Aileen Brooks v. It Works Marketing, Inc. ( 2022 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 AILEEN BROOKS, on behalf of herself No. 1:21-cv-01341-DAD-BAK and all others similarly situated, 12 Plaintiff, 13 ORDER DENYING DEFENDANTS’ v. MOTION TO COMPEL ARBITRATION AND 14 MOTION FOR SANCTIONS IT WORKS MARKETING, INC., et al., 15 (Doc. Nos. 14, 20, 32, 34, 35) Defendants. 16 17 18 This matter is before the court on a motion to compel arbitration and a motion for 19 sanctions filed on behalf of defendants It Works Marketing, Inc., It Works! Global, Inc. (together, 20 “It Works!”), Mark Pentecost, and Paul Nassif (collectively, “defendants”) on October 27, 2021 21 and May 19, 2022, respectively. (Doc. Nos. 14, 32, 34.) The court took these motions under 22 submission to be decided on the papers, without holding a hearing. (Doc. Nos. 15, 33.) For the 23 reasons explained below, the court will deny defendants’ pending motion to compel arbitration 24 and motion for sanctions. 25 BACKGROUND 26 Plaintiff Aileen Brooks, a Bakersfield resident, proceeds on her first amended class action 27 complaint (“FAC”) against defendants, asserting violations of several California consumer 28 protection statutes. (Doc. No. 17.) In her FAC, plaintiff alleges that defendants have defrauded 1 | the public by marketing, distributing, and selling a suite of unapproved weight control drugs, 2 | which are allegedly promoted with fraudulent efficacy claims, and that defendants also allegedly 3 | bill unsuspecting consumers through unlawful auto-billing practices. (Ud. at {| 3-4, 19, 24.) 4 | Plaintiff purchased one of the defendants’ products—Thermofight X* (“Thermofight”)}—“from an 5 | independent distributor using the It Works website.” (/d. at J 77.) 6 On October 27, 2021, defendants filed the pending motion to compel arbitration based on 7 | an arbitration provision contained in the It Works! Website Terms of Use (“Terms of Use”) that 8 | plaintiff purportedly agreed to when making her Thermofight purchase. (Doc. Nos. 14; 14-5 at 2, 9 | 6-8.) Defendants maintain that the Terms of Use were posted on the It Works! website and 10 | clearly linked at the bottom of each webpage. (Doc. No. 14 at 7.) Defendants also contend that 11 | when plaintiff purchased Thermofight “she would have been required to click an agreement to be 12 | bound by all terms and conditions of the website.” (Ud. at 5.) Specifically, in making her 13 | purchase of Thermofight, defendants contend that plaintiff signed up to become a “Loyal 14 | Customer,” and before completing any purchase as a “Loyal Customer,” defendants maintain that 15 | plaintiff would have been required to “submit an electronic acknowledgment and agreement to 16 | ‘all terms and conditions’ of the website,” which appears on the website as follows: 17 ig waes@ase 1 1-cv-01541-DAD-BAK Document 14-6 Filed 10/27/21 Page 2 of 2 19 ea Works! Mma # — 2 UNITED STATES ovine □□ dannebbohabenerl □□□□□□□□□□□□□□□□□□□□□□□□ □□ Ghebigtamielsninia 23 □ 24 | AGREE TO ALL TERMS & CONDITIONS 25 26 27 ELECTRONIC SIGNATURE: (TYPE YOUR NAME) 28 1 (Doc. Nos. 14 at 7; 14-6 at 2.) Defendants contend that because plaintiff would “have had to 2 affirmatively agree to ‘all terms and conditions’ governing the It Works website . . . by checking 3 a box” and providing an “electronic acknowledgement,” plaintiff agreed to arbitrate her dispute 4 with defendants. (Doc. No. 14 at 7–8, 11–12) (emphasis added). In other words, defendants 5 argue that by completing the checkout process, plaintiff not only agreed to the It Works! Loyal 6 Customer Agreement Terms & Conditions (“Loyal Customer Agreement”) (pictured above in 7 scroll box), but she also agreed to the Terms of Use (not pictured above) linked at the bottom of 8 each webpage. Although defendants provided a copy of the Terms of Use in support of their 9 pending motion (see Doc. No. 14-5), they did not provide the court with a copy of the Loyal 10 Customer Agreement or a copy of the version of the Loyal Customer Agreement that plaintiff 11 purportedly electronically acknowledged and signed. Instead, defendants only provided an image 12 (shown above) displaying a small portion of the Loyal Customer Agreement. 13 On November 23, 2021, plaintiff filed her opposition to defendants pending motion to 14 compel arbitration. (Doc. No. 18.) In a declaration filed in support of that opposition, plaintiff 15 declared under oath that she never saw the hyperlink to the Terms of Use, or read the Terms of 16 Use, or even used the website when making her initial Thermofight purchase: 17 When purchasing Thermofight, I never viewed the document titled “It Works Website Terms of Use.” 18 When purchasing Thermofight, I never saw the link to Defendants’ 19 “Terms of Use.” 20 In making my initial Thermofight purchase, I did not view Defendants’ website at all. 21 I made my Thermofight purchase through an It Works “independent 22 distributor,” who created my account and enrolled me in automatic billing. 23 24 (Doc. No. 18-1 at ¶¶ 2–5.) Because plaintiff contends her purchase was made through an 25 independent distributor using the website, she argues that she could not have agreed to the Terms 26 of Use, and thus did not agree to arbitrate her dispute. (Doc. No. 18 at 5.) Moreover, plaintiff 27 contends that defendants are misleading the court “by conflating two different documents, a three 28 page ‘Loyal Customer Agreement’ that contains no mention or reference to arbitration, and a 1 hidden website ‘Terms of Use’ document that is seven pages and contains an arbitration clause.” 