Case 2:22-cv-04537-MEMF-JPR Document 39 Filed 01/20/23 Page 1 of 19 Page ID #:662
1 O 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 Case No.: 2:22-cv-04537-MEMF-JPR 11 VERIBI, LLC, a Nevada limited liability company, 12 Plaintiff, ORDER DENYING DEFENDANT’S 13 MOTION TO COMPEL ARBITRATION v. [ECF NO. 15] 14
15 COMPASS MINING, INC., a Delaware 16 corporation, 17 Defendant.
18 19 20 Before the Court is the Motion to Compel Arbitration (ECF No. 15) filed by Defendant 21 Compass Mining, Inc. For the reasons provided below, the Court hereby DENIES the Motion to 22 Compel Arbitration. 23 24 25 26 27 / / / 28 / / /
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1 I. Background 2 A. Factual Background1 3 Plaintiff Veribi, LLC (“Veribi”) brings this suit against Defendant Compass Mining, Inc. 4 (“Compass”). Veribi is a Nevada limited liability company engaged in the business of bitcoin 5 mining. Compl. ¶¶ 3, 5. Compass is a Delaware corporation that provides hosting services and 6 mining systems for bitcoin mining. Id. ¶ 7. Bitcoin mining is the process of applying computing 7 power to solve cryptographic problems to produce or “mint” new bitcoins, a process that is “energy 8 intensive” and typically located in places with low energy costs and high production capacity. Id. ¶¶ 9 5, 8. Compass provides its customers with the necessary means to mine cryptocurrency, which 10 includes selling computers required to mine cryptocurrency (“miners”) and provision of hosting 11 services for a customer’s miners. Declaration of Thomas Heller, ECF No. 15-1 (“Heller Decl.”) ¶ 5. 12 Hosting services include providing access to facilities sufficient to support the operation of miners, 13 as well as electricity to run the miners. Id. 14 Compass contracted with BitRiver, a major Russian hosting company incorporated in 15 Switzerland, to provide hosting services in Russia for Compass’s North American clients. Compl. ¶¶ 16 9, 15. Executive Order 14024 was issued on April 15, 2021, mandating, in relevant part: 17 Section 1. All property and interests in property that are in the United States, that 18 hereafter come within the United States, or that are or hereafter come within the 19 possession or control of any United States person of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise 20 dealt in: (a) Any person determined by Secretary of Treasury, in consultation with the 21 Secretary of State, and, with respect to subsection (a)(ii) of this section, in consultation with the Attorney General, or by the Secretary of State, in consultation 22 with the Secretary of Treasury, and with respect to subsection (a)(ii) of this section, in 23 consultation with the Attorney General: (i) To operate or have operated in the technology sector or the defense 24 and related materiel sector of the Russian Federation economy, or any other sector of the Russian Federation economy as may be determined 25 by the Secretary of Treasury, in consultation with the Secretary of 26 State; 27 28 1 Unless otherwise indicated, the following factual background is derived from the Complaint. ECF No. 1 (“Compl.”).
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(ii) To be responsible for or complicit in, or to have directly or indirectly 1 engaged or attempted to engage in, any of the following for or on 2 behalf of, or for the benefit of, directly or indirectly, the Government of the Russian Federation . . . . 3 31 C.F.R. § Pt. 587, App. A (2022) (emphasis added). 4 Between May 2021 and January 2022, Veribi purchased 140 bitcoin mining servers and 5 service plans from Compass for approximately 1.5 million dollars, which Compass managed at 6 BitRiver’s facility in Russia. Id. ¶ 16. In November 2021, satellite images showed an ongoing 7 buildup of Russian forces near Ukraine. Id. ¶ 18. On March 3, 2022, Compass issued a statement to 8 ease customer concerns regarding the Russian invasion and sanctions, stating “business as usual.” Id. 9 ¶ 21. On April 20, 2022, the U.S. Department of the Treasury’s Office for Foreign Assets Control 10 (OFAC) designated BitRiver AG, Compass’s hosting partner in Russia, and other affiliated 11 companies as subject to Executive Order 14024. Id. ¶ 22. 12 On April 21, 2022, Compass issued a notice via email to customers that it “terminated 13 contractual relationship and business dealings with BitRiver” due to the designation of BitRiver as 14 subject to Executive Order 14024. Id. ¶ 24. Concerned with its investments, Veribi contacted 15 BitRiver to attempt to remove its miners from Russia or sell them to a non-sanctioned third party. Id. 16 ¶ 26. On May 6, 2022, BitRiver responded to Veribi’s email, stating that Compass was the owner of 17 its customers’ miners in BitRiver’s possession and control and, as a result, Veribi was instead 18 required to direct all queries regarding the equipment to Compass. Id. On May 9, 2022, Veribi 19 advised Compass to instruct BitRiver to prepare its miners for shipment out of Russia. Id. ¶ 27. 20 However, Compass responded that it was unable to conduct or facilitate any business dealings with 21 BitRiver pursuant to the U.S. government’s prohibition against conducting business with BitRiver. 22 Id. 23 1. Veribi’s Purchases 24 25 Veribi made five separate purchases and received invoices for miners and hosting services it 26 purchased from Compass on May 18, 2021, June 9, 2021, August 5, 2021, January 14, 2022, and 27 January 26, 2022. Heller Decl. ¶ 12; see also ECF No. 15-2 (“Compass Invoices”). The invoices 28 issued to Veribi from June 2021 to January 2022 included the following notice in a footnote: “By
