Henson v. U.S. Dist. Ct. N.D. Cal., No. 16-71818 (9th Cir. Sept. 5, 2017) [click for opinion]
Petitioner-Plaintiffs (“Petitioners”) brought this putative class action in the U.S. District Court for the Northern District of California on behalf of all Verizon subscribers residing in New York. Petitioners brought their claims against Defendant Turn, Inc. (“Turn”), a “middle-man” for Internet-based advertisements, challenging Turn’s alleged use of “zombie” cookies.
Specifically, Petitioners alleged that Turn exploited users’ Unique Identifier Headers (“UIDHs”) to install “zombie” cookies, recreated those cookies after users deleted them, collected data about Verizon users without their knowledge, used that data to create profiles that it marked with its own identifier (“Turn ID”), stored those Turn IDs on users’ mobile web browsers, and auctioned off users’ collected data so that advertisers could place targeted advertisements on their mobile devices. Petitioners claimed that, in so doing, Turn engaged in deceptive business practices in violation of New York General Business Law § 349 and committed trespass to chattels by intentionally interfering with the use and enjoyment of Verizon subscribers’ mobile devices.
Turn moved to dismiss Petitioners’ claims and sought to compel arbitration by invoking the arbitration provision contained in a customer agreement between Petitioners and Verizon. Turn was not a signatory to this customer agreement, nor did it otherwise have an arbitration agreement with Petitioners. Instead, Turn argued that compelling arbitration was appropriate based on the doctrine of equitable estoppel. The district court granted Turn’s motion, and Petitioners timely filed a writ of mandamus to vacate that order.
The Ninth Circuit Court of Appeals granted the petition for writ of mandamus and vacated the district’s court’s order, reasoning that the first three Bauman factors weighed strongly in favor of such a result. In particular, the court observed that: (1) a “contemporaneous ordinary appeal” would not have been available to Petitioners because an order staying proceedings and compelling arbitration is not a final decision subject to ordinary appeal; (2) the subscribers would be prejudiced in a way not correctable on appeal because the customer agreement would not allow Petitioners to arbitrate their dispute in a representative capacity or on behalf of a class; and (3) the district court committed clear error by failing to apply California law and its equitable estoppel doctrine properly.
On the third factor, the court noted that a litigant who is not a party to an arbitration agreement may invoke arbitration under the Federal Arbitration Act if the relevant state contract law allows the litigant to enforce the agreement. California law allows for such enforcement in cases of equitable estoppel. However, according to the court, this doctrine would only apply under two circumstances: (1) if the Petitioners had to rely on the terms of the customer agreement in asserting their claims against Turn or the claims were intimately founded in and intertwined with the customer agreement; or (2) if Petitioners alleged substantially interdependent and concerted misconduct by Turn and Verizon, and the allegations of interdependent misconduct were founded in or intimately connected with the obligations of the customer agreement.
The court concluded that neither condition was met because Petitioners’ complaint was replete with allegations of wrongdoing against Turn that had nothing to do with the customer agreement, nor did any of those allegations seek any benefit from the agreement’s terms. Likewise, the court stated that Petitioners did not allege Verizon colluded with Turn, nor did the court accept Turn’s argument that Turn engaged in the challenged conduct in partnership with Verizon, given that the agreement between Turn and Verizon specifically disclaimed any such relationship.
Although the court ultimately determined that the fourth and fifth Bauman factors weighed against granting mandamus relief, because the first three factors strongly favored it, the court granted Petitioners’ mandamus petition and vacated the district court’s order compelling arbitration.
A version of this post originally appeared in the November 2017 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.