2 (Id.) As plaintiff argues in her opposition brief, the “Terms & Conditions” that a consumer must 3 affirmatively assent to in order to execute a purchase as a Loyal Customer do not include the 4 “Terms of Use” that defendants have relied on as the basis for their pending motion to compel 5 arbitration. (Id. at 6–7.) Rather, the “Terms & Conditions” refer only to the Loyal Customer 6 Agreement—not to the Terms of Use—and the Loyal Customer Agreement itself does not 7 mention arbitration at all. (Id.) In support of plaintiff’s opposition, her counsel has also filed a 8 declaration with attached exhibits showing screenshots from the It Works! website that document 9 what a website user would see when making a purchase as a Loyal Customer. (See Doc. No. 18- 10 2.) 11 On November 30, 2021, defendants filed their reply in support of their pending motion. 12 (Doc. No. 19.) Therein, defendants argue that because plaintiff checked a box on the image 13 above stating, “I agree to all terms and conditions” and because users “must agree to all terms in 14 order to proceed,” it is “clear and unambiguous” that “all” includes defendants’ Terms of Use in 15 addition to the Loyal Customer Agreement. (Id. at 3–4.) Defendants also contend that plaintiff’s 16 declaration filed in support of her opposition brief is a “sham” that the court should disregard 17 because it contradicts the allegations of her original complaint and the FAC. (Id. at 3–6.) In the 18 alternative to the court concluding that plaintiff’s declaration is a sham, defendants request that 19 the court allow discovery into plaintiff’s visits to and use of the It Works! website before ruling 20 on the pending motion to compel arbitration. (Id. at 9.) 21 Defendants’ allegations regarding the veracity of plaintiff’s declaration have generated a 22 heated dispute between the parties. On December 15, 2021, plaintiff filed an ex parte motion 23 seeking leave to file a sur-reply in opposition to defendants’ pending motion. (Doc. No. 20.) 24 Therein, plaintiff seeks to respond to defendants’ allegation that plaintiff’s declaration contradicts 25 the allegations of the original complaint and the FAC and therefore should be disregarded as a 26 “sham.” (Id.) Defendants’ opposed plaintiff’s ex parte motion seeking to file a sur-reply. (Doc. 27 No. 21.) 28 ///// 1 Then, on May 19, 2022, defendants filed a motion for sanctions against plaintiff and her 2 counsel under Rule 11 seeking reasonable attorneys’ fees and costs in the amount of 3 $283,857.77.1 (Doc. No. 34 at 6–7.) Defendants argue that plaintiff’s declaration filed in 4 opposition to the pending motion to compel reveals that “this case’s core factual premises—that 5 Plaintiff was supposedly misled by the advertising and terms on the It Works! website—is 6 undisputedly false.” (Id. at 6.) In response, on May 23, 2022, plaintiff filed an ex parte motion to 7 strike defendants’ motion for sanctions, or in the alternative, to continue the motion and require 8 that defendants’ produce billing records. (Doc. No. 35.) The court issued a minute order granting 9 plaintiff an extension of time in which to file her brief in opposition to plaintiff’s motion for 10 sanctions because plaintiff’s counsel was commencing a civil jury trial on or around the time her 11 opposition brief was due. (Doc. No. 36.) 12 Because the court can resolve defendants’ pending motion to compel arbitration without 13 adjudicating the disagreement regarding plaintiff’s declaration, plaintiff’s ex parte motion for 14 leave to file a sur-reply and defendants’ request for discovery regarding plaintiff’s visits to the It 15 Works! website will both be denied as moot. Moreover, having reviewed defendants’ motion for 16 sanctions, the court concludes that it can be resolved without the need for plaintiff to file an 17 opposition brief. 18 APPLICABLE LEGAL STANDARDS 19 A. Federal Arbitration Act 20 A written provision in any contract evidencing a transaction involving commerce to settle 21 a dispute by arbitration is subject to the Federal Arbitration Act (“FAA”). 9 U.S.C. § 2. The 22 FAA confers on the parties involved the right to obtain an order directing that arbitration proceed 23 in the manner provided for in a contract between them. 9 U.S.C. § 4. The FAA “leaves no place 24 for the exercise of discretion by a district court, but instead mandates that district courts shall 25 1 Aside from the pending motions and ex parte filings described herein, plaintiff also filed a 26 motion for a preliminary injunction on December 21, 2021. (Doc. No. 22.) Defendants filed an 27 opposition to plaintiff’s motion for a preliminary injunction on January 18, 2022. (Doc. No. 29.) Plaintiff filed her reply thereto on January 25, 2022. (Doc. No. 30.) The court will address 28 plaintiff’s pending motion for a preliminary injunction in a subsequent order. 1 direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been 2 signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). In deciding a motion to 3 compel arbitration, the court “is limited to determining (1) whether a valid agreement to arbitrate 4 exists [within the contract] and, if it does, (2) whether the agreement encompasses the dispute at 5 issue.” Boardman v. Pac. Seafood Group, 822 F.3d 1011, 1017 (9th Cir. 2016) (citing Chiron 6 Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000) (brackets in original)). 