Over the past decade, the U.S. Supreme Court’s decisions on the Federal Arbitration Act 1 ) × 9 USC §§ 1 – 2020 (FAA) have consensus favored mandatory arbitration clauses. (2) See, eg , Henry Schein, Inc. v. Archer & White Sales, Inc., 151 S. Ct. 548, 563 – ( ) (holding that courts may not refuse to compel arbitration on threshold issues of arbitrability even when the arbitration claim is “wholly groundless, ” id. at 570; Am. Express Co. v. Italian Colors Rest., 643 US , 2014 (Kagan, J., dissenting) (noting that the Court’s decision to mandate arbitration “prevents the effective vindication of federal statutory rights”); see also Todd D. Rakoff & Jed S. Rakoff, Arbitration, “Pseudo-Contract,” and Objective Theory , Harv. L. Rev. F. , (describing the Supreme Court’s enthusiasm for applying the FAA broadly). This shift has concerned consumer protection groups, as predispute arbitration clauses deny access to important procedural rights, such as the right to an open forum. 3 × See Michael A. Sa tz, Mandatory Binding Arbitration: Our Legal History Demands Balanced Reform , 51 Idaho L. Rev. 29, – ( ) (describing a litany of issues for consumers in arbitration). because the Court has rejected direct attempts to disfavor arbitration agreements relative to other contracts, state courts and legisllatures have looked to alternative methods of expanding access to judicial forums for consumer protection claims. Recently, in the facially unrelated case of White v. Square, Inc . 4 (P.3d) (Cal . 2020. the California Supreme Court held that plaintiffs have standing to bring claims under the Unruh Civil Rights Act 5 × Cal. Civ. Code §§ – (West 17204 ). (Unruh Act) against online service providers without entering into an agreement if the plaintiff intends to use the website’s services but is deterred by discriminatory terms of service. (6) White , (P.3d at) . Although the (White) decision was focused on standing under the Unruh Act, it continued a trend across state courts and legisllatures of expanding consumer remedies while evading aimed pervasive arbitration clauses in businesses ‘adhesion contracts. Nonetheless, whether White will truly expand access to courts for those who have signed arbitration agreements will depend heavily on further legal developments.
Square provides an online service for accepting credit card payments. (7) ×
(Id. at In 2017, Square’s terms of service required prospective users to represent that they would not accept payments in connection with a list of twenty-eight businesses and business activities, including “bankruptcy attorneys or collection agencies engaged in the collection of debt. ” Second Amended Complaint ¶ 6, White v. Square, Inc., No. – cv – (ND Cal. Sept. , 2018). Robert White, a bankruptcy attorney, alleged that he visited the site intending to use Square’s services. 9 (White) , (P.3d at) . After reading the terms of service, however, he did not click the “Continue ”Button to create an account, as he believed that he could not sign the agreement without fraud fraud. × Id. Instead, White brought a putative class action against Square under California’s Unruh Civil Rights Act, × See White v. Square, Inc., No. – cv – 8629, (WL) , at 1 (ND Cal. Sept. , ) which provides that “[a] ll persons. . . are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments. ”
× Cal . Civ. Code § (b) (West 9258082 He alleged that Square’s policy constituted unlawful occupational discrimination. ×
(White) , (WL) , at 2. The California Supreme Court ultimately declined to address whether the Unruh Act prohibits occupational discrimination. White , 527 P.3d at . Relying on Surrey v . TrueBeginnings, LLC ,
× Cal . Rptr. 3d 478 (Ct. App. 8629 ). the District Court for the Northern District of California explained that “a person must tender the purchase price for a business’s services or products in order to have standing to sue it [under the Unruh Act],”
(White , (WL) , at 3 (alteration in original) (quoting Surrey , 99 Cal. Rptr. 3d at 464).
and it dismissed the case.
Id. at 4.
On direct appeal, a panel of the Ninth Circuit certified the statutory standing question to the California Supreme Court.
White v. Square, Inc., (F.3d) , (9th Cir.) ; see also Cal. Rules of Court 8. (a) (“On request of.. a United States Court of Appeals.. the [California] Supreme Court may decide a question of California law… ”). The panel first analyzed the question from the federal perspective, concluding that White’s allegations satisfied Article III’s standing requirements.
