Judge: Joseph Lipner, Case: 24STCV09276, Date: 2024-12-03 Tentative Ruling

Case Number: 24STCV09276    Hearing Date: December 3, 2024    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

            Defendants Tapestry, Inc., Kate Spade LLC, and Coach Services, Inc. move for an order compelling Plaintiff to submit her claims to arbitration and dismissing this action.

            The Court DENIES Defendants’ motion.

Background

            Plaintiff Leslie Cruz (“Plaintiff”) filed this action against defendants Tapestry Inc., Kate Spade LLC, and Coach Services, Inc. (“Defendants”) on April 12, 2024 for (1) unfair competition (Bus. & Prof. Code, § 17200 et seq.) and (2) false advertising (Bus. & Prof. Code, § 17500 et seq.).

            Defendants Kate Spade LLC and Coach Services, Inc. are wholly owned subsidiaries of defendant Tapestry, Inc.; together, the former two act as operating subsidiaries for the latter’s “Kate Spade Outlet” website and stores. (Compl., ¶¶ 12-14.) Plaintiff is or was one of Defendants’ customers. (Id., ¶ 11.)

            Plaintiff alleges Defendants “inundate[ ]” customers at their stores and website with “signs advertising percentage discounts off the ticketed price of merchandise”. (Compl., ¶ 4.) Defendants describe their sale prices as percentage reductions from a “reference price”. (Id., ¶ 17.) Plaintiff contends the advertised sale reductions are misleading because Defendants’ “reference prices” are false; “the merchandise is never (or almost never) offered for sale at the reference price”. (Id., ¶ 18.) As a result, the percentage sale discounts that Defendants advertise are falsely inflated.

            As to herself specifically, Plaintiff alleges she purchased merchandise through the Kate Spade Outlet website on February 2, 2024 and March 4, 2024; both of her purchases suffered from the same false advertising scheme she alleges generally in her complaint. (Id., ¶¶ 34-37.)

            Plaintiff prays for “restitution and disgorgement of all unjust enrichment that Defendants obtained from Plaintiff as a result of their unlawful, unfair, and fraudulent business practices and their false advertising[.]” (Id., 12:21-23.)

            On July 10, 2024, Defendants moved to compel arbitration and dismiss Plaintiffs’ claims against them. On August 15, 2024, Plaintiff filed her opposition. On September 19, 2024, Defendants replied.

Defendants filed supplemental evidence along with their reply papers, and Plaintiff filed objections to that evidence that Defendants contend amount to an improper sur-reply. Given the lapse of time between those filings and the hearing, the Court considers all evidence and argument submitted by both parties.

Evidentiary Matters and Supplemental Filings

            In support of their reply, Defendants request judicial notice of screen captures from the Kate Spade Outlet and Coach Outlet websites. Defendants have also introduced responses to Limited Special Interrogatories they propounded pursuant to the parties’ stipulation on August 16, 2024. Plaintiff objects to both.

            The Court grants the request for judicial notice and overrules Plaintiff’s objections. Plaintiff had sufficient opportunity to respond to the proposed noticed materials, which were submitted on September 19, 2024. Also, Defendants propounded their Interrogatories according to a stipulation that clearly contemplates Defendants using the responses in support of their reply.

            In their responses to Plaintiff’s objections, Defendants characterize the objections as an improper sur-reply on the merits. The Court considers all arguments on the merits (including also the “brief response” Defendants raise in their response to Plaintiffs’ objections, which might reasonably be characterized as a reply to Plaintiff’s sur-reply). The admission of Defendants’ late filings relies on Plaintiff’s opportunity to respond to newly introduced evidence and argument; the Court similarly permits Defendants a final opportunity to reply.

Legal Standard

            Under California and federal law, public policy favors arbitration as an efficient and less expensive means of resolving private disputes. (Moncharsh v. Heily & Blasé (1992) 3 Cal.4th 1, 8-9 (Moncharsh); AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.) Accordingly, whether an agreement is governed by the California Arbitration Act or the Federal Arbitration Act, courts resolve doubt about an arbitration agreement’s scope in favor of arbitration. (Moncharsh, supra, 3 Cal.4th at p. 9.)

            The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence.  (Engalla, supra, 15 Cal.4th 951, 972.)  A petition to compel arbitration must allege both a “written agreement to arbitrate” the controversy, and that a party to that agreement “refuses to arbitrate” the controversy. (Code Civ. Proc. § 1281.2.) It then becomes plaintiff’s burden, in opposing the motion, to prove by a preponderance of the evidence any fact necessary to her opposition. (Ibid.)

