Cullen v. Shutterfly Lifetouch, LLC

Opinion

1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 ELLEN ROSS, on behalf of herself, the Case No. 20-cv-06040-BLF general public and those similarly situated, 8 Plaintiff, ORDER GRANTING DEFENDANTS’ 9 RENEWED MOTION TO COMPEL v. INDIVIDUAL ARBITRATION OR, IN 10 THE ALTERNATIVE, MOTION FOR SHUTTERFLY LIFETOUCH, LLC and RECONSIDERATION; STAYING 11 SHUTTERFLY, LLC, ACTION; AND ADMINISTRATIVELY CLOSING CASE 12 Defendants. [Re: ECF 76] 13

14 15 This is a putative consumer class action arising out of the marketing of school pictures by 16 Defendant Shutterfly, LLC (“Shutterfly”) and its subsidiary, Defendant Shutterfly Lifetouch, LLC 17 (“Lifetouch”). Plaintiff Ellen Ross (“Ross”) claims that Defendants’ practice of taking unsolicited 18 photos of school children pursuant to their Family Approval Program, and sending those photos 19 home with instructions for payment, violates California law. 20 Defendants responded to the initial complaint with several motions, including a motion to 21 compel arbitration that was denied by the Court in a prior order. See Prior Order, ECF 58. 22 Defendants have filed a renewed motion to compel arbitration or, in the alternative, for 23 reconsideration of the Court’s prior order denying arbitration. See Renewed Mot., ECF 76. For 24 the reasons discussed below, the renewed motion to compel arbitration is GRANTED. The action 25 is STAYED and ADMINISTRATIVELY CLOSED pending arbitration. 26 I. BACKGROUND 27 Ross and another putative class representative, Don Cullen (“Cullen”), filed this action on 1 Program, through which Defendants provide school picture services to numerous schools. See 2 Compl., ECF 1. Cullen has been dismissed from the action. See Prior Order, ECF 58. The 3 operative FAC, brought by Ross on behalf of herself, the general public and those similarly 4 situated, alleges the facts set forth below. See generally FAC, ECF 63. 5 Shutterfly is a Delaware limited liability company headquartered in California. FAC ¶ 10. 6 In 2018, Shutterfly acquired Lifetouch, a Minnesota limited liability company that is 7 headquartered in Minnesota. Id. ¶¶ 9, 11. “Lifetouch is a professional photography company that 8 has been taking and selling school photographs for over 80 years.” Id. ¶ 27. Lifetouch provides 9 school picture services twice per year, in fall and spring, working with schools to hire 10 photographers, take the photos, and deliver marketing materials to families via schoolchildren. Id. 11 ¶ 32. Shutterfly oversees Lifetouch’s activities and manages the digital sales, marketing, and 12 manufacturing of the school photos. Id. 13 For fall photos, parents order photo packages before school pictures are taken, and parents 14 have the option of choosing not to have pictures taken of their children. FAC ¶ 33. For spring 15 photos, however, Defendants take unsolicited photos of school children pursuant to their Family 16 Approval Program. Id. ¶¶ 34-35. The photos are sent home with instructions directing parents to 17 pay for photos they keep and return all other photos to the school. Id. ¶ 36. Parents are not given 18 an opportunity to opt out of having the photos taken and sent home. Id. ¶ 37. Parents feel 19 pressure to pay for these unsolicited photos or to return them to the school. Id. ¶ 38. 20 Ross has four children who attended school in Modesto, California from 2001 to the 21 present. FAC ¶ 47. During that period, she received unsolicited photos of her children from 22 Defendants. Id. ¶¶ 48-49. Ross consistently purchased the Family Approval Program packages 23 for all of her children from 2001 until approximately 2019. Id. ¶ 51. According to Ross, 24 Defendants’ conduct violated California law. She alleges that she “would not have paid for any 25 of the unsolicited photo packages had Defendants not misrepresented her obligation to pay for or 26 return the photos of her children.” Id. ¶ 52. 27 Ross asserts claims for: (1) unjust enrichment; (2) violation of California’s Consumer 1 advertising law (“FAL”), Cal. Bus. & Prof. Code § 17500 et seq.; (4) common law fraud, deceit, 2 and/or misrepresentation; (5) violation of California’s unfair competition law (“UCL”), Cal. Bus. 3 & Prof. Code § 17200 et seq.; and (6) violation of Cal. Civil Code § 1584.5. She seeks to litigate 4 these claims on behalf of a nationwide class of persons who received unsolicited Family Approval 5 Program photo packages from Defendants, as well as several subclasses. FAC ¶ 53. 