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1 paying for this invoice and paying the security deposit, you are agreeing to the Compass Mining 2 Hosting Terms and Conditions. The Terms and Conditions are available on request.” See generally 3 Compass Invoices.2 4 Veribi also made two purchases of miners online through the Compass website, on March 31, 5 2021, and July 30, 2021. Heller Decl. ¶¶ 29–30. Customers completing an online transaction via 6 Compass’s website are required to scroll through the CHSA, click “Ok, I agree,” and then check a 7 box affirming: “I have read and agree to the Compass Hosting Service Agreement.” Id. ¶ 32. On the 8 website’s checkout page, the “pay with” options are disabled until the customer checks the box next 9 to the statement, “I have read and agree to the Compass Hosting Service Agreement.” Id. ¶ 34. 10 Customers who try to click on a payment option without checking the box are blocked by an error, 11 and a message in red appears, stating, “You need to accept the Compass Hosting Service 12 Agreement.” Id. When a customer clicks the box next to “I have read and agree to the Compass 13 Hosting Service Agreement,” the Agreement automatically pops up on the customer’s screen. Id. 14 Once the Agreement pops up, a customer cannot accept or agree to the Agreement until they scroll to 15 the bottom of the document.3 Id. 16 B. Compass Hosting Service Agreement 17 Beginning in July 2021, the CHSA included a provision labeled “Disputes” that provides in 18 relevant part: 19 20 To the fullest extent permitted by law, the parties hereto (the “Parties”) agree to waive their right to seek remedies in court, including but not limited to rights to a trial by jury. 21 The Parties agree that any dispute between or among them or their subsidiaries, affiliates or related entities arising out of, relating to or in connection with this 22 Agreement, will be resolved in accordance with a confidential two-step dispute resolution procedure involving: (1) non-binding mediation, and (2) binding 23 24 25 2 The Court notes that throughout the parties’ briefing, they refer to three different agreements: the Compass Mining Hosting Terms and Conditions, Compass Hosting Services Agreement, and Master Compass Hosting 26 Service Agreement. During the hearing, the parties confirmed that all three of these are different names for the same document. The Court will hereinafter refer to this agreement as the Compass Hosting Services 27 Agreement (“CHSA”). Supplemental Declaration of Heller (“Heller Supp. Decl.”), ECF No. 31-5, at ¶ 8. 3 Although it is clear that Veribi was required to assent to the CHSA in this manner during its July 30, 2021 28 transaction, it is disputed whether the March 31, 2021 transaction also required this same lengthy process.
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arbitration under the Federal Arbitration Act, 9 U.S.C. 1, et seq., or state law, 1 whichever is applicable . . . . 2 ECF No. 15-7, Ex. F (“July 2021 CHSA”), at 10 (emphasis added). The subsequently 3 revised versions of the CHSA, dated August 2021 and January 2022, contain substantially 4 the same arbitration provision as the July 2021 CHSA.4 5 II. Procedural History 6 On July 1, 2022, Veribi filed its Complaint against Compass, alleging: (1) breach of contract, 7 (2) negligence, (3) conversion, and (4) fraud. See generally Compl. On August 10, 2022, Compass 8 filed a Motion to Dismiss and a Motion to Compel Arbitration. ECF Nos. 13 (“MTD”), 15 9 (“MTCA”). The Motion to Compel Arbitration was fully briefed on August 23, 2022. ECF Nos. 24 10 (“MTCA Opp’n”), 31 (“MTCA Reply”). On September 1, 2022, the Motion to Dismiss was fully 11 briefed. ECF Nos. 27 (“MTD Opp’n”), 32 (“MTD Reply”). On November 10, 2022, Compass filed 12 an Application for Leave to File Notice of Supplemental Authority in Support of its Motion to 13 Compel Arbitration. ECF No. 34. The Court granted leave on November 11, 2022. ECF No. 35. The 14 Court heard oral argument on the Motions on November 17, 2022. 15 16 III. Applicable Law 17 A. Arbitration Agreements 18 19 Under Section 2 of the Federal Arbitration Act (“FAA”), arbitration clauses in contracts 20 “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for 21 the revocation of any contract.” 9 U.S.C. § 2. The FAA reflects the “fundamental principle that 22 arbitration is a matter of contract.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) 23 (quoting Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010)). “If an ordinary procedural 24 rule—whether of waiver or forfeiture or what-have-you—would counsel against enforcement of an 25 arbitration contract, then so be it. The federal policy is about treating arbitration contracts like all 26
27 4 The only change made between the July 2021 and August 2021 versions of the CHSA was to renumber the 28 arbitration provision as section 8 rather than section 13. As for the January 2022 CHSA, the only change made was the addition of a 8.1 subheading and title: Mediation and Binding Arbitration.
