For companies defending class action lawsuits, this ruling provides a new angle of attack for these bet the company cases, by taking them into a single-plaintiff arbitration forum.
Case Background
Plaintiff was a Shutterfly user that registered for an account in August 2014 via mobile app. The terms of use for the account, which she accepted, included a class action waiver. Id. at *3. In May 2015, Shutterfly added an arbitration provision to its terms of use. Every version of Shutterfly's terms of use since May 2015, including the most recent version from September 2019, has included an arbitration provision.
In June 2019, Plaintiff filed a class action lawsuit in Illinois state court alleging that Shutterfly violated the Illinois Biometric Information Privacy Act ("BIPA") by using facial-recognition technology to extract biometric identifiers for "tagging" individuals and by "selling, leasing, trading, or otherwise profiting from Plaintiffs' and Class Members' biometric identifiers and/or biometric information." Id. at *5. In July 2019, Shutterfly removed the lawsuit to federal court.
In September 2019, about three months after the lawsuit was filed, Shutterfly sent an email to all of its users nationwide. The email notified Shutterfly users that the terms of use had been updated. After listing various updates, in relevant part, the email indicated that, "We also updated our Terms of Use to clarify your legal rights in the event of a dispute and how disputes will be resolved in arbitration." Id. Finally, the email advised users: "If you do not contact us to close your account by October 1, 2019, or otherwise continue to use our websites and/or mobile applications, you accept these updated terms." Id.
Shutterfly's records indicated that the plaintiff opened that email on September 8, 2019, and that as of October 2, 2019, her account remained open. Shutterfly moved to compel arbitration. In opposition, Plaintiffs argued the September 2019 email "was an improper ex parte communication with Plaintiff and putative class members because it failed to advise them of the pending litigation while seeking to deprive them of their rights as plaintiffs or class members." Id.
The Court's Decision
The Court granted Shutterfly's motion to compel arbitration. After finding that the plaintiff agreed to be bound by Shutterfly's terms of use, the Court addressed the plaintiff's arguments that even if a contract formed between the parties, there was no valid agreement to arbitrate because: (i) arbitration clauses subject to unilateral modification are illusory; (ii) she could not have assented to the arbitration provision because Shutterfly failed to provide notice of the 2015 modification; and (iii) arbitration clauses that apply retroactively are unenforceable. Plaintiff further argued that even if the arbitration clause was valid, the plaintiff could not waive the right to class arbitration of the claim for an injunction.
First, the Court rejected the plaintiff's argument that arbitration clauses subject to unilateral modification are illusory. It cited several Illinois decisions that allowed parties to agree to authorize one party to modify a contract unilaterally. Id. at *11-12. Second, the Court rejected the plaintiff's argument that she could not assent to an arbitration provision of which she had no notice. The Court reasoned that when she entered into a service contract with Shutterfly in 2014, she explicitly gave Shutterfly the right to unilaterally modify the agreement at any time and without notice. Third, the Court rejected the plaintiff's argument that arbitration clauses that apply retroactively are unenforceable. It found that the plaintiff agreed to her arbitrate her claims in the 2015 modification, thus mooting the retroactive arbitration argument.
Finally, the Court addressed the plaintiff's argument that under McGill v. Citibank, 393 P.3d 85 (Cal. 2017), the plaintiff could not waive the right to class arbitration of the claim for an injunction prohibiting Shutterfly from continuing to collect face scans of Illinois residents notwithstanding the class waiver provision in the terms of use. Id. at *17. Shutterfly argued that the McGill rule only applied to claims arising under California's consumer protection laws, and that the plaintiff in this case was not seeking a public injunction, but a private one. The Court agreed with Shutterfly's position, holding that the plaintiffs' substantive claim arose under an Illinois statute, the BIPA, and did not arise under the consumer protection laws of California, and therefore the McGill rule did not apply to the arbitration agreement in this case. Accordingly, the Court granted Shutterfly's motion to compel arbitration.
Implications For Employers
Over the last several years, many businesses have been implementing arbitration clauses in both employment and consumer agreements. Accordingly, it is possible that upon entering into agreements, many employees and consumers may not have initially agreed to arbitrate disputes and waive their rights to initiate class action litigation. When businesses are thus confronted with large scale class action claims, the ruling in Miracle-Pond, et al. v. Shutterfly, Inc. demonstrates that it would be worth their while to closely examine modifications of dispute resolution provisions to determine if there is a potential avenue to attack class action claims. In addition, businesses without arbitration provisions may consider implementing this mechanism to deter potential litigants from filing class action lawsuits.
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