7 However, before a court can reach those two questions, it “must decide whether there is an 8 agreement to which the federal law of arbitrability could apply.” Galilea, LLC v. AGCS Marine 9 Ins. Co., 879 F.3d 1052, 1056 (9th Cir. 2018). “As the Supreme Court has recognized, a court 10 should order arbitration only if it is convinced an agreement has been formed.” Ahlstrom v. DHI 11 Mortg. Co., Ltd., L.P., 21 F.4th 631, 635 (9th Cir. 2021); see also Int’l Bhd. of Teamsters v. NASA 12 Servs., Inc., 957 F.3d 1038, 1041–42 (9th Cir. 2020). Thus, courts “must first make a threshold 13 finding that the document [evidencing an agreement] at least purports to be . . . a contract.” 14 Galilea, 879 F.3d at 1056 (quoting Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 15 476 (9th Cir. 1991)). 16 B. Rule 11 Sanctions 17 Under Rule 11 of the Federal Rules of Civil Procedure, an attorney presenting a pleading, 18 written motion, or other paper to the court certifies that to the best of their “knowledge, 19 information, and belief, formed after an inquiry reasonable under the circumstances:” (1) “it is 20 not being presented for any improper purpose, such as to harass, cause unnecessary delay, or 21 needlessly increase the cost of litigation”; (2) “the claims, defenses, and other legal contentions 22 are warranted by existing law or by a nonfrivolous argument for extending, modifying, or 23 reversing existing law or for establishing new law”; and (3) “the factual contentions have 24 evidentiary support or, if specifically so identified, will likely have evidentiary support after a 25 reasonable opportunity for further investigation or discovery.” Fed. R. Civ. P. 11(b)(1)–(3). 26 When the court determines that Rule 11(b) has been violated, it “may impose an appropriate 27 sanction on any attorney, law firm, or party that violated the rule or is responsible for the 28 violation.” Fed. R. Civ. P. 11(c)(1). 1 “Rule 11 is an extraordinary remedy, one to be exercised with extreme caution.” In re 2 Keegan Management Co., Securities Litigation, 78 F.3d 431, 437 (9th Cir. 1996) (quoting 3 Operating Engineers Pension Trust v. A-C Co., 859 F.2d 1336, 1345 (9th Cir. 1988)). “[T]he 4 central purpose of Rule 11 is to deter baseless filings in district court and . . . streamline the 5 administration and procedure of the federal courts.” Cooter & Gell v. Hartmarx Corp., 496 U.S. 6 384, 393 (1990). When a court examines a complaint for frivolousness under Rule 11, it must 7 determine both (1) whether the complaint is legally or factually baseless from an objective 8 perspective, and (2) whether the attorney conducted a reasonable and competent inquiry before 9 signing it. Holgate v. Baldwin, 425 F.3d 671, 676 (9th Cir. 2005). A nonfrivolous complaint 10 cannot be filed for an improper purpose. Townsend v. Holman Consulting Corp., 929 F.2d 1358, 11 1362 (9th Cir. 1990) (citing Zaldivar v. City of Los Angeles, 780 F.2d 823, 832 (9th Cir. 1986), 12 abrogated on other grounds by Cooter & Gell, 496 U.S. at 399–405). 13 ANALYSIS 14 A. Motion to Compel Arbitration 15 “The cardinal precept of arbitration is that it is simply a matter of contract between the 16 parties; it is a way to resolve those disputes—but only those disputes—that the parties have 17 agreed to submit to arbitration.” Ahlstrom, 21 F.4th at 634 (internal quotations omitted). 18 According to this cardinal precept, “courts should order arbitration of a dispute only where the 19 court is satisfied that neither the formation of the parties’ arbitration agreement nor (absent a 20 valid provision specifically committing such disputes to an arbitrator) its enforceability or 21 applicability to the dispute is in issue.” Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 22 287, 299 (2010). Although the enforceability of an arbitration provision or its applicability to a 23 particular dispute are issues that may be delegated to an arbitrator for resolution, the Ninth Circuit 24 has clearly held that “parties cannot delegate issues of [contract] formation to the arbitrator.” 25 Ahlstrom, 21 F.4th at 635; see also Teamsters, 957 F.3d at 1042 (“[T]the federal policy favoring 26 arbitration is no substitute for party agreement, or lack thereof.”). Accordingly, courts “must 27 determine whether a contract ever existed; unless that issue is decided in favor of the party 28 seeking arbitration, there is no basis for submitting any question to an arbitrator.” Teamsters, 957 1 F.3d at 1042 (quoting Camping Const. Co. v. Dist. Council of Iron Workers, 915 F.2d 1333, 1340 2 (9th Cir. 1990)). “To determine whether the parties formed an agreement to arbitrate, courts 3 ‘apply ordinary state-law principles that govern the formation of contracts.’” Id. (quoting First 4 Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). “As the party alleging the 5 existence of a contract, [defendants] ha[ve] the burden to prove each element of a valid 6 contract—including mutual assent.” Stover v. Experian Holdings, Inc., 978 F.3d 1082, 1086 (9th 7 Cir. 2020); see also Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014) 8 (providing that, under California law, “the party seeking to compel arbitration, has the burden of 9 proving the existence of an agreement to arbitrate by a preponderance of the evidence”). 