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Knutson v. Sirius XM Radio Inc.

United States Court of Appeals, Ninth Circuit

November 10, 2014

ERIK KNUTSON, individually and on behalf of all others similarly situated, Plaintiff-Appellant,
v.
SIRIUS XM RADIO INC., Defendant-Appellee

Argued and Submitted, February 7, 2014, Pasadena, California

Page 560

Appeal from the United States District Court for the Southern District of California. D.C. No. 3:12-cv-00418-AJB-NLS. Anthony J. Battaglia, District Judge, Presiding.

SUMMARY[**]

Arbitration

The panel reversed the district court's order dismissing a putative class action under the federal Telephone Consumer Protection Act, and granting Sirius XM Radio Inc.'s motion to compel arbitration pursuant to the Federal Arbitration Act.

The plaintiff purchased a vehicle from Toyota that included a 90-day trial subscription to Sirius XM satellite radio. About a month after his trial subscription was activated, plaintiff received a " welcome kit" from Sirius XM that contained a Customer Agreement with an arbitration clause.

The panel held that Sirius XM failed to prove by a preponderance of the evidence the existence of an agreement to arbitrate. The panel held that a reasonable person in plaintiff's position could not be expected to understand that purchasing a vehicle from Toyota would simultaneously bind him or her to any contract with Sirius XM. The panel further held that plaintiff's continued use of the satellite radio service after his receipt of the Customer Agreement did not manifest his assent to the provisions in the Customer Agreement. Because the arbitration clause in the Customer Agreement was unenforceable for lack of mutual assent, the panel held it need not decide whether the arbitration provision in the Customer Agreement was unconscionable. The panel remanded for further proceedings.

Abbas Kazerounian (argued) and Mohammad Kazerouni, Kazerouni Law Group, APC, Costa Mesa, California, for Plaintiff-Appellant.

Chad S. Hummel (argued), Becca Wahlquist, and Lydia M. Mendoza, Manatt Phelps & Phillips, LLP, Los Angeles, California, for Defendant-Appellee.

Before: Harry Pregerson, Michael R. Murphy[*], and Marsha S. Berzon, Circuit Judges.

OPINION

Page 561

PREGERSON, Circuit Judge:

Plaintiff Erik Knutson (" Knutson" ) appeals the district court's order dismissing his putative class action and granting Defendant Sirius XM Radio Inc.'s (" Sirius XM" ) motion to compel arbitration pursuant to the Federal Arbitration Act (" FAA" ). Knutson alleges that he did not consent to enter into a binding Customer Agreement with Sirius XM, and that the Customer Agreement as a whole, and the arbitration provision specifically, are unconscionable.

In November 2011, Knutson purchased a vehicle from Toyota that included a 90-day

Page 562

trial subscription to Sirius XM satellite radio. About a month after his trial subscription was activated, Knutson received a " Welcome Kit" from Sirius XM that contained a Customer Agreement. Knutson alleges that during his trial subscription, he received three unauthorized calls from Sirius XM on his cellphone. In response to these calls Knutson, in February 2012, brought a class action suit against Sirius XM alleging violations of the federal Telephone Consumer Protection Act. The district court found that both parties consented to enter into the Customer Agreement and that the arbitration clause was valid and enforceable under the FAA.

Knutson timely appealed the district court's judgment. We have jurisdiction under 28 U.S.C. § 1291. For the reasons set forth below, we reverse.

FACTUAL BACKGROUND

I. Knutson's 90-day Trial Subscription to Sirius XM Radio

Sirius XM is a satellite radio service that broadcasts commercial-free channels to more than 20 million subscribers. Sirius XM has arrangements with many major automakers, including Toyota, to install satellite radio receivers in new vehicles. Under these arrangements, automakers, including Toyota, include a trial subscription to Sirius XM for some fixed period of time with the purchase or lease of a vehicle. In November 2011, Knutson purchased a Toyota Tacoma truck, which came with a 90-day trial subscription to Sirius XM satellite radio. Knutson's Sirius XM account was activated on November 7, 2011, for a trial period ending February 7, 2012.

On November 29, 2011, Sirius XM mailed a " Welcome Kit" to Knutson. The Welcome Kit arrived in the mail on or about December 12, 2011, over a month after Knutson's satellite receiver was activated. The Welcome Kit contained a Sirius XM Customer Agreement.

II. Sirius XM's Customer Agreement

The Sirius XM Customer Agreement sets out the terms and conditions of use during a 90-day trial subscription. The Agreement states that failure to cancel the subscription within three business days of activation legally binds the customer to the agreement:

BY ACCESSING OR USING THE SITE OR THE SERVICE, YOU AGREE TO BE LEGALLY BOUND BY THIS AGREEMENT. PLEASE DO NOT USE THE SITE OR THE SERVICE IF YOU DO NOT AGREE WITH THIS AGREEMENT.
IF YOU DO NOT ACCEPT THESE TERMS, PLEASE NOTIFY U.S. IMMEDIATELY AND WE WILL CANCEL YOUR SUBSCRIPTION. IF YOU DO NOT CANCEL YOUR SUBSCRIPTION WITHIN 3 BUSINESS DAYS OF ACTIVATION OF YOUR RECEIVER, IT WILL MEAN THAT YOU ...

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