Discussion

            Defendants have not established Plaintiff assented to the arbitration agreement.

            The parties are primarily occupied with the first question posed by section 1281.2: whether the parties executed an arbitration agreement at all.

            Defendant contends Plaintiff agreed to the “Terms of Use” for Defendants’ website when Plaintiff made her purchase. The Terms of Use contain an agreement to arbitrate all claims arising from use of the website. Plaintiff does not dispute that her claims arise from her use of the website, but she denies that she consented to the arbitration agreement that appears in the Terms of Use.

“ ‘Contracts formed on the Internet come primarily in two flavors: “clickwrap” (or “click-through”) agreements, in which website users are required to click on an “I agree” box after being presented with a list of terms and conditions of use; and “browsewrap” agreements, where a website's terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen.’ [Citation.]” (Long v. Provide Commerce, Inc. (2016) 245 Cal.App.4th 855, 862.) “In most instances, the contractual terms [in a clickwrap agreement a]re not actually displayed on the same screen as the ‘ “I accept’ ” button, but [a]re instead provided via a hyperlink that, when clicked, [takes] the user to a separate page displaying the full set of terms.” (Sellers v. JustAnswer LLC (2021) 73 Cal.App.5th 444, 463 (Sellers).) “Clickwrap” and “browsewrap” fall on a broader spectrum of “ ‘wrap’ methods of online contract-formation provid[ing] varying degrees of notice to users”, browsewrap providing the least notice and a third method, “scrollwrap”, providing the most. (B.D. v. Blizzard Entertainment (2022) 74 Cal.App.5th 931, 946. (Blizzard).)

Here, in order to place her orders, Plaintiff navigated through several payment screens, arriving finally at a large pink button with white lettering reading “PLACE MY ORDER >>”. (Bopp Decl., Exh. B, p. 5.) Immediately underneath the button, there is a line of gray text approximately a quarter of the button’s size. (Ibid.) That text reads, “BY CLICKING SUBMIT YOUR ORDER, YOU ARE AGREEING TO OUR TERMS OF USE AND PRIVACY POLICY.” (Ibid.) The words “terms of use” and “privacy policy” are underlined because they are hyperlinks to the relevant documents. (Ibid.) Neither hyperlink is highlighted in a different color from the surrounding text. (Ibid.)

The courts’ inquiry into the formation of “wrap” agreements is heavily informed by the circumstances of the parties’ transaction. “ ‘[B]ecause the threshold issue of the existence of a contract is for the courts to decide, the issue of conspicuousness is typically characterized as a question of law.’ (Sellers, supra, 73 Cal.App.5th at p. 473 . . . .) But in deciding this issue, courts are actually undertaking ‘a fact-intensive inquiry’ of ‘largely subjective’ criteria, such as the size, color, contrast, and location of any text notices; the obviousness of any hyperlinks; and overall screen ‘clutter.’ ” (Blizzard, supra, 76 Cal.App.5th, at pp. 946-947.)

To evaluate whether the terms of a clickwrap agreement are sufficiently conspicuous, “the transactional context is an important factor to consider and is key to determining the expectations of a typical consumer.” (Sellers, supra, 73 Cal.App.5th, at p. 481.)

Blizzard, supra, is particularly instructive here. The Court of Appeal there reversed a trial court’s order denying the defendant’s motion to compel arbitration. It discussed the most relevant precedent, Sellers, at length, and it enumerated the facts justifying its ruling in great detail.

In Blizzard, the Court examined not a clickwrap agreement, but a “sign-in wrap agreement” – that is, the plaintiff there signed up “ ‘for an ongoing account and, thus, it [was reasonable] to expect that the typical consumer in that type of transaction contemplates entering into a continuing, forward-looking relationship’ governed by terms and conditions.” (Blizzard, supra, 76 Cal.App.5th, at p. 951, italics added, quoting Sellers, supra, 73 Cal.App.5th, at p. 471.)

The enforceable agreement in Blizzard “consisted primarily of a scrollable text box that contained the entire … License Agreement[, so] users did not need ‘ “to ferret out hyperlinks to terms and conditions.” ’ ” (Id., at p. 951.) The agreement was in white text against a black background, and “advised users to ‘CAREFULLY READ TH[E] agreement,’ and admonished that they ‘MAY NOT INSTALL OR OTHERWISE ACCESS THE PLATFORM’ if they ‘DO NOT AGREE WITH ALL OF THE TERMS OF TH[E] AGREEMENT.’ ” (Ibid., bracketing in original, emphasis omitted.)