6 Defendants move to compel individual arbitration of Ross’s claims pursuant to an 7 arbitration provision included in the Terms of Service (“TOS”) that appear on Lifetouch’s website. 8 See Punke Decl. ¶ 9 & Exh. A at ¶ 16, ECF 76-3. The Court denied Defendants’ prior motion to 9 compel arbitration of Ross’s claims based on Lifetouch’s online TOS, finding that Defendants had 10 failed to show either than Ross purchased school pictures online or that the paper order forms sent 11 home from school gave adequate notice that ordering photos would bind her to Lifetouch’s online 12 TOS. See Prior Order at 12-14, ECF 58. Defendants now submit evidence that Ross purchased 13 school pictures through Lifetouch’s website on October 1, 2020 and April 21, 2021. See Punke 14 Decl. ¶¶ 5-9. Based on that evidence, Defendants have filed the present renewed motion to 15 compel arbitration pursuant to the arbitration provision in Lifetouch’s online TOS or, in the 16 alternative, for reconsideration of the order denying Defendants’ prior motion to compel 17 arbitration. 18 II. LEGAL STANDARD 19 The Federal Arbitration Act (“FAA”) applies to arbitration agreements affecting interstate 20 commerce. 9 U.S.C. §§ 1 et seq. When it applies, the FAA preempts state law rules that conflict 21 with its provisions, as well as “state-law rules that stand as an obstacle to the accomplishment of 22 the FAA's objectives.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 341-43 (2011). 23 “Generally, in deciding whether to compel arbitration, a court must determine two ‘gateway’ 24 issues: (1) whether there is an agreement to arbitrate between the parties; and (2) whether the 25 agreement covers the dispute.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015). “If 26 the response is affirmative on both counts, then the Act requires the court to enforce the arbitration 27 agreement in accordance with its terms.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1 Although these gateway issues generally are for the court to decide, they “can be expressly 2 delegated to the arbitrator where the parties clearly and unmistakably provide otherwise.” 3 Brennan, 796 F.3d at 1130. For example, the Supreme Court has “recognized that parties can 4 agree to arbitrate ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to 5 arbitrate or whether their agreement covers a particular controversy.” Rent-A-Ctr., W., Inc. v. 6 Jackson, 561 U.S. 63, 68-69 (2010). “When the parties’ contract delegates the arbitrability 7 question to an arbitrator, a court may not override the contract.” Henry Schein, Inc. v. Archer & 8 White Sales, Inc., 139 S. Ct. 524, 529 (2019). “In those circumstances, a court possesses no power 9 to decide the arbitrability issue.” Id. “That is true even if the court thinks that the argument that 10 the arbitration agreement applies to a particular dispute is wholly groundless.” Id. 11 However, “arbitration is a matter of contract and a party cannot be required to submit to 12 arbitration any dispute which he has not agreed so to submit.” AT & T Techs., Inc. v. Commc’ns 13 Workers of Am., 475 U.S. 643, 648 (1986) (quotation marks and citation omitted). Whether the 14 parties formed an agreement to arbitrate is resolved under “ordinary state-law principles that 15 govern the formation of contracts.” First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 16 (1995). As the parties seeking to compel arbitration, Defendants bear the burden of proving the 17 existence of an agreement to arbitrate by a preponderance of the evidence. See Norcia v. Samsung 18 Telecommunications Am., LLC, 845 F.3d 1279, 1283 (9th Cir. 2017). 19 III. DISCUSSION 20 Defendants’ prior motion to compel arbitration of Ross’s claims was denied by this Court 21 on May 19, 2021. See Prior Order, ECF 58. In that order, the Court determined that Defendants 22 had not met their burden to show that Ross agreed to the arbitration provision included in 23 Lifetouch’s online TOS, because Defendants had not submitted evidence that Ross purchased 24 school pictures online or that the paper order forms sent to the home were sufficient to put Ross on 25 notice that the online TOS applied. See id. at 12-14. Defendants now bring a renewed motion to 26 compel arbitration or, in the alternative, for reconsideration of the Court’s prior order based on 27 evidence that Ross did purchase school pictures online. In opposition to the motion, Ross 1 Court’s prior order and that in any event Defendants’ arguments fail on the merits. 