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1 others, not about fostering arbitration.” Morgan v. Sundance, Inc., 142 S. Ct. 1708, 1713 (2022). 2 “[T]he party seeking to compel arbitration[] has the burden of proving the existence of an 3 agreement to arbitrate by a preponderance of the evidence.” Knutson v. Sirius XM Radio Inc., 771 4 F.3d 559, 565 (9th Cir. 2014). In determining whether to compel arbitration, the court must consider 5 two gateway factors: (1) whether there is an agreement to arbitrate between the parties; and (2) 6 whether the agreement covers the dispute. Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 7 2015) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)). Moreover, 8 arbitration agreements may be invalidated by “generally applicable contract defenses, such as fraud, 9 duress, or unconscionability, but not by defenses that apply only to arbitration or that derive their 10 meaning from the fact that an agreement to arbitrate is at issue.” Concepcion, 563 U.S. at 343 11 (internal quotation marks omitted) (citing Doctor’s Assoc., Inc. v. Casarotto, 517 U.S. 681, 687 12 (1996)). The Act “leaves no place for the exercise of discretion by a district court, but instead 13 mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an 14 arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 15 (1985). 16 A petition to compel arbitration is to be heard in the manner of a motion; factual issues are 17 submitted on affidavits or declarations, or on oral testimony in court’s discretion. Strauch v. Eyring, 18 35 Cal. Rptr. 2d 747, 748 (Ct. App. 1994). 19 B. Online Formation of Contract Agreements 20 The Court begins its discussion with a review of the various manners in which online 21 providers seek to impose contractual terms on consumers. California courts have identified four 22 categories of internet contract formation, “most easily defined by the way in which the user 23 purportedly gives their assent to be bound by the associated terms: browsewraps, clickwraps, 24 scrollwraps, and sign-in wraps.” B.D. v. Blizzard Ent., Inc., 292 Cal. Rptr. 3d 47, 60 (Ct. App. 2022). 25 A “browsewrap” agreement is one in which an internet user accepts a website’s 26 terms of use merely by browsing the site. A “clickwrap” agreement is one in which an internet user accepts a website’s terms of use by clicking an “I agree” or “I accept” 27 button, with a link to the agreement readily available. A “scrollwrap” agreement is like a “clickwrap,” but the user is presented with the entire agreement and 28 must physically scroll to the bottom of it to find the “I agree” or “I accept”
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button. . . . “Sign-in-wrap” agreements are those in which a user signs up to use an 1 internet product or service, and the sign-up screen states that acceptance of a separate agreement is required before the user can access the service. While a link 2 to the separate agreement is provided, users are not required to indicate that they have read the agreement’s terms before signing up. 3 Sellers v. JustAnswer LLC, 289 Cal. Rptr. 3d 1, 15 (Ct. App. 2021) (emphasis added). 4 “The ‘wrap’ methods of online contract-formation provide varying degrees of notice to users, 5 with browsewrap providing the least and scrollwrap providing the most.” Blizzard, 292 Cal. Rptr. 3d 6 at 60. As such, California courts have generally “reached consistent conclusions when evaluating the 7 enforceability of agreements at either end of the spectrum, generally finding scrollwrap and 8 clickwrap agreements to be enforceable and browsewrap agreements to be unenforceable.” Id. 9 IV. Discussion 10 Compass moves to compel arbitration of the entire action under the CHSA on the grounds 11 that (1) the parties formed a valid arbitration agreement; and (2) the arbitration agreement 12 encompasses Veribi’s claims. MTCA at 1. In response, Veribi contends that the MTCA should be 13 denied because Veribi did not agree to the arbitration agreement and Compass’s invoices did not 14 provide inquiry notice of the CHSA. MTCA Opp’n at 6–8. 15 16 A. The parties formed a valid arbitration agreement. 17 Compass contends that the parties formed a valid agreement to arbitrate when Veribi: (1) 18 agreed to the Compass Hosting Service Agreement, which included an arbitration provision, when 19 making purchases through direct invoices; and (2) made online purchases through the Compass 20 website, which required Veribi to expressly agree to the terms set forth in Compass’s Hosting 21 Service Agreement, including its arbitration provision. MTCA at 2–3, 5–8. 22 Under California law, the necessary elements for a contract are: (1) “[p]arties are capable of 23 contracting”; (2) “[t]heir consent”; (3) “[a] lawful object”; and (4) “[s]ufficient cause or 24 consideration.” U.S. ex rel. Oliver v. Parsons Co., 195 F.3d 457, 462 (9th Cir. 1999) (quoting CAL. 25 CIV. CODE § 1550). Here, the parties do not dispute that the parties are capable of contracting, that 26 the arbitration agreement pursues a lawful object, or that sufficient cause or consideration existed. 27 28
