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In re Samsung Galaxy Smartphone Marketing and Sales Practices Litigation

United States District Court, N.D. California, San Jose Division

March 30, 2018

IN RE SAMSUNG GALAXY SMARTPHONE MARKETING AND SALES PRACTICES LITIGATION

          ORDER GRANTING IN PART AND DENYING IN PART MOTION TO COMPEL ARBITRATION AND DISMISS PLAINTIFFS' CLASS ACTION CLAIMS AND STAYING PROCEEDINGS PENDING COMPLETION OF ARBITRATION [Re: ECF 67]

          BETH LABSON FREEMAN United States District Judge.

         In this putative class action, consumers contend that certain models of the Samsung Galaxy smartphone have the propensity to overheat, often to volatile levels. Specifically, Plaintiffs Demetrius Martin, Omar Atebar, Esther Vega, Jesus Vega, Lizett Anguiano, Tomas Hernandez, Greg Robison, Dale Holzworth, Eric Pirverdian, Tomig Salmasian, Michael Kouyoumdjian, Dior Dee, Cory Raymond, and Jesus Sanchez (collectively, “Plaintiffs”) allege that their smartphones are prone to explode or burst into flames. They assert claims for violations of state consumer-protection laws and unjust enrichment against Samsung Electronics America, Inc. and Samsung Electronics Co., Ltd. (collectively, “Samsung”).

         Presently before the Court is Samsung's Motion to Compel Arbitration, Dismiss Plaintiffs' Class Claims, and Stay All Proceedings. Mot., ECF 67. The Court held a hearing on Samsung's motion on March 1, 2018. The Court has considered the arguments presented at oral argument and in the briefing, as well as the submitted evidence and applicable law. For the reasons that follow, the Court concludes that certain Plaintiffs formed a valid arbitration agreement with Samsung, and therefore GRANTS Samsung's motion as to those Plaintiffs, DENIES Samsung's motion as to the remaining Plaintiffs, and STAYS the case pending the outcome of arbitration.

         I. BACKGROUND

         The following facts are drawn from the First Amended Consolidated Class Action Complaint (“FAC”), ECF 65. In October 2016, Samsung recalled the Samsung Galaxy Note7 (“Note7”) after reports that numerous devices had exploded and burst into flames. FAC ¶¶ 38, 42. Plaintiffs own at least one of six other models of Samsung phones-the Galaxy S7 (“S7”), the Galaxy S7 Edge (“S7 Edge”), the Galaxy S6 (“S6”), the Galaxy S6 Edge (“S6 Edge”), the Galaxy S6 Edge (“S6 Edge”), and the Galaxy Note5 (“Note5”). Id. ¶ 37. Plaintiffs plead that these models, like the Note7, “pose a risk of overheating, fire and explosion as they were designed, engineered, developed, manufactured, produced and/or assembled in a substantially similar manner to the Note7.” Id.

         Plaintiffs commenced this putative class action on November 2, 2016 and filed the operative FAC on August 3, 2017. ECF 1, 65. Plaintiffs hail from California, Massachusetts, or Maryland and seek to represent three statewide classes, which encompass all consumers who reside in and purchased one of the relevant Samsung phones in California, Massachusetts, and Maryland, respectively. FAC ¶¶ 95, 107, 119.[1] Plaintiffs bring six causes of action: (1) violation of California's Unfair Competition Law on behalf of the California class, (2) violation of California's False Advertising Law on behalf of the California class, (3) violation of California's Consumers Legal Remedies Act on behalf of the California class, (4) violation of Maryland's Consumer Protection Act on behalf of the Maryland class, (5) violation of Massachusetts Regulation of Business Practices for Consumers Protection on behalf of the Massachusetts class, and (6) unjust enrichment on behalf of all classes. Id. ¶¶ 143-85, 198-201.