2 As discussed below, the Court finds that Defendants have shown that reconsideration of 3 the prior order is warranted and that their renewed motion to compel arbitration is meritorious. 4 A. Reconsideration is Appropriate Based on Material Difference in Fact 5 In this district, reconsideration may be sought only if one of the following circumstances 6 exists: (1) a material difference in fact or law from that presented to the Court prior to issuance of 7 the order that is the subject of the motion for reconsideration; (2) new material facts or a change of 8 law occurring after issuance of such order; or (3) a manifest failure by the Court to consider 9 material facts or dispositive legal arguments that were presented to the Court before issuance of 10 such order. See Civ. L.R. 7-9(b). 11 Defendants argue that there is a material difference in fact from that presented to the Court 12 prior to issuance of its earlier order denying Defendants’ first motion to compel arbitration. 13 Defendants’ first motion to compel arbitration was filed on October 22, 2020. See Prior Mot., 14 ECF 21. At that time, Defendants were unable to locate any records showing that Ross had 15 purchased photos online. See Punke Decl. ¶ 4, ECF 76-3. Defendants submit the declaration of 16 counsel describing the efforts of the defense team to find such records. See id. At the hearing on 17 the first motion to compel, Defendants’ counsel pointed out that Ross’s method of purchase was 18 not identified in the complaint. See Hrg. Tr. 4:17-24, Chang Decl. Exh. 1, ECF 76-2. Both 19 Defendants’ counsel and the Court proceeded on the assumption that Ross had purchased school 20 pictures using a paper order form. See id. 20:14-16; Prior Order at 12, ECF 58. The Court’s prior 21 order dated May 19, 2021 was based on that assumption. See Prior Order at 12-14. 22 Defendants subsequently discovered that Ross made two online purchases of school 23 pictures using Lifetouch’s website on October 1, 2020 and April 21, 2021. See Punke Decl. ¶¶ 5- 24 9. The October 2020 purchase was made before Defendants filed their first motion to compel 25 arbitration, and the April 2021 purchase was made after the hearing on Defendants’ first motion to 26 compel but before the Court issued its ruling. However, Defendants did not discover Ross’s two 27 online purchases until June 2021, when Ross’s counsel provided Defendants’ counsel with a set of 1 had not previously identified the names of the children for whom she purchases school pictures, in 2 the complaint or otherwise. See id. ¶ 4. The complaint alleged that Ross had purchased school 3 pictures only between 2001 and 2019. See Compl. ¶ 47. With the new information, Defendants 4 were able to identify the two online purchases of school pictures made by Ross on October 1, 5 2020 and April 21, 2021. See id. ¶ 6. 6 Ross’s online purchases were made on Lifetouch’s website, my.lifetouch.com. See Punke 7 Decl. ¶¶ 6-8. At that time Lifetouch’s most recent TOS, dated July 15, 2020, were in effect. See 8 id. ¶ 9. Lifetouch’s TOS contain an “Arbitration Agreement” that provides as follows: “If you are 9 a Shutterfly customer in the United States (including its possessions and territories), you and 10 Shutterfly agree that any dispute, claim or controversy arising out of or relating in any way to the 11 Shutterfly service, these Terms of Use and this Arbitration Agreement, shall be determined by 12 binding arbitration or in small claims court.” TOS ¶ 16, Punke Decl. Exh. A, ECF 76-4. The TOS 13 go on to state that, “You agree that, by agreeing to these Terms of Use, the U.S. Federal 14 Arbitration Act governs the interpretation and enforcement of this provision, and that you and 15 Shutterfly are each waiving the right to a trial by jury or to participate in a class action.” Id. 16 Either Shutterfly or the customer may commence arbitration or file a claim in small claims court 17 after certain notice requirements are met. See id. Arbitration will be governed by the Consumer 18 Arbitration Rules of the American Arbitration Association (“AAA Rules”) as modified by the 19 TOS. See id. The TOS state in all capital letters, “YOU AND SHUTTERFLY AGREE THAT 20 EACH MAY BRING CLAIMS AGAINST THE OTHER ONLY IN YOUR OR ITS 21 INDIVIDUAL CAPACITY, AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY 22 PURPORTED CLASS OR REPRESENTATIVE PROCEEDING.” Id. 23 This evidence is sufficient to show a material difference in fact from that presented to the 24 Court prior to its issuance of the order denying Defendants’ first motion to compel arbitration. 