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1 Rather, the main dispute in this case concerns the second element—whether there was mutual assent 2 to the Arbitration Agreement.5 3 As discussed above, courts recognize a variety of forms of online contract formation between 4 website operators and consumers. Where the website operator can show that the consumer had actual 5 knowledge of the agreement in question, the analysis is very straightforward. But even where the 6 website operator does not show that the consumer had actual knowledge of the agreement, an 7 enforceable contract may still “be found based on an inquiry notice theory.” Berman v. Freedom Fin. 8 Network, LLC, 30 F.4th 849, 856 (9th Cir. 2022). Under an inquiry notice theory, an enforceable 9 contract will be found “only if: (1) the website provides reasonably conspicuous notice of the terms 10 to which the consumer will be bound; and (2) the consumer takes some action, such as clicking a 11 button or checking a box, that unambiguously manifests his or her assent to those terms.” Id. This is 12 because “[r]easonably conspicuous notice of the existence of contract terms and unambiguous 13 manifestation of assent to those terms by consumers are essential if electronic bargaining is to have 14 integrity and credibility.” Id. 15 Compass does not allege in its Motion to Compel Arbitration that Veribi had actual 16 knowledge of the agreement through the website. As a result, in order to establish the existence of an 17 enforceable contract, Compass must prove that: (1) it provided “reasonably conspicuous notice” of 18 the CHSA’s arbitration provision; and (2) Veribi took some action, “such as clicking a button or 19 checking a box, that unambiguously manifests [its] assent to those terms.” Berman, 30 F.4th at 856. 20 It is undisputed that Veribi “took some action” by (1) paying its invoices, and (2) checking the box 21 that read “I have read and agree to the Compass Hosting Service Agreement” and indicating that it 22 agreed and accepted the terms on the Compass website. Rather, the issues presented are: (a) whether 23 or not Compass provided reasonably conspicuous notice of the CHSA’s arbitration provision to 24
25 5 The CHSA provides a choice of law provision that identifies Delaware law as the applicable substantive 26 law. Ex. F at 13. ECF No. 15-7. Compass contends that the outcome of the issue regarding arbitrability would be the same whether under California or Delaware law. MTCA at 5 n.3. Moreover, both parties appear to rely 27 on California authorities in arguing the motion. See generally MTCA Mot.; MTCA Opp’n; MTCA Reply. The parties also agreed during the hearing on this matter that California law should be applied in analyzing 28 the issues presented in this Motion to Compel Arbitration. The Court therefore will analyze the Motion to Compel Arbitration under California law.
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1 Veribi such that its terms are enforceable and (b) whether the actions taken by Veribi unambiguously 2 manifest assent. Compass argues that there was mutual assent to the arbitration agreement because 3 (1) Compass provided inquiry notice of the CHSA in multiple invoices and (2) Veribi reviewed, 4 twice acknowledged, and agreed to the terms as a requirement of completing an online transaction 5 on July 30, 2021. MTCA at 3. Veribi counters that (1) Compass’s invoices did not provide 6 reasonably conspicuous notice of the CHSA and (2) Veribi’s purchase of the miners in the online 7 transactions are not the same miners at issue and it did not unambiguously manifest its assent to the 8 CHSA when placing orders online through Compass’s website. MTCA Opp’n at 6–9. 9 1. Compass failed to provide reasonably conspicuous notice of the CHSA through its 10 invoices. 11 Compass contends that there was sufficient notice of the terms of the CHSA in its invoices. 12 At the bottom of the invoice, a note stated: “By paying for this invoice and paying the security 13 deposit, you are agreeing to the Compass Mining Hosting Terms and Conditions.” MTCA at 1. 14 Veribi contends that Compass’s invoices were “inconspicuous[ly] reference[d]” as it “fails to 15 provide any information about the content of the alleged ‘Terms and Conditions.’” MTCA Opp’n 8– 16 9. 17 Under California law, it is long undisputed that mutual assent is a required element of 18 contract formation. Knutson, F.3d at 565. Courts deny effect to such qualifying provisions on 19 letterheads or other common documents unless referred to in the body of the letter or other writing or 20 expressly brought to the offeree’s attention. 2 Williston on Contracts § 6:48 (4th ed. 2022). To bind 21 someone to a contractual provision contained in a non-contractual document, webpage, or electronic 22 record, the circumstances must show that they (1) learned about the provision or had a reason to 23 know about it based on its conspicuity, and (2) assented to it. 1 Corbin on Contracts § 2.12 (2022). A 24 printed billhead in no way controls, modifies, or alters the terms of the contract. Sturm v. Boker, 150 25 U.S. 312, 326–37 (1893). A provision contained in fine print on the front and reverse side of 26 standard form does not constitute a written agreement to the provision. Windsor Mills, Inc. v. Collins 27 & Aikman Corp., 101 Cal. Rptr. 347, 348 (Ct. App. 1972). 28
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1 Compass argues that the reference of the terms in its invoices is sufficient notice, as inquiry 2 notice of the terms and conditions of an agreement in billing statements and “continued acceptance 3 of defendant’s services constituted assent to the agreement.” MTCA at 6 (quoting Hart v. Charter 4 Comms., Inc., 814 F. App’x 211, 213–14 (9th Cir. 2020)). 5 “[R]egardless of apparent manifestation of his consent, [an offeree] is not bound by 6 inconspicuous contractual provisions of which he was unaware, contained in a document whose 7 contractual nature is not obvious.” Long v. Provide Commerce, Inc., 200 Cal. Rptr. 3d 117, 122 (Ct. 8 App. 2016) (quoting Windsor Mills, Inc., 101 Cal. Rptr. at 351). An offeree knowing that an offer 9 has been made to him but not knowing all its terms may be held to have accepted, by his conduct, 10 whatever terms the offer contains. Windsor Mills, Inc., 101 Cal. Rptr. at 350. However, when the 11 offeree does not know that a proposal has been made to him, this objective standard does not apply. 