Judge: Mark H. Epstein, Case: 23SMCV00920, Date: 2023-09-13 Tentative Ruling

Case Number: 23SMCV00920    Hearing Date: March 19, 2024    Dept: I

This is a motion to compel arbitration.  Plaintiff was injured on a scooter rented from defendant.  Plaintiff asserts a problem with the scooter.  Defendant moved to compel arbitration pursuant to a clause defendant contends is in the scooter rental agreement.  More specifically, defendant states that in order to rent a scooter, the user must create an account and that the account documents include an arbitration provision.  Defendant asserts that such is the case here—plaintiff had to download the app and create the account and, as part of that process, plaintiff had to agree to the arbitration provision.  

Plaintiff opposes the motion noting that the arbitration provision requires that the arbitration be under the JAMS auspices and take place in Tippecanoe County, Indiana—a location where there is no JAMS office.  According to plaintiff, the arbitration provision is in small type and hidden and that it is void because of the lack of a JAMS office and also unconscionable due to the small type and the distant location.  Plaintiff further argues that defendant waived arbitration by not attempting to resolve the case in good faith prior to litigation, which is a prerequisite to arbitration under the contract.  Finally, plaintiff contends that he never agreed to the arbitration provision and has no recollection of agreeing to anything through an app.

The matter was called for hearing on February 2, 2024.  At that time, the court continued the hearing because it was unclear whether plaintiff had in fact agreed to the arbitration provision.  Whether there is a valid arbitration contract is always a question for the court in the first instance.  It could be that questions whether a particular dispute is arbitrable are for the arbitrator in the first instance if the parties so agree, but the existence of a contract is a question that cannot be delegated to the arbitrator initially.

The court noted that the contract upon which defendant relied was based on an account created on May 12, 2021.  The problem was that there was nothing in any exhibit before the court at the prior hearing that tied the screenshot of the account to the plaintiff.  There was no name or other identifying information on the purported agreement, and the only thing that came close was that the “Area” was listed as New York (although the incident occurred in Florida).  The court continued the hearing to allow defendant to shore up whether plaintiff had actually agreed to the arbitration contract.

The court essentially rejected the other objections.  The court did not view the contract as illusory—the fact that JAMS does not have an office in Tippecanoe does not mean one could not arbitrate there.  Further, the distant location was not something defendant was seeking to enforce.  Defendant’s motion did not require that forum; defendant is and was willing to arbitrate locally.   To the extent that the clause has any bite, the court would be inclined to strike it.  The court tended to agree that there was some procedural unconscionability to the contract—the arbitration provision could have been more prominently displayed.  But it was available and long-standing law will not invalidate the contract solely on that basis.  The court also noted that the contract had an opt-out provision, although it would take some digging to find it.  At bottom, the court agreed that, at least under California law, while there was some procedural unconscionability.  However, there was no substantive unconscionability and thus that objection could not stand.  (No one briefed Indiana law, which is the governing law according to the agreement, Florida law, which is where the incident occurred, New York law, which is the “Area” in which the contract was purportedly signed, or the FAA.  The court therefore presumes either that the parties agree that California law governs or that it is not materially different from those other jurisdictions.)  As to waiver, the court acknowledged the time lag between the time the complaint was filed and the time of the motion, but nothing of substance occurred during that period and there is and was no prejudice.  Accordingly, the court rejected the notion that the delay alone was a waiver.  And finally, as to the lack of good faith negotiation prior to defendant’s rejection of plaintiff’s claim, the court believed that under the arbitration agreement, that question is for the arbitrator in the first instance.  It is a question of arbitrability, not a question of validity.  There was some heft to the claim—defendant did not seem to engage in any kind of reasoned discussion with the plaintiff, provide plaintiff with documentation or information to refute plaintiff’s position or support defendant’s position, and may have misrepresented whether there was insurance.  So far as the court could tell, there was no dialogue or settlement discussion at all.  Plaintiff simply opened the discussion and defendant (perhaps after an undisclosed internal investigation) said “no.”  That could well be bad faith and result in a waiver of the right to arbitrate or enforce the arbitration provision, but the arbitration clause gives that question to the arbitrator in the first instance.

Thus, the only open question was whether or not plaintiff had actually entered into this agreement.