25 The Court finds unpersuasive Ross’s argument that Defendants’ request for reconsideration on this 26 basis should be denied for lack of diligence. “A motion for reconsideration may not be used to 27 raise arguments or present evidence for the first time when they could reasonably have been raised 1 873, 880 (9th Cir. 2009) (quotation marks and citation omitted); see also Civ. L.R. 7-9(b)(1) (A 2 party seeking reconsideration based on facts materially different from those presented to the court 3 “must show that in the exercise of reasonable diligence the party applying for reconsideration did 4 not know such fact or law at the time of the interlocutory order.”). Ross argues that had 5 Defendants searched for records of purchases by “Ellen Ross” any time after October 1, 2020, 6 they would have discovered her online purchases. Ross does not explain, however, what 7 information would have put Defendants on notice that further searches in that time frame were 8 necessary. As discussed above, the complaint alleged that Ross purchased school pictures from 9 Defendants only between 2001 and 2019. Based on the allegations of the complaint and their 10 records search performed in September 2020, Defendants reasonably believed that all of the 11 purchases at issue were made with paper forms, as indicated by Defendants’ counsel at the 12 hearing. Upon receiving additional identifying information from Ross in June 2021, Defendants 13 performed a further records search and unearthed Ross’s online purchases. Defendants filed the 14 present renewed motion to compel arbitration on July 8, 2021. 15 On this record, the Court finds that Defendants have shown that they could not reasonably 16 have presented the online purchases before the Court issued its prior ruling. The Court’s prior 17 ruling turned on the assumption that Ross’s purchases of school pictures were not made online. 18 Now that Defendants have shown the existence of some online purchases, the Court finds it 19 appropriate to reconsider its prior order and determine whether a different outcome results from 20 consideration of those online purchases. 21 B. Defendants’ Renewed Motion to Compel Arbitration is Meritorious 22 It is clear from this record that Ross made two online purchases of school pictures through 23 Lifetouch’s website, and that in so doing she agreed to the TOS containing the arbitration 24 provision set for the above. Defendants present evidence that when Ross made her purchases, the 25 following language appeared directly above the “Submit Payment” button on the Lifetouch 26 website: “By clicking ‘Submit Payment” I agree to the Privacy Statement and Terms and 27 Conditions. I also confirm that I am the legal parent/guardian of the student(s) in this order or I 1 Numerous courts, including this one, have found such evidence sufficient to establish the 2 existence of an agreement to arbitrate. See Allen v. Shutterfly, Inc., No. 20-CV-02448-BLF, 2020 3 WL 5517172, at *6 (N.D. Cal. Sept. 14, 2020) (“Courts in this Circuit routinely uphold the 4 validity of internet contracts like Lifetouch’s 2018 TOS.”). 5 Ross does not dispute Defendants’ evidence regarding her online photo purchases or the 6 website language set forth above. Instead, she advances several reasons why the Court should not 7 enforce the arbitration agreement in this case. First, she argues that the arbitration agreement is 8 unconscionable and unenforceable because it was entered into outside the presence of her retained 9 counsel. Second, she asserts that she did not consent to arbitrate her claims. Third, she asserts 10 that the arbitration agreement is not enforceable because it resulted from an improper 11 communication designed to prejudice the putative class. Fourth, she argues that this Court already 12 has ruled that an arbitration provision applicable to a later photo purchase does not retroactively 13 apply to an earlier photo purchase. 