T. Parsley Hughes v. Ancestry.com ( 2019 )

IN THE MISSOURI COURT OF APPEALS
WESTERN DISTRICT
T. PARSLEY HUGHES, ET AL., )
)
Respondents, )
)
v. ) WD81996
)
ANCESTRY.COM, ET AL., ) Opinion filed: May 28, 2019
)
Appellants. )
APPEAL FROM THE CIRCUIT COURT OF JACKSON COUNTY, MISSOURI
THE HONORABLE SANDRA MIDKIFF, JUDGE
Before Division Three: Thomas H. Newton, Presiding Judge,
Anthony Rex Gabbert, Judge and Edward R. Ardini, Jr., Judge
Tina Parsley Hughes and Jose Cordada1 (“Plaintiffs”) filed suit in the Circuit Court of
Jackson County against Ancestry.com Inc. and Ancestry.com DNA LLC (collectively,
“Ancestry”), alleging that Ancestry released their private health information to third parties
without their expressed permission. Ancestry filed a Motion to Compel Arbitration and Stay
Litigation, which was denied by the trial court. Ancestry appeals from that denial. We reverse and
remand with instructions.
1
Hughes and Cordada are the named plaintiffs in this lawsuit. The petition sought class certification.
I. Factual and Procedural Background
Ancestry is a Utah company doing business nationwide and internationally. Ancestry sells
genealogy and DNA products and services, including through operation of the website
Ancestry.com. As part of its services, Ancestry offers its customers the opportunity to have their
DNA tested to discover their ethnicity. Plaintiffs purchased DNA-testing kits from Ancestry and
created Ancestry.com accounts.2
In order to create their respective accounts, Plaintiffs entered their full names and email
addresses and created a password on a webpage. This webpage contained the following message:
By clicking “Continue” below, you agree to the Ancestry Terms and Conditions
and Privacy Statement and agree Ancestry may contact you via email about their
products and services, such as family tree hints and updates and promotional offers
and events [ ] that help you unlock your past to inspire your future. You can
unsubscribe or customize your email settings at any time.
Within this paragraph, the Terms and Conditions and Privacy Statement were visibly hyperlinked
to send users to those documents. A “Continue” button immediately followed this disclaimer.
Plaintiffs clicked “Continue” to create their accounts.
Plaintiffs filed their Class Action Petition, alleging that Ancestry “released [Plaintiffs’] and
the members of the Class’ private health information to unknown persons or entities without
expressed permission to do so from [Plaintiffs] or members of the Class.”3 Ancestry filed a Motion
to Compel Arbitration and Stay Litigation, arguing that the “Dispute Resolution” section of the
2
Hughes signed up for an account and activated her DNA kit on October 1, 2016. Cordada signed up for an account
on December 19, 2017, and activated his DNA kit on February 8, 2018.
3
Plaintiffs’ petition alleged claims for violation of the Missouri Merchandising Practices Act, breach of the fiduciary
duty of confidentiality, breach of contract, and negligence, and sought monetary damages and injunctive relief.
2
Terms and Conditions agreed to by Plaintiffs included an agreement to arbitrate all disputes 4
subject to three exceptions:
If [the customer’s] dispute is not resolved within 30 days after contacting
[Ancestry], then [the customer] and Ancestry agree that we will resolve it through
final and binding arbitration, with the following three exceptions:
1. [The customer] may assert [his or her] dispute, if it qualifies, in small claims
court.
2. Both [the customer] and Ancestry may bring a suit in court in the state of Utah
only for a claim of infringement or other misuse of intellectual property rights. In
this case, we both waive any right to a jury trial.
3. If it qualifies, [the customer] may bring a claim to the attention of a relevant
federal, state, or local agency that may seek relief against [Ancestry] on [the
customer’s] behalf.
The agreement specifically explained that any arbitration proceeding would be conducted
according to the American Arbitration Association’s (“AAA”) rules, and the reference to the rules
was hyperlinked to a downloadable copy of them. AAA Consumer Arbitration Rule R-14(a), states
that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any
objections with respect to the existence, scope, or validity of the arbitration agreement or to the
arbitrability of any claim or counterclaim.”