         In September 2017, Samsung moved to compel arbitration on the ground that Plaintiffs assented to, and did not opt out of, an arbitration clause that appeared either in a guidebook included in the box with their phones or on Samsung's website. Mot. 8-23. As discussed in more detail below, the analysis of assent hinges on what information was presented and how that information was presented to each individual Plaintiff-including the box, guidebook, and website. Samsung also requests that the Court dismiss the class-action claims of all Plaintiffs compelled to arbitrate and stay all proceedings in the litigation pending arbitration. Mot. 23-25. Plaintiffs filed an opposition, Opp., ECF 74, and Samsung filed a reply, Reply, ECF 76.

         II. LEGAL STANDARD

         Enforceability of an arbitration clause, and the determination of the scope of that clause, is governed by the Federal Arbitration Act (“FAA”). 9 U.S.C. §§ 1 et seq. Under the FAA, arbitration agreements are a matter of contract, and “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Such generally applicable contract defenses include “fraud, duress, or unconscionability, ” but not “defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (citation omitted). A party seeking to invoke an arbitration agreement may petition the district court “for an order directing that such arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4; see also Trompeter v. Ally Fin., Inc., 914 F.Supp.2d 1067, 1071 (N.D. Cal. 2012).

         A district court faced with a petition to enforce an arbitration clause engages in a limited two-part inquiry: first, it determines whether the arbitration agreement is valid, and second, it determines whether the agreement encompasses the claims at issue. Ashbey v. Archstone Prop. Mgmt., Inc., 785 F.3d 1320, 1323 (9th Cir. 2015). A district court does not consider challenges to the contract as a whole, but rather only specific challenges to the validity of the arbitration clause itself. See Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 70 (2010) (noting the “two types of validity challenges” but holding that only challenges to the validity of the agreement to arbitrate are “relevant to a court's determination whether the arbitration agreement at issue is enforceable”).

         III. DISCUSSION

         A. Motion to Compel Arbitration

         The issue before the Court is a focused one. “[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986) (quoting United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960)). Plaintiffs' sole contention is that they did not form an agreement to arbitrate with Samsung, an argument which the Court resolves under “ordinary state-law principles that govern the formation of contracts.” First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Because the parties agree that the law of each Plaintiff's home state controls, the Court proceeds to analyze Plaintiffs' claims by state.

         1. Massachusetts

         Plaintiff Holzworth is a resident of Massachusetts who purchased an S7 Edge in Massachusetts. FAC ¶ 17. The parties agree that Massachusetts law governs the question whether he formed an agreement to arbitrate with Samsung.

         The parties also agree on the universe of applicable cases. In 1-A Equipment Co. v. Icode, Inc., the Massachusetts District Court Appellate Division held that a buyer was bound by a contractual forum selection clause sent with the purchased software program even though the buyer did not receive the agreement until after the purchase was made. No. 1460, 2003 WL 549913, at *2 (Mass. App. Div. 2003). The court emphasized that an inside-the-box setup can be an efficient way to do business, especially when the alternative of orally reciting terms is costly and ineffective. Id. Likewise, in Feeney v. Dell Inc., the Appeals Court of Massachusetts enforced an arbitration agreement, which was enclosed with the shipped product and provided that the customers would be bound by accepting delivery. 2015 WL 4460182, at *2, *4-5 (Mass. App. Ct. 2015). The court concluded that “a purchaser of a computer, upon placing an order, would expect additional terms, such as a warranty and a period of time to return the goods, given the nature of the product involved.” Id. at *4.

         Both Massachusetts cases rely on two Seventh Circuit cases that approve of inside-the-box agreements; indeed, the court in 1-A Equipment explicitly “adopt[ed] the rationale of these cases.” 2003 WL 549913, at *2. The Seventh Circuit considered similar facts to those in the Massachusetts cases and held that terms inside the box of a product bind consumers who keep the product beyond a specified window if the consumer has an opportunity to review the terms and reject them by returning the product. Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148 (7th Cir. 1997); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1451 (7th Cir. 1996) (“Notice on the outside, terms on the inside, and a right to return the software for a refund if the terms are unacceptable (a right that the license expressly extends), may be a means of doing business valuable to buyers and sellers alike.”). The Seventh Circuit explained that practicality favors this conclusion because “[c]ustomers as a group are better off when vendors skip costly and ineffectual steps such as telephonic recitation, and use instead a simple approve-or-return device.” Hill, 105 F.3d at 1149. Moreover, the Uniform Commercial Code allows acceptance by conduct, for example by using software after having a chance to read the accompanying license. ProCD, 86 F.3d at 1452.