14 As Defendants point out in their reply brief, the arbitration provision in the TOS delegates 15 most of these issues the arbitrator for decision. “[P]arties may agree to have an arbitrator decide 16 not only the merits of a particular dispute but also gateway questions of arbitrability, such as 17 whether the parties have agreed to arbitrate or whether their agreement covers a particular 18 controversy.” Henry Schein, 139 S. Ct. at 529 (quotation marks and citation omitted). “When the 19 parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the 20 contract.” Id. “In those circumstances, a court possesses no power to decide the arbitrability 21 issue.” Id. “That is true even if the court thinks that the argument that the arbitration agreement 22 applies to a particular dispute is wholly groundless.” Id. In the present case, the arbitration 23 provision in the TOS clearly and unmistakably delegates the arbitrability question to the arbitrator 24 to the extent it turns on the scope and enforceability of the arbitration agreement. The arbitration 25 provision states expressly that “[a]ll issues are for the arbitrator to decide, including issues relating 26 to the scope and enforceability of this arbitration agreement.” TOS ¶ 16 (emphasis added), Punke 27 Decl. Exh. A, ECF 76-4. For the reasons discussed below, Ross’s challenges to the scope and 1 unconscionability, fall within this clear and unmistakable delegation to the arbitrator. 2 Before turning to Ross’s specific challenges, the Court addresses Ross’s apparent 3 assumption that the Court must decide whether the arbitration agreement is unconscionable rather 4 than leaving that issue for the arbitrator. The Supreme Court addressed this precise issue in Rent- 5 A-Ctr, a case in which an employer moved to compel arbitration of a former employee’s 6 discrimination lawsuit. The former employee opposed the motion to compel on the ground that 7 the arbitration agreement was unenforceable because it was unconscionable under state law. The 8 Supreme Court held that the district court properly granted the motion to compel arbitration based 9 on a delegation provision that gave the arbitrator “exclusive authority to resolve any dispute 10 relating to the . . . enforceability . . . of this Agreement.” Rent-A-Ctr., 561 U.S. at 72. In the 11 Supreme Court’s view, that delegation encompassed the former employee’s claim that the 12 arbitration agreement was unconscionable. See id. at 71-72. The Supreme Court stated that absent 13 a challenge to the delegation provision specifically, as distinct from a challenge to the arbitration 14 agreement as a whole, the delegation provision had to be be treated as valid. See id. at 72. 15 (“Accordingly, unless Jackson challenged the delegation provision specifically, we must treat it as 16 valid, . . . leaving any challenge to the validity of the Agreement as a whole for the arbitrator.”). 17 In the present case, Ross challenges the arbitration agreement as a whole on the ground of 18 unconscionability, but she has not challenged the delegation provision specifically. This case 19 therefore is factually distinguishable from Norris v. Aon PLC, No. 21-CV-00932-CRB, 2021 WL 20 1238303, at *6 (N.D. Cal. Apr. 2, 2021), in which the district court took up the plaintiffs’ 21 unconscionability challenge that was directed specifically to the delegation provision. Because 22 Ross, like the former employee in Rent-A-Ctr., has not challenged the delegation provision 23 specifically, this Court must treat the delegation provision as valid. 24 Ross’s first argument listed above, asserting that the arbitration agreement is 25 unconscionable and unenforceable under the Salgado decisions issued by the California Court of 26 Appeal,1 clearly falls within the delegation provision giving the arbitrator authority “to decide . . . 27 1 issues relating to the . . . enforceability of this arbitration agreement.” TOS ¶ 16. See Rent-A-Ctr., 2 561 U.S. at 72 (holding that challenge to arbitration agreement as unconscionable fell within 3 delegation provision giving the arbitrator “exclusive authority to resolve any dispute relating to the 4 . . . enforceability . . . of this Agreement”). While this Court engaged in a robust colloquy with 5 counsel regarding the applicability of the Salgado cases, this Court has no power to decide that 6 issue here because that power resides exclusively with the arbitrator. Ross’s third argument, 7 challenging enforceability of the arbitration provision on the ground that it resulted from an 8 improper communication designed to prejudice the putative class, likewise falls within the 9 delegation of authority to the arbitrator. 