Given these circumstances, the Court found the sign-in wrap agreement sufficient to incorporate the terms of use, citing “ ‘[t]he general rule is that the terms of an extrinsic document may be incorporated by reference in a contract so long as (1) the reference is clear and unequivocal, (2) the reference is called to the attention of the other party and he consents thereto, and (3) the terms of the incorporated document are known or easily available to the contracting parties.’ (DVD Copy Control Assn., Inc. v. Kaleidescape, Inc. (2009) 176 Cal.App.4th 697, 713 … .)” (Blizzard, supra, at p. 952.) The defendant in Blizzard satisfied the standard because (1) the hyperlink to the parties’ agreement was “a blue, underlined hyperlink”, and (2) the relevant section “unequivocally refer[red] to the Dispute Resolution Policy by name and call[ed] it to the parties’ attention.” (Blizzard, supra, 76 Cal.App.5th, at p. 952.) And, as noted, the character of the “sign-in” agreement in Blizzard was such that a consumer might expect a term that governed the disposition of the parties’ future disputes.

None of the facts in Blizzard are present here. There was no scrollable text box in the parties’ Agreement. The transaction is a clickwrap agreement applicable to a single purchase-and-sale transaction; the Agreement did not create an ongoing relationship. The hyperlink to the Terms of Use was gray, against a white background. The notice simply alerted customers that they were “agreeing to our terms of use”, without further admonition or description.

“ ‘ “[T]he onus must be on website owners to put users on notice of the terms to which they wish to bind consumers.” ’ [Citation.]” (Herzog v. Superior Court (2024) 101 Cal.App.5th 1280, 1302 [distinguishing Blizzard].) Here, Defendant had the option to place its Terms and Conditions in larger format, or more obvious text, or to call customers’ attention to the fact it contained an arbitration agreement. Instead, they underlined three words in faint text beneath a “purchase” button four times larger than the notice, on a page heavily cluttered with other payment information.

            Defendants rely on two arguments.

First, Defendants cite federal case law (much of it unpublished) to insist the Court rule in its favor. But for purposes of an arbitration provision, contract formation is governed by State law. (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 173.) Blizzard is the controlling California case, and it is on point. Even if federal precedents suggest a different result – and the Court is not convinced they do – this Court’s rulings are governed by California law.

Second, Defendants stress Plaintiff’s ongoing relationship with Kate Spade and Coach, insisting, in effect, that she should have known about the Terms of Use because she purchased goods from them often. But the frequency of Plaintiffs’ purchases are irrelevant. The question for the Court is whether a typical consumer, in the abstract, would expect to be bound by an arbitration agreement in the Terms of Use. Plaintiff bases her claim here on a pure “clickwrap” agreement attached to a single purchase-and-sale transaction. Regardless how many of these transactions Plaintiff executed, a reasonable consumer would not expect to be bound by stricter ongoing terms simply because they conducted successive transactions.

            Plaintiff’s responses to Defendants’ Limited Interrogatories, admitted into evidence, only go to show that she had an ongoing relationship with Defendants in a general sense. The Court is not persuaded that this ongoing relationship, assuming it is established by the Interrogatories, is sufficient to show that the arbitration agreements in the Terms of Use governed the particular transactions in question.

            Defendants have failed to establish Plaintiff assented to the arbitration agreement contained within the Terms of Use. They have failed to carry their threshold burden, and their motion must be denied.

The formation of the arbitration agreement has not been delegated to the arbitrator.

Defendants contend a delegation provision in the JAMS rules, incorporated by reference into the Terms of Use, requires the Court to submit the question of mutual assent ot the arbitrator. The Court disagrees.

“ ‘[W]hen parties have agreed to arbitration, challenges to the validity of the underlying contract [(as opposed to challenges to the agreement to arbitrate)], including contract defenses such as fraud in the inducement or illegality, are for the arbitrator to decide.’ [Citation.] ‘However, challenges to the validity of the arbitration clause itself are generally resolved by the court in the first instance.’ [Citation.] This is because the usual presumption is that a court, not an arbitrator, decides threshold issues of arbitrability such as whether the arbitration agreement itself is valid and enforceable. [Citations.]” (Jack v. Ring LLC (2023) 91 Cal.App.5th 1186, 1196-1197.)

Defendants have failed to establish the validity of the arbitration clause itself. This is a question properly resolved by the Court.

Plaintiff’s argument regarding injunctive relief.

Plaintiff also argues the arbitration agreement cannot be enforced because it does not permit Plaintiff to seek public injunctive relief if the dispute is referred to arbitration. Because Defendants’ motion fails on other grounds, the Court need not decide the question.