10 To form a contract under California law,2 the parties must manifest their mutual assent to 11 the terms of the agreement. Berman v. Freedom Fin. Network, LLC, 30 F.4th 849, 855 (9th Cir. 12 2022); Donovan v. RRL Corp., 26 Cal. 4th 261, 270 (2001) (“An essential element of any contract 13 is the consent of the parties, or mutual assent.”). “‘The existence of mutual consent is determined 14 by objective rather than subjective criteria, the test being what the outward manifestations of 15 consent would lead a reasonable person to believe. Accordingly, the primary focus in 16 determining the existence of mutual consent is upon the acts of the parties involved.’” Monster 17 Energy Co. v. Schechter, 7 Cal. 5th 781, 789 (2019) (citations omitted). “These elemental 18 principles of contract formation apply with equal force to contracts formed online.” Berman, 30 19 20 2 Although defendants invoke Florida law under the assumption that their Terms of Use’s choice of law provision applies, assuming as much would presuppose that a contract was formed, which 21 is the very issue now before this court. See Eiess v. USAA Fed. Sav. Bank, 404 F. Supp. 3d 1240, 1250 n.6 (N.D. Cal. 2019); (Doc. No. 14-1 at 11.) “Where [as here] the underlying basis for 22 CAFA jurisdiction is diversity, the forum state’s choice of law rules apply.” Eiess, 404 F. Supp. 23 3d at 1249. “In California, absent a controlling choice-of-law agreement, choice of law is determined by a ‘governmental interest’ analysis.” Id. at 1249–50 (citing Washington Mut. Bank, 24 FA v. Superior Ct., 24 Cal. 4th 906, 915 (2001)). The governmental interest analysis involves three steps. Under the first step, a court will apply California substantive law unless the party 25 timely invoking another state’s law “show[s] it materially differs from the law of California.” Washington, 24 Cal. 4th at 919. Here, the first step in this analysis resolves the dispute because 26 defendants do not meet their burden of identifying any material differences between California 27 law and Florida law. Indeed, after assuming Florida law controls, defendants suggest Florida law is not materially different from California law by stating in a footnote that “California law would 28 yield the same result.” (Doc. No. 14-1 at 12 n.1.) Thus, the court must apply California law. 1 F.4th at 855–56. Thus, when “a website offers contractual terms to those who use the site, and a 2 user engages in conduct that manifests her acceptance of those terms, an enforceable agreement 3 can be formed.” Id. at 856. 4 The Ninth Circuit has explained that contracts formed over the Internet generally fall into 5 two categories: (1) “‘clickwrap’ (or ‘click-through’) agreements, in which website users are 6 required to click on an ‘I agree’ box after being presented with a list of terms and conditions of 7 use”; and (2) “‘browsewrap’ agreements, where a website’s terms and conditions of use are 8 generally posted on the website via a hyperlink at the bottom of the screen.” Nguyen v. Barnes & 9 Noble Inc., 763 F.3d 1171, 1175–76 (9th Cir. 2014). These two categories of Internet contracts 10 fall on two ends of a spectrum; courts routinely find clickwrap agreements enforceable but are 11 generally more reluctant to enforce browsewrap agreements. See Berman, 30 F.4th at 856; id. at 12 868 (Baker, J., concurring). Moreover, “[o]ften websites present some hybrid of the two, such as 13 putting a link to the terms of the agreement on the page, sometimes near a button the user must 14 click to continue.” Berman v. Freedom Fin. Network, LLC, No. 18-cv-01060-YGR, 2020 WL 15 5210912, at *2 (N.D. Cal. Sept. 1, 2020), aff’d, 30 F.4th 849 (9th Cir. 2022); Berman, 30 F.4th at 16 864–68 (Baker, J., concurring) (discussing differences between “browsewrap,” “sign-in wrap,” 17 “clickwrap,” and “scrollwrap” agreements). To address this evolving spectrum, the Ninth Circuit 18 has summarized the analytical framework for contract formation over the Internet as follows: 19 Unless the website operator can show that a consumer has actual knowledge of the agreement, an enforceable contract will be found 20 based on an inquiry notice theory only if: (1) the website provides reasonably conspicuous notice of the terms to which the consumer 21 will be bound; and (2) the consumer takes some action, such as clicking a button or checking a box, that unambiguously manifests 22 his or her assent to those terms. 23 Berman, 30 F.4th at 856 (applying California law); see also Sellers v. JustAnswer LLC, 73 Cal. 24 App. 5th 444, 461 (2021), review denied (Apr. 13, 2022). 