim proves meritorious, his fees would be reimbursed by Defendant. The clause could thus facilitate his ability to vindicate his rights.” (emphasis in original)). 29 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION litigation expenses. Rather, Plaintiffs rely on cases where arbitration fees were orders of 2 magnitude higher. See Gutierrez, 114 Cal. App. 4th at 89-91 (administrative fee of $8,000 3 exceeded plaintiffs’ ability to pay); Parada, 176 Cal. App. 4th at 1581 (“To arbitrate a claim, each 4 party thus would have to pay at least $20,800, and would have to deposit that amount before the 5 arbitration hearing.”). Plaintiffs also fail to show that any discovery limitations would impose a 6 great hardship here. See Coast Plaza Doctors Hosp. v. Blue Cross of Cal., 83 Cal. App. 4th 677, 7 689 (2000) (“We are not aware of any case that has ever held that an arbitration provision is 8 substantially unconscionable merely because a party’s discovery rights are limited in arbitration.”). 9 Additionally, Plaintiffs suggest that the delegation provision incorporated from Rule R-7(a) is 10 United States District Court For the Northern District of California 1 substantively unconscionable under California law. See Opp’n at 7-8. Plaintiffs rely on two 11 California cases that rejected arbitration agreements as unconscionable to the extent they purported 12 to delegate arbitrability via incorporation of the AAA rules. See Murphy v. Check ‘N Go of Cal., 13 Inc., 156 Cal. App. 4th 138, 145 (2007); Ontiveros v. DHL Express (USA), Inc., 164 Cal. App. 4th 14 494, 508 (2008). To the extent Plaintiffs contend that the delegation provision contributes to the 15 unconscionability of the entire arbitration provision, those arguments are misplaced. The 16 California Court of Appeal has recently acknowledged that intervening Supreme Court precedent 17 has overruled Murphy and Ontiveros. See Tiri, 226 Cal. App. 4th at 248-49; Malone, 2014 Cal. 18 App. LEXIS 524, at *32-33. 19 For these reasons, the Court concludes that the arbitration provision is not substantively 20 unconscionable. Therefore, while the arbitration provision is procedurally defective, Plaintiffs 21 have not met their burden to demonstrate that the provision is both procedurally and substantively 22 unconscionable, as California law requires. Accordingly, the Court enforces the arbitration 23 provision and grants 23andMe’s motion. 24 C. Stay or Dismiss 25 When arbitration is mandatory, courts have discretion to stay the case under 9 U.S.C. § 3 or 26 dismiss the litigation entirely. See Sparling v. Hoffman Constr. Co., 864 F.2d 635, 638 (9th Cir. 27 1988); see also Hopkins & Carley, ALC v. Thomson Elite, No. 10-CV-05806-LHK, 2011 U.S. Dist. 28 LEXIS 38396, at *28 (N.D. Cal. Apr. 6, 2011) (“Where an arbitration clause is broad enough to 30 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION 1 cover all of a plaintiff’s claims, the court may compel arbitration and dismiss the action.”). 2 23andMe has requested dismissal of all claims and does not object to Plaintiffs joining the existing 3 arbitration proceedings. See Mot. at 11-12. Plaintiffs are silent as to whether a stay or dismissal 4 would be appropriate. 5 This Court has previously stayed litigation pending arbitration—instead of dismissing—by 6 agreement of the parties in light of potential concerns about statutes of limitation. Hopkins & 7 Carley, 2011 U.S. Dist. LEXIS 38396, at *28-29. Because the parties have identified no such 8 concerns here, and dismissal would render this decision immediately appealable (see MediVas, 9 LLC v. Marubeni Corp., 741 F.3d 4, 7 (9th Cir. 2014) (“[A]n order compelling arbitration may be United States District Court For the Northern District of California 10 appealed if the district court dismisses all the underlying claims, but may not be appealed if the 11 court stays the action pending arbitration.”)), the Court concludes that dismissal is appropriate. 12 IV. 13 CONCLUSION For the foregoing reasons, the Court GRANTS Defendant’s Motion to Compel Arbitration 14 and dismisses all claims without prejudice. The Clerk shall close the following case files: Nos. 15 5:13-CV-05682-LHK, 5:14-CV-00294-LHK, 5:14-CV-00429-LHK, 5:14-CV-01167-LHK, 5:14- 16 CV-01191-LHK, 5:14-CV-01258-LHK, 5:14-CV-01348-LHK, and 5:14-CV-01455-LHK. 17 IT IS SO ORDERED. 18 Dated: June 25, 2014 _________________________________ LUCY H. KOH United States District Judge 19 20 21 22 23 24 25 26 27 28 31 Case No.: 13-CV-05682-LHK ORDER GRANTING OMNIBUS MOTION TO COMPEL ARBITRATION

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