In its supplemental brief, defendant links the account to plaintiff.  The records, according to the defense, show that the account was created using plaintiff’s cell phone number on May 12, 2021 and that the account was used to rent a scooter on a particular day in Florida, which is when plaintiff’s injury occurred.  According to the Xie Supplemental Declaration, a user’s account is linked to their cell phone number (which the court will identify here as ending in “7” and will refer to as “xxx7”).  When plaintiff’s counsel contacted defendant regarding the claim, defendant asked for the cell number so it could look up the account.  Counsel responded by letter identifying the number as xxx7.  (That is not hearsay.  It is the statement by an authorized representative of the opposing party, and thus is admissible for its truth.)  And there are medical records to the same effect.  According to Xie, defendant searched the database for an account with xxx7 and that produced a screen shot showing a user with that number and that the account was created on May 12, 2021 and used to rent the scooter in Florida.  Because, according to the Xie declaration, one cannot create an account without agreeing to the arbitration provision, the logic leads to the conclusion that plaintiff did agree to the arbitration provision.  Further, according to Xie, one of plaintiff’s companions called defendant after the incident and reported that plaintiff had fallen and wanted to end the ride.  That caller provided the phone number xxx7 to allow the ride to end. 

In opposition, plaintiff accuses defendant of attempting to reframe the court’s question.  According to plaintiff, the question is whether plaintiff “knowingly and intelligently” agreed to arbitration, not whether plaintiff had an account with defendant such that she was subject to the agreement’s terms.  Respectfully, the court disagrees.  Defendant correctly answered the court’s question.  The court was concerned that there was no evidence that plaintiff entered into the agreement at all.  For all the court knew, plaintiff found the scooter already operative or used a friend’s account to log on.  Absent evidence that plaintiff herself entered into the agreement, the court might well not be able to enforce the arbitration provision.  After all, an arbitration agreement is nothing more than a contract.  It, like all contracts, requires assent.  However, also like all contracts, if the person agreeing to the contract does not read it, that is of no moment—the written contract remains binding.  Plaintiff argues that plaintiff did not know that by proceeding into the app she was entering into a contract.  The app allegedly did not include a screen with a “User Agreement” that would inform her that she was entering into a contract; rather, one had to click through to find the agreement.  Plaintiff challenged the Xie declaration, stating that the screenshot in the original Xie declaration does not say anything anywhere about an agreement.  (There would be an implied in fact agreement of some kind in that plaintiff surely intended to use the scooter and pay for it, but an implied in fact agreement would not give rise to arbitration.)  But only later, in the supplemental papers, was there a screenshot that included a box that had to be checked stating that the user had read and agreed to defendant’s terms and conditions.   The difference is attributed by the defense as simply lightening the same picture so that other print that was visible to the user showed up in the picture.  Plaintiff does not accuse the defense of creating new evidence.  That said, plaintiff notes that this latter, now visible, clause is in smaller and harder to read font.  Plaintiff goes so far as to say it is virtually impossible to read.  Thus, plaintiff claims, the assent is illusory and non-binding even though the box was checked.  Plaintiff states that the whole purpose was to use trickery to get a renter to click a box unknowingly so that it can later be used against the plaintiff.  The brief then goes on to suggest that defendant’s business practice is fraudulent because it advertises the scooters as safe because defendant manufactures them when in fact they are made in China.  (There may be something to this—the ad in the supplemental brief states that defendant “designs and manufactures” the scooters “in-house.”  But in response to discovery, defendant states that it did not manufacture the scooter.)  That allegation is troubling, but the law is settled that even if there is a claim that the contract was induced by fraud, the arbitration clause is still binding unless the fraud went to the clause itself (which this does not).

The court is convinced that defendant has now carried its burden.  Plaintiff did use the app, and plaintiff did create an account.  As part of that process, plaintiff checked the box stating that she had read and agreed to the terms.  The court therefore has no choice but to enforce the arbitration provision and the motion is GRANTED.  The case is STAYED pending arbitration.  The court will set a status conference in about 270 days to make sure that the arbitration is moving along apace.

Before leaving this case, the court does note the following.  The court is of the view that defendant’s practice, like that of most sellers of goods and services on the internet, is not designed to obtain a knowing and intelligent agreement to an arbitration term.  The term is often hard to find and requires one to go through a number of screens.  One might say that the time has come for a legislative body to re-think what is required for a valid arbitration agreement—times have changed a lot since the FAA and CAA were passed, like, say, the internet.  But that is a job for Congress or maybe the California Legislature or maybe even a higher court; it is not something this court can do.