12 Id. at 351. 13 Here, the Court finds that this case is similar to Windsor—where the court declined to 14 compel arbitration when defendant sent multiple Acknowledgment of Order forms stating that the 15 order was “subject to all of the terms and conditions on the face and reverse sides,” including an 16 arbitration provision, but plaintiff had no actual knowledge that the forms contained a reference to 17 arbitration. Windsor Mills, Inc., 101 Cal. Rptr. at 348–50. As in Windsor, Veribi was unaware of the 18 CHSA referenced by Compass’s invoices, nor did Compass call to its attention what terms the 19 CHSA contained in its invoices. 20 Compass contends that their invoices provided sufficient notice of the CHSA in “Note 4” at 21 the bottom of the invoice, which states: “By paying for this invoice and paying the security deposit, 22 you are agreeing to the [CHSA]. The Terms and Conditions are available on request.” MTCA at 1 23 (quoting Compass Invoices); see generally Compass Invoices. Compass cites to Moran in support of 24 its argument. See Moran v. Charter Comms., Inc., 2020 WL 5833640, at *2 (C.D. Cal. June 11, 25 2020). However, Moran is distinguishable in that the defendant in Moran included a more detailed 26 statement in its monthly billing statements, which provided “notice that the terms and conditions for 27 services contain a binding arbitration provision.” Id. Additionally, the Windsor defendant provided 28 more notice than Compass did in the instant case, as it printed the relevant arbitration provision on
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1 the reverse side of its Acknowledgement of Order forms. Windsor Mills, Inc., 101 Cal. Rptr. at 349. 2 No such notice or mention of the binding arbitration provision was included in Compass’s invoices. 3 As such, Compass seeks to bind Veribi with a “document whose contractual nature is not 4 obvious”—the Invoices neither provided a hyperlink to the terms and conditions of the CHSA, nor 5 did they detail what terms and conditions were included. Id. at 351. In fact, Veribi was required to 6 take additional steps in order to obtain notice of the terms of the CHSA—here, it was required to 7 request a copy of the CHSA from Compass. 8 During the hearing on this matter, Compass also cited to Hart in support of its contention. In 9 Hart, the Ninth Circuit in an unpublished opinion held that “[t]he district court did not err by 10 determining that [the plaintiff] had inquiry notice of [the defendants’] subscriber agreement as a 11 result of the notice she received in two billing statements.” Hart, 814 F. App’x at 213–14. The Ninth 12 Circuit found that the notice “was sufficiently clear and conspicuous to provide a reasonably prudent 13 subscriber with constructive notice of the proposed contract terms.” Id. However, Hart is 14 distinguishable in that the defendants’ billing statements noted that “there was a new agreement that 15 contained an arbitration clause,” and such notices were “conspicuously featured in the substantive 16 portion of the billing statements, on the page that contained the charges and payment due date, with 17 the same font size as the substantive billing line items.” Hart v. Charter Comms., Inc., 2017 WL 18 6942425, at *4 (C.D. Cal. Nov. 8, 2017).6 As discussed above, the Compass invoices provided no 19 notice of any binding arbitration provisions, and the reference to the Hosting Terms and Conditions 20 was made in a footnote. 21 Therefore, the Court finds that Compass’s invoices failed to provide sufficient notice of the 22 terms of the CHSA. 23 2. Compass’s invoices did not provide reasonably conspicuous notice of the revised 24 versions of the CHSA. 25 For “changes in terms to be binding pursuant to a change-of terms provision in the original 26 contract, both parties to the contract—not just the drafting party—must have notice of the change in 27 28 6 Although the Ninth Circuit did not provide details describing the notices in question, the district court described the notices and the factors it considered before concluding that the plaintiffs had sufficient notice.
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1 contract terms.” Stover v. Experian Holdings, Inc., 978 F.3d 1082, 1086 (9th Cir. 2020). Notice— 2 actual, inquiry, or constructive—is the “touchstone for assent to a contract, and the resulting 3 enforceability of changed terms in an agreement.” Id. at 1086; see Douglas v. U.S. Dist. Ct. for Cent. 4 Dist. of California, 495 F.3d 1062 (9th Cir. 2007); Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 5 (9th Cir. 2014). A party with a “unilateral right to modify a contract” does not have “carte blanche to 6 make any kind of change whatsoever as long as a specified procedure is followed.” Badie v. Bank of 7 Am., 79 Cal. Rptr. 2d 273, 281 (Ct. App. 1998). A revised contract is merely an offer and does not 8 bind parties until it is accepted. Douglas, 495 F.3d at 1066 (quoting Matanuska Val Farmers 9 Cooperating Ass’n v. Monaghan, 188 F.2d 906, 909 (9th Cir. 1951)). On a motion to compel 10 arbitration, the party seeking arbitration has the burden of providing the existence of an agreement to 11 arbitrate. Knutson, 771 F.3d at 565. 12 In Douglas, the defendant revised its contract with an existing customer without providing 13 notice of these revisions, which included, among other edits, an arbitration clause. Douglas, 495 14 F.3d 1062. The court ultimately concluded that, by doing so, the defendant provided insufficient 15 notice as to the new terms of the contract and, as a result, the court declined to compel arbitration. 