25 Preliminarily, defendants here argue that issues “relating to the interpretation, 26 applicability, enforceability or formation” of its Terms of Use have been delegated to an arbitrator 27 and therefore the court should compel arbitration on that basis. (Doc. No. 14-1 at 14) (citing 28 Mohamed v. Uber Technologies, Inc., 848 F.3d 1201, 1209 (9th Cir. 2016)). Although 1 defendants’ might be correct that the Terms of Use at issue in this case delegate decisions 2 regarding its interpretation, applicability, or enforceability to an arbitrator (see Doc. No. 14-5 at 3 6), the fundamental issue of whether a contract (which contained an arbitration provision) was 4 ever formed is for the court to determine. See Ahlstrom, 21 F.4th at 635 (“We . . . hold that 5 parties cannot delegate issues of [contract] formation to the arbitrator.”); see also Eiess v. USAA 6 Fed. Sav. Bank, 404 F. Supp. 3d 1240, 1248 (N.D. Cal. 2019) (“The fundamental threshold 7 question of whether there exists a binding contract (of which an arbitration clause is a part) cannot 8 be delegated because it cannot be assumed that a delegation clause contained therein must be 9 given effect.”). Accordingly, the court will now address whether a contract between defendants 10 and plaintiff (of which an arbitration provision is a part) was formed. 11 In regard to contract formation, defendants assert two arguments: (i) under Florida law,3 12 and based on the allegations of plaintiff’s original complaint that she read and relied on 13 representations regarding Thermofight from the It Works! website, plaintiff would have had 14 actual notice or inquiry notice of the Terms of Use located at the bottom of each It Works! 15 webpage and therefore is bound by the Terms of Use (Doc. No. 14-1 at 11–12); and (ii) plaintiff 16 agreed to the Terms of Use in making her purchase of Thermofight because she checked a box 17 and provided an electronic acknowledgment stating that she agreed to “all terms and conditions.” 18 (Doc. Nos. 14-1 at 7–8, 12 n.8; 19 at 3–4.) Regarding this latter argument, plaintiff contends in 19 her opposition that the webpage that she purportedly provided her electronic assent to does not 20 include the “Terms of Use” but instead is limited solely to the “Loyal Customer Agreement.” 21 (Doc. No. 18 at 5–7.) 22 Having reviewed the relevant case law and considered the parties’ arguments, the court 23 concludes that defendants have not satisfied their burden of proving that a contract containing an 24 arbitration provision was ever formed with plaintiff because defendants have not shown that 25 ///// 26 3 Defendants invoke Florida law because the Terms of Use have a choice of law provision stating 27 that “all disputes, will be governed by the laws of the United States and by the laws of the State of Florida, without regard to principles of conflicts of law.” (Doc. No. 14-5 at 7.) As previously 28 discussed above, however, the court must apply California law in this case. 1 plaintiff had actual notice of the Terms of Use nor satisfied the two prongs of an inquiry notice 2 theory of contract formation.4 See Berman, 30 F.4th at 856. 3 As an initial matter, defendants fail to carry their burden of showing that plaintiff had 4 actual notice of their Terms of Use. Defendants’ argument in that regard is based on plaintiff’s 5 allegations in her FAC that she read and relied on product representations on the It Works! 6 website.5 (Doc. No. 14-1 at 7.) But the reading of representations about a product does not 7 equate to a showing that plaintiff had actual notice of the Terms of Use, especially in light of 8 plaintiff’s declaration stating she “never viewed the document titled ‘It Works Website Terms of 9 Use’” and “never saw the link to [d]efendants’ ‘Terms of Use’” when she purchased Thermofight. 10 (Doc. No. 18-1 at ¶¶ 2–3.) Thus, defendants have not shown that plaintiff had actual notice of the 11 Terms of Use and can only proceed on an inquiry or constructive notice theory of contract 12 formation. See Berman, 30 F.4th at 856; see also Sellers, 73 Cal. App. 5th at 461 (holding that, in 13 the context of Internet consumer contracts, “in the absence of actual notice, a manifestation of 14 assent may be inferred from the consumer’s actions on the website . . . which occurs only when 15 the website puts the consumer on constructive notice of the contractual terms”). 16 To establish that plaintiff had inquiry notice of the Terms of Use, defendants must first 17 show that the It Works! website “provides reasonably conspicuous notice of the terms to which 18 the consumer will be bound.” Berman, 30 F.4th at 856. Defendants have also failed to make this 19 required showing. Here, the textual notice for the Terms of Use is not “displayed in a font size 20 and format such that the court can fairly assume that a reasonably prudent Internet user would 21 4 For purposes of the court’s analysis and to avoid the parties’ dispute over plaintiff’s declaration, 22 the court will assume without deciding that plaintiff visited the It Works! website on a desktop 23 computer (as opposed to a mobile device) and assented to the Loyal Customer Agreement by clicking a box and providing an electronic acknowledgment. Although the court is assuming as 24 much, the court does point out that defendants did not provide a copy of the Loyal Customer Agreement to the court or a declaration affirming that their records reflected plaintiff executing a 25 transaction on the It Works! website. 26 5 Specifically, defendants assert that “[o]ne of the terms that Plaintiff read on the It Works 27 website was that as a condition of using the website, Plaintiff agreed to the Terms of Use . . . .” (Doc. No. 14-1 at 7.) Contrary to defendants’ argument, however, this assertion is not supported 28 by the portions of the FAC that defendants cite to in their pending motion papers. 