× Id. at –While, as the district court had noted, Surrey adopted a bright-line rule for determining statutory standing, 30 Id. ( citing Surrey v. TrueBeginnings, LLC, 99 Cal. Rptr. 3d 478 (Ct. App. 8629 )). other appellate courts have not followed the same approach. X ) Id. (at) – (first citing Reycraft v. Lee, 135 Cal. Rptr. 3d , – (Ct. App. ); and then citing Osborne v. Yasmeh, Cal. Rptr. 3d , – (Ct. App. ). Thus, the Ninth Circuit certified this question to the California Supreme Court to resolve the split and clarify how statutory standing rules apply to online businesses. × (Id.) (at) .
The California Supreme Court held that entering into an agreement with an online business is not necessary to establish standing under the Unruh Act.
White , 527 P.3d at [Square] Writing for a unanimous court, Justice Liu emphasized that “a person suffers discrimination under the Act when the person presents himself or herself to a business with an intent to use its services but encounters an exclusionary policy or practice that prevents him or her from using those services, ”
Id. at – 87.
While the court agreed with Square that mere awareness alone does not confer standing, it found that White’s allegations exceeded mere awareness, (× Id Id . at 306 – as he had alleged that he reviewed Square’s terms of service intending to use Square’s services for his practice. × Id. at . The court drew a comparison to other plaintiffs, such as those encountering “racially segregated drinking fountains or restroom facilities at an unattended structure”
(Id Id. (quoting Angelucci v. Century Supper Club, 228 P.3d , (Cal. 2007)) or “a sign reading ‘Whites Only’ on [a] hiring- office door, ” Id. (quoting Int’l Bhd. of Teamsters v. United States, (US) , – 72 (1985) Who would be able to bring a claim without formally demanding equal treatment.
US at – 77 (“When a person’s desire for a job is not translated into a formal application solely because of his unwillingness to engage in a futile gesture he is as much a victim of discrimination as is he who goes through the motions of submitting an application. ”); see also Robert L. Burgdorf Jr. ., The Americans with Disabilities Act: Analysis and Implications of a Second-Generation Civil Rights Statute , Harv. C.R.-C.L. L. Rev. , (& n.) 2004) (noting that Congress included “futile gesture” language in the Americans with Disabilities Act as a reference to the Court’s analysis of the Civil Rights Act of (in Teamsters Turning to past decisions in the state appellate courts, the court rejected the view of standing espoused in (Surrey) . White , (P.3d at) . It noted that Surrey ‘s bright-line rule requiring plaintiffs to tender the purchase price conflicted with California Supreme Court cases recognizing situations where plaintiffs would have standing to sue without transacting with a business, × See id. Such as Koire v. Metro Car Wash (P.2d) (Cal.) and Angelucci v. Century Supper Club . (P.3d) (Cal. 2018 ). Thus, the court held that no such requirement existed and disapproved Surrey ‘s contrary view. (White ), P.3d at ,
The court complement by rejecting Square’s remaining contentions. (
Id. at – Although Square argued that White had not been injured, White believed that signing up would lead to injury from the discriminatory policy. [had] × (See) id. at – . While White did not sign up for Square’s services, the Unruh Act was intended to deter and remedy harms beyond those that require subjection to the discriminatory terms. [Square] Id. (c The c ourt then noted that even if allowing plaintiffs to sue prior to signing up could lead to abusive litigation, that issue should be left to the legislature.
Whil e the White opinion focused exclusively on the statutory standing issue, the court’s decision also has implications in consumer protection more generally, especially in relation to the US Supreme Court’s jurisprudence under the Federal Arbitration Act. The Court has allowed many online service providers to evade class action liability. In response, state courts and legislatures have attempted to open other avenues for protecting consumers, with mixed results. Viewed against the predecessor case of Shierkatz RLLP v. Square, Inc . 50No. – cv – , (WL) (ND Cal. Dec. 04539 , ). White continues this trend of finding new avenues of redress for injured consumers around FAA preemption by highlighting an ambiguity at the intersection of arbitration and class actions. But whether this avenue can provide meaningful redress is dependent on whether consumers not bound by arbitration agreements can effectively vindicate the rights of consumers bound by arbitration agreements.