16 Similarly, Compass revised the CHSA without providing notice of the revisions to Veribi. Compass 17 added the arbitration provision to the CHSA beginning in July 2021, at the time when Veribi had a 18 continuing and existing relationship with Compass. MTCA at 1. Compass argues that its invoices 19 provided sufficient notice of the CHSA, but Note 4 was never altered to reflect what revisions to the 20 CHSA were made. Compass made multiple revisions to the CHSA, as shown by the numerous 21 versions of the CHSA it submitted. Supplemental Declaration of Heller (“Heller Supp. Decl.”), ECF 22 No. 31-5 ¶ 5; see also July 2021 CHSA; ECF Nos. 15-4, 15-5, 15-6, 15-8, 15-9. Under Douglas, 23 Veribi had no obligation to “check the terms on a periodic basis to learn whether they have been 24 changed by the other side,” and, in particular, to check Compass’s website to determine whether the 25 CHSA had been revised. Thus, it would be “fairly cumbersome” for Veribi to “compare every word 26 of the posted contract with the existing contract in order to detect whether it had changed.” Douglas, 27 495 F.3d at 1066 n.1. 28
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1 Furthermore, the Court observes that the dates shown on each version of the CHSA reflect 2 dates that the given version was “implemented internally,” but the date that a given version went live 3 on Compass’s website is shown by the external rollout date, which came at most four days later. 4 Heller Supp. Decl. ¶ 6. Although Veribi’s continued use of Compass’s services could be considered 5 assent, “such assent can only be inferred after [plaintiff] received proper notice of the proposed 6 changes,” and the Court finds that the facts here do not indicate that Veribi assented to the terms of 7 each revised version of the CHSA. Douglas, 495 F.3d at 1066. Compass further contends that Veribi 8 received “multiple short invoices stating prominently that transactions were governed” by the CHSA 9 and that by “paying the invoices, Veribi agreed to those terms.” MTCA Reply at 5. However, Veribi 10 did not have an opportunity to accept or reject the revisions of the CHSA. Compass’s Note 4 in its 11 invoices was insufficient to provide Veribi an “opportunity to accept or reject” the revisions of the 12 CHSA because the CHSA was not provided by Compass but was “upon request” by Veribi. 13 Knutson, 771 F.3d at 565; Heller Decl. ¶ 24. Nor was the notice of the revised versions of the CHSA 14 via footnote of its invoice was not sufficient to provide notice, and without evidence of actual 15 knowledge, “a reasonably prudent [plaintiff] would [not] have been on inquiry notice that [an 16 agreement] existed.” Knutson, 771 F.3d at 569. 17 Finally, defendant argues that the “length of time between receipt of goods/services and 18 receipt of the terms and conditions containing an arbitration agreement is irrelevant where the 19 agreement contains terms of an ongoing contractual relationship for services.” MTCA at 7 (citing 20 Bischoff v. DirectTV, Inc., 180 F. Supp. 2d 1097 (C.D. Cal. 2002)). The Court distinguishes the 21 instant facts from Bischoff: in Bischoff, although the defendant provided the entire customer 22 agreement—which contained the arbitration provision—after the parties entered into the customer 23 agreement by phone, the court only found the length of time irrelevant and the later provision of the 24 agreement acceptable because that customer agreement did not constitute a “new term” or “change” 25 to the terms of a prior agreement. Bischoff, 180 F. Supp. 2d at 1103–04. Rather, it was part of the 26 “ongoing contractual relationship” with a brand new customer; there was no prior version of the 27 customer agreement. Id. In contrast, here, Compass stated that the CHSA did not include an 28 arbitration provision until July 2021, after Compass and Veribi already had an existing relationship.
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1 MTCA at 1. Although Veribi continued to use Compass’s hosting services, California has 2 established that a “revised contract containing an arbitration clause is unenforceable against existing 3 customers,” even if notice was provided by mail. Douglas, 495 F.3d at 1067 (quoting Badie, 79 Cal. 4 Rtpr. 2d at 273). Therefore, the Court finds that Compass’s invoices did not establish mutual assent 5 between the parties regarding the revised versions of the CHSA, including the addition of the 6 arbitration provision. 7 3. The “scrollwrap” agreement within Veribi’s online transactions on Compass’s website 8 provided sufficient notice of the July 2021 CHSA arbitration provision. 9 Compass argues that Veribi had sufficient notice of the CHSA and its arbitration provision 10 through the online transaction it completed using Compass’s website on July 30, 2021. MTCA Reply 11 at 2–6. 12 When the language of a contract is clear and not absurd, it will be followed. Edward v. 13 Arthur Andersen LLP, 189 P.3d 285, 295 (Cal. 2008). “A contract is ambiguous if a genuine doubt 14 appears as to its meaning . . . the written instrument remains reasonably susceptible to at least two 15 reasonable but conflicting meanings when viewed objectively by a reasonably intelligent person who 16 has examined the context of the entire integrated agreement . . . .” 11 Williston on Contracts § 30:4 17 (4th ed. 2022). 18 Here, the Court will rely on the terms of the July 2021 CHSA. The July 2021 CHSA was the 19 operative copy as of July 30, 2021, the date of Veribi’s latest online purchase from Compass’s 20 website. Although subsequent versions of the CHSA have been issued, the Court declines to rely on 21 these more recent versions, as “[p]arties to a contract have no obligation to check the terms on a 22 periodic basis to learn whether they have been changed by the other side.” Douglas, 495 F.3d at 23 1066. In Douglas, the defendant revised its contract with an existing customer without providing 24 notice of these revisions, which included, among other edits, an arbitration clause. Id. The court 25 ultimately concluded that, by doing so, the defendant provided insufficient notice as to the new 26 terms of the contract and, as a result, the court declined to compel arbitration. Similarly, Compass 27 ensured that Veribi had sufficient notice of the terms of its July 2021 CHSA, including the 28 arbitration provision, by requiring Veribi to review and assent to a scrollwrap agreement containing