1 have seen it.” Id. Rather, the Terms of Use are only made available through a tiny grey 2 hyperlink displayed against a slightly lighter grey background and located in the very bottom left 3 corner of each webpage. (See Doc. No. 18-2 at 65–66) (appended to this order as Appendix A). 4 The text of that hyperlink is so small that it is barely visible to the naked eye, and coupled with its 5 muted grey color and background, it is considerably deemphasized in relation to the other text on 6 the webpage. (See id.) No “[c]ustomary design elements denoting the existence of a hyperlink,” 7 such as “contrasting font color” or “the use of all capital letters,” were used to make the Terms of 8 Use hyperlink more noticeable. Berman, 30 F.4th at 857. As the Ninth Circuit has explained, 9 “[w]ebsite users are entitled to assume that important provisions—such as those that disclose the 10 existence of proposed contractual terms—will be prominently displayed, not buried in fine print.” 11 Id. Plaintiff “cannot be expected to ferret out hyperlinks to terms and conditions to which [she] 12 ha[s] no reason to suspect [she] will be bound.” Nguyen, 763 F.3d at 1179; see also Sellers, 73 13 Cal. App. 5th at 481. Rather, “the onus must be on website owners to put users on notice of the 14 terms to which they wish to bind consumers.” Nguyen, 763 F.3d at 1179. The Terms of Use 15 hyperlink here falls woefully short of meeting this standard. 16 Next, even assuming defendants had provided conspicuous notice (which they did not), 17 they must also show that plaintiff unambiguously manifested her assent to be bound by the Terms 18 of Use. Berman, 30 F.4th at 857. At bottom, it is defendants contention that by their placing of 19 the hyperlink to the Terms of Use on the same webpage as the checkbox and electronic 20 acknowledgement for the Loyal Customer Agreement, which plaintiff clicked and agreed to, 21 plaintiff supposedly assented to both contracts.6 22 6 Defendant’s argument implies that the contract is a hybrid between a clickwrap and a 23 browsewrap. However, a review of the Terms of Use suggests that it is more akin to a pure browsewrap agreement because it provides that, “[b]y accessing, browsing, or using the It Works! 24 website . . . you agree to be bound by this Agreement.” (Doc. No. 14-5 at 2.) Indeed, “in a pure- form browsewrap agreement, ‘the website will contain a notice that—by merely using the 25 services of, obtaining information from, or initiating applications within the website—the user is agreeing to and is bound by the site’s terms of service.” Nguyen, 763 F.3d at 1176. When faced 26 with pure browsewrap agreements, “[w]here the link to a website’s terms of use is buried at the 27 bottom of the page or tucked away in obscure corners of the website where users are unlikely to see it, courts have refused to enforce the browsewrap agreement.” Id. at 1177. Notwithstanding 28 this observation, the court will accept defendant’s hybrid argument for purposes of its analysis. 1 Defendants’ argument in this regard is unpersuasive for several reasons. Primarily, the 2 Terms of Use hyperlink is not near the checkbox, the electronic acknowledgment, or the scroll 3 box containing the Loyal Customer Agreement, nor is a consumer required to view the Terms of 4 Use before completing a purchase. (See Appendix A.) In short, there is no indication that when 5 one is assenting to the Loyal Customer Agreement, one is also assenting to a separate contract, 6 i.e., the Terms of Use. The disconnect between the Terms of Use hyperlink at the bottom of the 7 webpage and the Loyal Customer Agreement is evident when viewing the website checkout 8 screen displayed in Appendix A. Specifically, the Loyal Customer Agreement is titled “Terms & 9 Conditions”; the checkbox immediately below the scroll box containing the terms of the Loyal 10 Customer Agreement states, “I AGREE TO ALL TERMS & CONDITIONS”; and the additional 11 paragraph of text below the checkbox but above the electronic signature states, in part, “I 12 electronically acknowledge reading and understanding the above Terms & Conditions[.]” (Doc. 13 No. 14-6 at 2) (emphasis added). Nothing at this point of the webpage suggests that these “Terms 14 & Conditions” include or encompass the Terms of Use. To the contrary, the arrangement of the 15 webpage and repeated use of the phrase “Terms & Conditions” implies that “ALL TERMS & 16 CONDITIONS” is referring to the Loyal Customer Agreement located immediately above it (also 17 titled “TERMS & CONDITIONS”), and not to the “Terms of Use” hyperlink found far below the 18 electronic acknowledgement in the bottom left corner of the webpage among several other 19 hyperlinks. 20 Finally, courts have found that small hyperlinks to website terms of use that are close in 21 proximity to relevant buttons that consumers must click to continue using a website—far closer in 22 proximity than the It Works! webpage shown here in Appendix A—are not reasonably 23 conspicuous so as to put a reasonably prudent website user on notice. See, e.g., Berman, 30 F.4th 24 at 856–57, 859–61 (finding small grey underlined font stating “I understand and agree to the 25 Terms & Conditions which includes mandatory arbitration” adjacent to where a website user 26 would enter their zip code and click “This is Correct, Continue!” was insufficiently conspicuous 27 to trigger inquiry notice to the consumer); Sellers, 73 Cal. App. 5th at 480–81 (finding the phrase 28 “By clicking ‘Start my trial’ you indicate that you agree to the Terms of Service” insufficiently 1 conspicuous even when it was near a large orange button titled “Start my trial,” because the text 2 was not in all capital letters, lacked contrasting font color, and was smaller than all other text on 3 the webpage); Nguyen, 763 F.3d at 1177–79 (concluding that “the placement of the ‘Terms of 4 Use’ hyperlink in the bottom left-hand corner of every page on the Barnes & Noble website” and 5 “either directly below the relevant button a user must click on to proceed in the checkout process 6 or just a few inches away” was “not enough to give rise to constructive notice”). 