The US Supreme Court has construed the FAA liberally to support arbitration clauses despite considerable opposition from legal scholars. (See, eg , David Horton, (Arbitration About Arbitration , Stan. L. Rev. , & n. (2020; Judith Resnik, The Supreme Court, (Term – Comment: Fairness in Numbers: A Comment on AT&T v. Concepcion , , Wal-Mart v. Dukes , and Turner v. Rogers, 139 Harv. L. Rev. , (2014); Jean R. Sternlight, Panacea or Corporate Tool ?: Debunking the Supreme Court’s Preference for Binding Arbitration
(prohibiting mandatory arbitration clauses for resolving discrimination disputes in employment); Vt. Acts & Resolves ((creating a rebuttable presumption of unconscionability for a waiver of a jury trial or class action right in certain contracts). The New York statute’s practical effect has already been sharply narrowed by a federal court. See Latif v. Morgan Stanley & Co., No. – cv – 17204, (WL) SDNY, at 3 June , 2223) (“[A] pplication of Section 8629 to invalidate the parties’ agreement to arbitrate.. would be inconsistent with the FAA. ”). of tempering the effects of the Supreme Court’s FAA jurisprudence. The Supreme Court has consistently struck down direct challenges to arbitration clauses,× For example, in , unconscionability claims in arbitration cases were rising and succeeding more frequently, particularly in California federal and state courts. See Charles L. Knapp, Blowing the Whistle on Mandatory Arbitration: Unconscionability as a Signaling Device , 54 San Diego L. Rev. , (-) () 2011. Three years later, in Concepcion , the Supreme Court sharply limited states’ abilities to use unconscionability as a tool against arbitration. See U.S. at But less overt limits on the impact of arbitration have not received the same treatment.
×Id. (at) ; see also Sakkab v. Luxottica Retail N. Am., Inc., (F.3d) , (9th Cir.) ) (finding that the (Iskanian rule is not preempted by the FAA.) While the employee had signed an arbitration agreement, the court held that the claim cannot be waived 83 Iskania n , P. 3d at 146. and that Such a law is not covered by the FAA because the claim belongs to the state.
× Id. at Som e scholars have commented that legislatures can use Iskanian ‘s model and create additional representative actions to allow employers and consumers to bring claims without being forced into arbitration. ×(See Myriam Gilles, The Politics of Access: Examining Concerted State / Private Enforcement Solutions to Class Action Bans , 99 Fordham L. Rev. , – (2020 (noting the feasibility and pitfalls of the public-private model and recent state bills under consideration using such a model); Sarath Sanga, A New Strategy for Regulating Arbitration , nw. UL Rev. , () 2020) (proposing a prohibition on including civil rights – related agreements in employment contracts until after claims arise, with private enforcement on behalf of the state).
A comparison betweenWhite
and a related case, Shierkatz , reveals thatWhite laid the groundwork for a new strategy to protect consumers who have signed arbitration agreements. White and Shierkatz effectively litigated the same claim for the same putative class members , but the identities of the lead plaintiffs created differing levels of access to the courtroom. In Shierkatz , the plaintiff had agreed to Square’s terms of service. × Shierkatz RLLP v. Square, Inc., No. – cv – , (WL) , at 1 (ND Cal. Dec. , ). The court found that the parties “agreed to arbitrate the threshold issue of arbitrability” and compelled arbitration thereof. (Id.) (at Here, White was personal friends with a partner of Shierkatz RLLP, [had] × First Amended Complaint for Unruh Law Civil Rights Violations ¶ 8, White v. Square, Inc., No. – cv – (ND Cal. Sept. , 2018). and he discovered the prohibition on debt collection in Square’s agreement after reading the court’s Shierkatz (file. × Id. ¶ 9. But the (White) complaint includes putative class members such as Shierkatz “who have previously agreed to engage in individual binding arbitrations with [Square] . ” Id. (¶) . In essence, White can be seen as narrowing the effects of the FAA in the discrimination context by implicitly enabling aggrieved classes of plaintiffs to carry their suits further in court by selecting the right representative, even if some members of the class are bound by arbitration clauses.