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1 these terms. Because Compass did not provide similar notice of the subsequent versions of the 2 CHSA, the Court relies on the terms of the July 2021 CHSA. 3 Compass further argues that the scrollwrap agreement that Veribi assented to through its 4 website in July 2021 indicated that the CHSA governed the entirety of the parties’ relationship with 5 respect to the subject matter of the agreement. MTCA Reply at 7–8. The July 2021 CHSA stated, in 6 relevant part: 7 This Compass Hosting Service Agreement (this “Agreement”) contains the terms and 8 conditions that govern your access to and use of the Hosting Service (as defined below) and is an agreement between Compass Mining Inc. (“Compass,” “we,” “us,” or 9 “our”) and you or the entity you represent (“Customer,” “you,” or “your”). 10 This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement, and supersedes and replaces all prior or 11 contemporaneous discussions, negotiations, proposals, understandings, and 12 agreements, written or oral, as well as any industry custom. 13 July 2021 CHSA at 1, 11 (emphasis added); see also ECF No. 15-3 (“Online CHSA”). The record 14 establishes that Veribi was required to scroll through and accept the CHSA when purchasing 15 cryptocurrency miners from Compass’s website in July 2021. See July 2021 CHSA; Online CHSA. 16 The Court finds that this scrollwrap agreement provided sufficient notice of the arbitration terms— 17 even though the terms had been revised earlier that month—because the scrollwrap agreement 18 affirmatively presented the terms of the CHSA, and as a result the new arbitration provision, directly 19 to Veribi. This agreement governed Veribi’s access to and use of Compass’s services, and 20 “supersede[d] and replace[d] all prior . . . agreements” entered into between Veribi and Compass 21 with respect to the subject matter of the agreement. July 2021 CHSA at 11. The agreement also 22 required as of July 2021 that all disputes arising under the agreement be resolved through mediation 23 followed by arbitration. Id. at 10. Nor has Veribi demonstrated that the agreement is unconscionable. 24 See Blizzard, 292 Cal. Rptr. 3d at 60 (noting that scrollwrap contracts “provid[e] the most” notice of 25 all “wrap” agreements); Berman, 30 F.4th at 855–56 (concluding that “clickwrap” agreements, 26 which conspicuously notify customers of their terms and require unambiguous consent, are valid and 27 enforceable under California law). 28 / / /
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4. Although Veribi was on notice of the July 2021 CHSA arbitration provision, the 1 arbitration provision does not encompass Veribi’s claims in this dispute. 2 Veribi contends that the arbitration provision in the CHSA that it assented to through the 3 website is only limited to the online transactions. MTCA Opp’n at 3–8.7 Compass counters that the 4 July 2021 CHSA governs the entirety of Veribi’s hosting relationship with Compass, rather than a 5 particular transaction. MTCA at 8–9. 6 The Ninth Circuit recently, in Johnson v. Walmart, considered a similar dispute and 7 ultimately concluded that the defendant could not force a customer to arbitrate a dispute arising from 8 an in-store purchase using an arbitration provision that the customer agreed to when he purchased 9 items on the defendant’s website. Johnson v. Walmart Inc., 2023 U.S. App. LEXIS 511, at *11–12 10 (9th Cir. Jan. 10, 2023). Similar to the instant case, the plaintiff in Johnson purchased items from the 11 defendant’s website and, in doing so, entered into an agreement containing an arbitration provision. 12 Id. at *4–5. The plaintiff separately purchased a service agreement in-person at one of the 13 defendant’s stores but did not consent to an arbitration agreement at the time he made the in-store 14 purchase. Id. at *5, 9. The Ninth Circuit recognized that the plaintiff “contest[ed] the existence, not 15 the scope, of an arbitration agreement that would encompass [his] dispute.” Id. at *9. It reasoned that 16 because the plaintiff’s claim against the defendant concerning his in-store purchase of the service 17 agreement did not arise out of the contract containing the arbitration agreement, but rather an 18 entirely separate transaction at a physical store, then only if the service agreement itself is subject to 19 the online agreement does an agreement to arbitrate claims arise out of that in-store purchase. Id. 20 The Ninth Circuit further concluded that, viewing the online contract as a whole, the terms of use 21 covered only access to and use of the defendant’s websites. Id. at *10–11. 22 As in Johnson, Veribi contests the existence, not the scope, of an arbitration agreement 23 encompassing its dispute involving the Russian miners. Id. at *9. Moreover, because Veribi’s claims 24 do not arise out of the July 2021 CHSA—the first CHSA containing an arbitration provision of 25 26 27 7 Veribi argues that the Compass website’s Terms of Service do not contain an arbitration clause. MTCA Opp’n at 10–11. However, as Compass points out, the website Terms of Service only “govern the use of 28 Compass’s website.” MTCA Reply at 10. As a result, the Court finds that the website’s Terms of Service are not at issue with respect to the instant motion.