7 For all of these reasons, the court concludes that defendants have failed to show that a 8 valid contract containing an arbitration provision was formed between plaintiff and defendants. 9 Likewise, defendants have not made an adequate showing that the It Works! website provides 10 reasonably conspicuous notice of the Terms of Use or that plaintiff took some action that 11 unambiguously manifested her assent to the Terms of Use. Therefore, defendants’ motion to 12 compel arbitration will be denied. 13 B. Motion for Sanctions 14 Defendants also move for the imposition of sanctions on the grounds that plaintiff’s 15 original complaint and FAC fail to comply with Rules 11(b)(1), (2), and (3) of the Federal Rules 16 of Civil Procedure. (Doc. No. 34 at 11.) The principal argument advanced by defendants in this 17 regard is that in the declaration plaintiff filed in opposition to their motion to compel arbitration, 18 plaintiff declared under oath “that she never visited the [It Works!] website” and that this 19 assertion allegedly contradicts allegations made by plaintiff in both her original complaint and the 20 FAC. (Id. at 6, 16.) Indeed, defendants contend that the core factual premise in the case is that 21 plaintiff “was supposedly misled by advertising and terms on the It Works! website” and 22 plaintiff’s declaration “reveals” that this fundamental allegation “is undisputedly false.” (Id. at 23 6.) As of the date of the pending motion for sanctions, defendants contend that they have 24 incurred $283,857.77 in reasonable attorney’s fees and costs responding to this action, and that 25 plaintiff and her counsel should be required to pay those expenses caused by their alleged Rule 11 26 violations. (Id. at 7, 19.) 27 “[I]t is well-established that an amended pleading supersedes the original pleading and 28 renders it of no legal effect.” Williams v. County of Alameda, 26 F. Supp. 3d 925, 936 (N.D. Cal. 1 2014). Here, the FAC is the operative pleading in this action because it was filed within 21 days 2 after defendants filed their motion to compel arbitration, which is a timely amendment under Rule 3 15. See Ortega v. Spearmint Rhino Companies Worldwide, Inc., No. 17-cv-206-JGB-KK, 2017 4 WL 11272598, at *1 (C.D. Cal. June 12, 2017) (accepting that plaintiff’s FAC filed within 21 5 days after defendant filed a motion to compel arbitration was timely because the motion to 6 compel arbitration counted as a “responsive pleading” under Rule 15). Thus, defendants repeated 7 references to the inoperative original complaint (see, e.g., Doc. No. 34 at 6) will be disregarded 8 by the court. See also Sneller v. City of Bainbridge Island, 606 F.3d 636, 639 (9th Cir. 2010) 9 (noting that the filing of an amended complaint removing alleged Rule 11 violations cures those 10 alleged defects). 11 Although plaintiff has not had an opportunity to file an opposition to the pending motion 12 for sanctions, the court finds that it is able to address defendants’ core argument without the aid 13 of plaintiff’s input and will do so for the sake of judicial efficiency.7 14 The court concludes that defendants have failed to establish that the claims brought 15 against them are so legally or factually baseless as to be sanctionable at this early stage of these 16 proceedings. See In re Keegan, 78 F.3d at 437 (“Rule 11 is an extraordinary remedy, one to be 17 exercised with extreme caution.”). The supposedly offending paragraph in plaintiff’s declaration 18 states that, “[i]n making my initial Thermofight purchase, I did not view Defendants’ website at 19 all.” (Doc. No. 18-1 at ¶ 4.) This statement is not so definitive as to be a representation that 20 plaintiff never visited the It Works! website; it only precludes plaintiff from having visited the 21 website “in making her initial Thermofight purchase.” In this respect, the operative FAC can be 22 7 Although “the focus of Rule 11 is on whether a claim is wholly without merit, and is not 23 dictated by whether resources will be expended in deciding the motion, Rule 11 motions should conserve rather than misuse judicial resources.” Moeck v. Pleasant Valley Sch. Dist., 844 F.3d 24 387, 392 n.9 (3d Cir. 2016). In fact, “Rule 11(c)(6) requires only that a district court explain the basis of its order when the court imposes a sanction, not when it denies sanctions.” Id. at 391 25 (upholding denial of motions for sanctions where the district court merely found that the “motions were meritless”); accord Fed. R. Civ. P. 11, Advisory Committee Note (1993) (“[T]he court 26 should not ordinarily have to explain its denial of a motion for sanctions.”); Winterrowd v. Am. 27 Gen. Annuity Ins. Co., 556 F.3d 815, 826 (9th Cir. 2009) (“A district court does not as a matter of law abuse its discretion by summarily denying a request for sanctions without making specific 28 findings of facts.”). 