         Under these cases, Plaintiff Holzworth is clearly bound by Samsung's arbitration agreement. The outside of the box states that purchase is “subject to additional Samsung terms and conditions.” Blackard Decl., ECF 68, Ex. D. Inside the box, there is a guidebook titled “Important Information” and subtitled “Health and Safety Information” and “Warranty Legal Information” with those topics' respective page numbers. Id., Ex. I, at 2. On the page immediately following the cover, the user is instructed in bold that the guidebook contains “important terms and conditions” that the user accepts by using the phone. Id. at 3. Further down the page, under the bold and larger-text heading “Legal Information, ” the guidebook provides:

This product is covered under the applicable Samsung Limited Warranty INCLUDING ITS DISPUTE RESOLUTION PROCEDURE and your right to opt out of arbitration within 30 calendar days of the first consumer purchase.You may opt out by either sending an email to optout@sea.samsung.com with the subject line “Arbitration Opt-Out” or by calling 1-800-SAMSUNG (726-7864).

Id. Finally, the Table of Contents lists the page for “Procedures for Dispute Resolution/30-day Arbitration and Opt-Out Policy, ” id. at 9, and the guidebook sets forth the arbitration agreement in capital letters on the indicated page, id. at 30. These circumstances neatly fit within the Seventh Circuit's approval of “[n]otice on the outside [and] terms on the inside.” ProCD, 86 F.3d at 1451.

         Plaintiffs' sole challenge is to the remaining element-namely, “a right to return the [product] for a refund if the terms are unacceptable.” Id. Specifically, Plaintiffs contend that Samsung fails to specify “how a consumer may reject the terms and conditions.” Opp. 18. As a preliminary matter, Plaintiff Holzworth does not allege or argue that he was unable to return his phone for a refund if he disagreed with the terms. It is not clear that anything more is required- the cases reference “an opportunity . . . to reject [the terms] by returning the product.” Hill, 105 F.3d at 1148 (citing ProCD, 86 F.3d at 1451). In any event, the first page of the guidebook and the arbitration section both inform users exactly how to opt out of the arbitration provision: users can send an email or call the toll-free number. As the guidebook explains, a user does not forfeit anything by opting out. See Blackard Decl., Ex. I, at 33 (“Opting out of this dispute resolution procedure will not affect the coverage of the Limited Warranty in any way, and you will continue to enjoy the benefits of the Limited Warranty.”). In this way, the opt-out provision is even more favorable than a return policy because the user may keep the phone and avoid arbitration.

         In light of these circumstances, Plaintiff Holzworth agreed to arbitrate under Massachusetts law. Accordingly, the Court GRANTS Samsung's motion to compel arbitration as to Plaintiff Holzworth.

         2. California

         Plaintiffs Martin, Atebar, Esther Vega, Jesus Vega, Anguiano, Hernandez, Pirverdian, Salmasian, Kouyoumdjian, Dee, Raymond, and Sanchez are residents of California who acquired their Samsung phones in California. FAC ¶¶ 10-15, 18-23. The parties agree that California law governs the question whether they formed an agreement to arbitrate with Samsung.

         The parties dispute the importance of the Ninth Circuit's recent decision in Norcia v. Samsung Telecommunications America, LLC, 845 F.3d 1279 (9th Cir.), cert. denied, 138 S.Ct. 203 (2017). The Court begins with an overview of Norcia, then examines the circumstances of the California Plaintiffs in the instant case.

         a. ...


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