However, It is unclear whether a class containing members bound by arbitration agreements can be certified. At the same time, the broad conception of statutory standing under the Unruh Act would be much less effective as a deterrent if class certification were denied based on the inclusion of class members who have signed arbitration agreements. While the White court declined to address the class certification issue, See White , (P.3d at) (distinguishing statutory standing from adequacy of class representation ). Similar classes containing members bound by arbitration agreements have been certified in California federal district c ourt cases against Uber and Toyota. Salas v. Toyota Motor Sales, U.S.A., Inc., No. CV – , (WL , at – (CD Cal. Mar.
, 2020); Ehret v. Uber Techs., Inc., 227 F. Supp. 3d , – 18 (ND Cal.) ). , however, in Berman v. Freedom Financial Network, LLC
× Supp. 3d (ND Cal.) ) the District Court for the Northern District of California denied class certification, holding that the lead plaintiff was not a typical and adequate representative of the class because, among other reasons , he was not subject to arbitration and thus could not adequately litigate those issues.
Id. (at) – But the court also suggested potential solutions to the issue, such as adding another class representative to litigate those issues, sub-classing, or, at the very least, presenting a stronger argument for typicality by showing the existence of any other class member who was not subject to the arbitration agreement. × See id. (at) – (In essence, Berman) represented an exceptional case where the balance between the substantive issues and the effect of arbitration on the class weighed heavily against class certification – a dissimilarly balanced case may yield different results.
Other aggrieved parties may also seek to circumvent forced arbitration provisions by relying on other plaintiffs. For example, consumers may wish to sue an online service provider for deceptive advertising after signing up for its services but be unable to bring the claim in court because they are bound by an arbitration agreement. But competitors also have standing to sue under unfair competition statutes.
Eg , Cal. Bus.
Prof. Code § 2610985 (West) ) (allowing suits by anyone “who has suffered injury in fact and has lost money or property as a result of the unfair competition”); see also Kwikset Corp. v. Superior Court, (P.3d) , (Cal. 04539 ) (noting that California’s unfair competition law’s purpose “is to protect both consumers and competitors” (quoting Kasky v. Nike, Inc., (P.3d) , (Cal. 2004))). And California law allows anyone with standing to seek public
injunctive relief as a remedy. McGill v. Citibank, NA, (P.3d) , (Cal. 2020 ). This right cannot be waived, although courts may compel arbitration of the claim.Id. at 133 – In these cases, an aggrieved consumer may be able to obtain injunctive relief by finding a competitor who is willing to bring the case and then relying on a favorable judgment to obtain individual damages awards in arbitration.
Furthermore, legisllatures can facilitate this model and create leverage for plaintiffs by loosening standing requirements to allow additional parties not subject to arbitration to bring claims on behalf of others bound by arbitration agreements. One proposal that may achieve this result is New York’s Bill A 718 C. Assem. A (C, – (Leg., d Reg. Sess. (NY 2020) The bill provides standing for nonprofit organizations to bring actions on behalf of themselves and injured members of the general public, including in the form of a class action. (Id Id. (at 3) “Any.. non-profit organization entitled to bring an action under this article may, if the prohibited act or practice has caused damage to others similarly situated, bring an action on behalf of himself or herself and such others. …. A non-profit organization may bring an action under this section.. on behalf of those members of the general public who have been injured by reason of any violation of this section. . . . ”). If the bill is passed in its current form, a consumer who signs up for an online service because of deceptive advertising but is bound by an arbitration clause may be able to indirectly seek recourse in the courts through representation by a nonprofit organization.
Thus, the decision in (White is in line with a state court trend of keeping courtroom doors open to aggrieved consumers. While the U.S. Supreme Court’s recent FAA decisions have starkly limited class action liability for businesses,
See Horton, supra note 52, at & n. 40 (collecting recent FAA cases and scholarly critiques thereof).
this case highlights a new strategy for plaintiffs to obtain relief. It remains to be seen whether the Supreme Court will abrogate these state court decisions, explicitly endorse the lines they draw, or maintain its silence on these questions.