1 easily be squared with plaintiff’s declaration because the FAC alleges that, “Plaintiff Aileen 2 Brooks purchased Thermofight from an independent distributor using the It Works website on 3 May 11, 2020.” (Doc. No. 17 at ¶ 77) (emphasis added); see also (Doc. No. 18-1 at ¶ 5 (“I made 4 my Thermofight purchase through an It Works ‘independent distributor’. . . .”).) Thus, although 5 plaintiff herself may not have visited the It Works! website to make her initial purchase because 6 an independent distributor did so, that does not necessarily mean she could not have visited the 7 website on some other occasion. Moreover, in reviewing the remaining contradictions alleged by 8 defendants between plaintiff’s declaration and the allegations of her FAC, which were 9 documented in defendants’ motion for sanctions (Doc. No. 34 at 9), it is not evident from a side- 10 by-side comparison that there is a clear contradiction warranting the extraordinary remedy of the 11 imposition of sanctions. For example, although plaintiff alleges she “read and relied on, for her 12 Thermofight purchase, the product’s packaging and the misrepresentations made by It Works on 13 Defendants’ website,” it is not clear whether plaintiff read those representations some time before 14 actually executing her initial purchase, in conjunction with a later purchase, or whether plaintiff 15 had the alleged misrepresentations parroted to her through the alleged independent distributor, 16 even though those same alleged misrepresentations exist independently on the It Works! website. 17 Lastly, given the early stage of this proceeding, it is difficult to assess whether plaintiff’s 18 allegations regarding the It Works! website are so legally and factually baseless to warrant issuing 19 over a quarter million dollars in requested sanctions. See Foster v. Keeping, No. 8:14-cv-0004- 20 AGD-FM, 2015 WL 12805149, at *2 (C.D. Cal. Feb. 23, 2015) (finding it “inappropriate to 21 address the legal and factual basis of [plaintiff’s] claims for the first time in a motion for 22 sanctions” and declining to consider sanctions at an “early stage of the proceedings”). The court 23 is particularly reluctant to do so when the strongest evidence in support of issuing sanctions is a 24 quite equivocal single sentence of plaintiff’s declaration. See Operating Engineers Pension Tr., 25 859 F.2d at 1344 (“[W]e reserve sanctions for the rare and exceptional case where the action is 26 clearly frivolous.”) (emphasis added). Accordingly, the court will deny defendants’ motion for 27 the imposition of sanctions without prejudice. 28 ///// 1 The court, however, cautions plaintiff and her counsel to heed the dictates of Rule 11. 2 | The court will not turn a blind eye to claims brought baselessly if it later comes to light that such 3 | allegations were facially untenable given the evidence available when the allegations were 4 | asserted in the first instance. 5 Lastly, as defendants’ point out in their pending motion for sanctions, this district court is 6 | likely “the most overworked court system in the Ninth Circuit.” (Doc. No. 34 at 7.) The parties 7 | are forewarned that unnecessary motion practice severely hinders an already overburdened 8 | district court. Before filing any further motions in this action, the parties are to exhaustively meet 9 | and confer to resolve as many issues as possible. In the court’s view, both parties are certainly 10 | capable of doing a better job in this respect than they have done so far. 11 CONCLUSION 12 For the reasons set forth above: 13 1. Defendants’ motion to compel arbitration (Doc. No. 14) is denied; 14 2. Plaintiff's ex parte motion for leave to file a sur-reply in opposition to defendants’ 15 motion to compel arbitration (Doc. No. 20) is denied; 16 3. Defendants’ motion for sanctions (Doc. Nos. 32, 34) is denied; 17 4. Plaintiff's ex parte motion to strike defendants’ Rule 11 motion, or in the 18 alternative, continue the motion and require that defendants’ produce billing 19 records (Doc. No. 35) is denied as having been rendered moot by this order; and 20 5. Plaintiff should not file any opposition to defendants’ motion for sanctions (Doc. 21 Nos. 32, 34) pursuant to the court’s prior minute order (Doc. No. 36). 22 | IT IS SO ORDERED. me □ 23 ft ff ja £3 Dated: _ June 9, 2022 eee Te — 24 UNITED STATES DISTRICT JUDGE 25 26 27 28 17 ——E——— ——————— EEE Eee EES OE EE EAE EE See 2 SAVE UP TO 50% WHEN YOU ENROLL ASA LOYAL CUSTOMER WITH PROMO CODE: SAVENOW Custor Become a Distrib. About □ por = — 3 uy lt Works! Best Sellers. Pick 2 or 3 Shop by Solution Shop by Category Confidence The Label Packs Sale QQ search & Signin a S oe Order Delay Notice: Due to Increased order volume and the impact of COVID-18, It may take longer than usual to deliver your arder Final Review ‘Shopping Gart 6 " eee vee Ree) -zelt) 8 * 9 Promo Code Welcome to the It Works! Loyal Customer Program @y It Works! 908 Riverside Dr. « Palmatto. FL 34221 13 na! TERMS & CONDITIONS UNITED STATES It Works Marketing, Inc. shall be referred to as “It Works!” or “the Company” thoughout this Agreement. Where a 1 4 customer has elected ta become an It Works! 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