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1 which Veribi has proper notice—but rather an entirely separate agreement, then an agreement to 2 arbitrate would only arise if the Russian miners at the center of this dispute are also subject to the 3 July 2021 CHSA. Here, the Court finds that they are not. 4 Because the existence of an arbitration agreement is at issue and the presumption in favor of 5 arbitrability therefore does not apply, the Court looks to “general state-law principles of contract 6 interpretation” to determine whether the parties have agreed to submit to arbitration. In California, 7 “[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it 8 existed at the time of contracting.” CAL. CIV. CODE § 1636. “To determine the reach of a particular 9 agreement, we must look to its express terms.” Walsh v. Arizona Logistics, Inc., 998 F.3d 393, 396 10 (9th Cir. 2021). Under California law, a contract must be “interpreted as a whole.” Int’l Bhd. of 11 Teamsters v. NASA Servs., Inc., 957 F.3d 1038, 1042 (9th Cir. 2020). 12 The merger clause of the July 2021 CHSA reads: 13 15.3 Entire Agreement. This Agreement constitutes the entire agreement between the 14 parties with respect to the subject matter of this Agreement, and supersedes and replaces all prior or contemporaneous discussions, negotiations, proposals, 15 understandings, and agreements, written or oral, as well as any industry custom. Each party acknowledges that, in entering into this Agreement, it has not relied on, and shall 16 have no right or remedy in respect of, any statement, representation, assurance or warranty other than as expressly set out in this Agreement. Compass may at any time 17 revise the terms of this Agreement by updating these terms and by providing 18 notice to Customer of that change. 19 July 2021 CHSA. Here, nothing in the July 2021 CHSA suggests that the “subject matter of this 20 Agreement” is meant to encompass the entirety of Veribi and Compass’s hosting relationship. 21 Rather, the July 2021 CHSA was entered into in connection with the online purchase of particular 22 miners; as a result, “the subject matter” of the Agreement only concerns the parties’ hosting 23 relationship with respect to those miners purchased in the July 2021 online transaction—none of 24 which were to be hosted in Russia. 25 During the hearing on this matter, counsel for Compass cited to a number of provisions 26 within the July 2021 CHSA in support of its contention that the arbitration agreement governs the 27 hosting of miners in Russia. Compass quoted the following provisions of the July 2021 CHSA: 28 This Compass Hosting Service Agreement (this “Agreement”) contains the terms and
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conditions that govern your access to and use of the Hosting Service. 1 2 . . . 3 The Parties agree that any dispute between or among them or their subsidiaries, affiliates or related entities arising out of, relating to or in connection with this 4 Agreement, will be resolved. 5 July 2021 CHSA at 2, 10. However, Compass was unable to point to any language that would 6 reasonably have led Veribi to understand that, at any Compass facility, the same terms would apply.8 7 Moreover, the Ninth Circuit has rejected the very same argument offered by Compass—that 8 both purchases are “‘merely interrelated contracts in an ongoing series of transactions,’ such that the 9 arbitration agreement of the first necessarily applies to the second.” Johnson, 2023 U.S. App. 10 LEXIS, at *12. The Court concluded that the two contracts were separate, independent agreements 11 because the purchases were negotiated and entered into separately, involved separate consideration, 12 and the proof required to establish the plaintiff’s underlying claim did not involve his online 13 purchase or the terms of the online agreement. Id. at *12–14. Here, Veribi entered into two separate, 14 independent agreements when purchasing the Russian miners through direct invoices and when 15 making its online purchase. The two transactions involved separate consideration, as the transaction 16 in dispute was for the purchase of Russian miners, while the online transaction concerned miners 17 housed at a different location. Finally, the proof required for Veribi to establish its underlying claims 18 concerning the Russian miners involves neither a breach of the online agreement or an interpretation 19 of the July 2021 CHSA. 20 Because the Court finds that the arbitration agreement in the July 2021 CHSA does not 21 encompass disputes arising from Veribi’s purchase of the Russian miners, the Court hereby DENIES 22 the Motion to Compel Arbitration.9 23 / / / 24 / / / 25
26 8 Compass refers to Section 14.4 of the July 2021 CHSA, which defines “Hosting Facility” as “a data center 27 owned, leased, operated or reserved by Compass or Compass partners through the Site.” July 2021 CHSA at 11. However, nowhere in the July 2021 CHSA is the term “Site” defined. 28 9 The Court recognizes that Compass has filed a Motion to Dismiss. ECF No. 13. As discussed during the hearing, the Court will issue a separate order concerning the Motion to Dismiss.
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1 V. Conclusion 2 For the foregoing reasons, the Court hereby ORDERS as follows: 3 1. The Court DENIES the Motion to Compel Arbitration (ECF No. 15); 4 2. The parties shall meet and confer and submit a joint statement, no later than seven (7) days 5 from the date of this Order, indicating whether they would like the Court to hear oral 6 argument on the pending Motion to Dismiss. 7 IT IS SO ORDERED. 8 9 Dated: January 20, 2023 ___________________________________ 10 MAAME EWUSI-MENSAH FRIMPONG 11 United States District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28