10 Her second argument, that she did not consent to arbitration, properly is presented to this 11 Court, since the question of whether the parties agreed to arbitrate is not expressly delegated to the 12 arbitrator. As discussed above, Defendants have presented evidence showing that Ross entered 13 into an agreement to arbitrate when she clicked on the “Submit Payment” button on Lifetouch’s 14 website. Ross asks the Court to find that agreement to be invalid because it would be “absurd” to 15 find that Ross knowingly entered into such an agreement in the midst of this litigation. Ross has 16 not cited any authority that would allow the Court to disregard her agreement to Lifetouch’s TOS, 17 including the arbitration provision, based on its asserted inconsistency with her litigation position. 18 Ross’s fourth argument, asserting that this Court has precluded retroactive application of 19 the arbitration provision, is delegated to the arbitrator to the extent Ross is attempting to litigate 20 the proper scope of the arbitration agreement. To the extent Ross is trying to make an argument 21 based on the doctrine of law of the case, such argument is misplaced. Under the law of the case 22 doctrine, a district court generally is precluded from reconsidering an issue that has been decided 23 by the district court or a higher court in the same case. See Rebel Oil Co. v. Atl. Richfield Co., 146 24 F.3d 1088, 1093 (9th Cir. 1998). The doctrine does not apply to dicta, however. See id. Ross 25 points to language in the Court’s prior order opining that even if paper forms sent home starting in 26 2019 contained language sufficient to create an arbitration agreement, such an agreement would 27 1 not apply to Ross’s earlier purchases using forms that did not contain such language. See Prior 2 ||} Order at 13, ECF 58. That language was unnecessary to the Court’s denial of Defendants’ first 3 || motion to arbitrate, which was based on the Court’s finding that none of the paper forms created 4 an arbitration agreement. See id. at 13-14. Accordingly, while the cited language arguably 5 supports Ross’s position, it does not constitute law of the case, nor was it intended to constitute a 6 || legal determination that arbitration provisions may not apply retroactively. 7 In summary, the Court finds that Defendants have met their burden to prove the existence 8 of an arbitration agreement by a preponderance of the evidence. The Court also finds that Ross’s 9 challenges to the enforceability and scope of the arbitration agreement have been delegated to the 10 || arbitrator. Accordingly, Defendants’ renewed motion to compel arbitration is GRANTED. 11 In light of the Court’s order compelling arbitration, Defendants’ pending motion to dismiss 12 || is TERMINATED. This terminations without prejudice to renewal of the motion should the 13 arbitrator determine that the arbitration agreement is unenforceable or does not encompass Ross’s 14 || claims. 15 The litigation is STAYED pending arbitration. The Clerk SHALL administratively close 16 || the case. This is an internal procedure that does not affect the substantive rights of the parties. 3 17 The parties may request that the case be reopened, if appropriate, upon the completion of 18 arbitration proceedings. Upon the completion of arbitration proceedings, the parties shall file a 19 || joint status update advising the Court whether any party will seek to reopen the case. 20 IV. ORDER 21 (1) Defendants’ renewed motion to compel arbitration (ECF 76) is GRANTED. 22 (2) Defendants’ pending motion to dismiss (ECF 68) is TERMINATED. 23 (3) This litigation is STAYED pending arbitration. 24 (4) The Clerk SHALL administratively close the case. 25 (5) The parties SHALL file a joint status update upon the completion of arbitration 26 proceedings, advising the Court whether any p Wp will seek foTeopen the case. 27 Dated: October 13, 2021 BETH LABSON FREEMAN 28 United States District Judge