Plaintiffs filed Suggestions in Opposition to Ancestry’s Motion to Compel Arbitration,
arguing that the arbitration agreement “lacks consideration and is unconscionable.” Specifically,
Plaintiffs asserted that the agreement lacked consideration because the Terms and Conditions
allowed Ancestry to unilaterally amend the arbitration agreement. Paragraph 7 states:
4
The Terms and Conditions also required that customers initially attempt to resolve any disputes by contacting
Ancestry. Whether Plaintiffs attempted to resolve their disputes directly with Ancestry before filing suit is not at issue
in this appeal.
3
We have the right to modify these Terms or any additional terms that apply to a
Service at any time, including to reflect changes to the law or changes to our
Services. We will notify you of any material changes by posting information
through the Services or via email. Such material changes will not apply
retroactively and will become effective thirty days after they are posted, except that
changes addressing new functions in the Services or changes made for legal reasons
will be effective immediately. Your continued use of the Services after a change to
the Terms will mean you accept the changes. If any changes are unacceptable to
you, you may stop using the Services and, if applicable, cancel your subscription
as described here.
Plaintiffs also alleged that the agreement was procedurally and substantively unconscionable. 5
The trial court overruled Ancestry’s Motion to Compel Arbitration and Stay Litigation,
finding that the arbitration agreement was invalid because it lacked mutual consideration:
The arbitration agreement at issue in this litigation is illusory, and lacks mutuality
of consideration. The arbitration agreement includes the following provision that
allows Defendants to unilaterally amend the arbitration agreement: “[W]e have the
right to modify these terms or any additional terms that apply to a Service at any
time, including to reflect changes to the law or changes to our Services.” [ ] The
amendment provision does not necessitate the agreement of Plaintiff before the
execution and inclusions of additional arbitration provisions. [Ancestry’s]
unilateral ability to amend renders the mutual promise to arbitrate as illusory.
Ancestry appeals.6
II. Standard of Review
“The denial of a motion to compel arbitration is reviewed de novo.” Soars v. Easter Seals
Midwest, 563 S.W.3d 111, 113 (Mo. banc 2018) (citation omitted). “Our review of the trial court’s
interpretation of an arbitration provision is also de novo, as arbitration is contractual, and contract
5
Plaintiffs argued that the agreement was substantively unconscionable because the terms “(1) permit Ancestry to
unilaterally modify the agreement without limitation; (2) permit Ancestry to pursue its primary remedies in court; (3)
precludes [sic] any appeal of the arbitrator’s award; (4) require any arbitration hearing to be held in the State of Utah;
(5) allow only Ancestry to seek injunctive relief; and (6) preclude any action not brought on an individual basis.”
Plaintiffs also alleged that the agreement was procedurally unconscionable because it was a contract of adhesion
“camouflaged” as a “browsewrap” agreement.
6
An order denying a motion to compel arbitration is appealable under section 435.440, RSMo. Baker v. Bristol Care,
Inc., 450 S.W.3d 770, 773 (Mo. banc 2014).
4
interpretation is a question of law.” Latenser v. Tarmac Int’l, Inc., 549 S.W.3d 461, 463 (Mo. App.
W.D. 2018) (citation omitted).
III. Discussion
Ancestry raises three points on appeal. In its first point, Ancestry alleges that the trial court
erred in overruling its Motion to Compel Arbitration, arguing there was sufficient consideration to
support the contract, including the arbitration agreement. In its second point, Ancestry claims that
the trial court erred in finding that the consideration supporting the arbitration agreement was
illusory because its right to modify the Terms and Conditions of the contract was limited to
prospective modifications. Finally, in its third point, Ancestry argues that the trial court erred in
overruling the Motion to Compel Arbitration because the parties delegated threshold questions of
arbitrability to the arbitrator. Because it is dispositive, we address only Point III.
“Under the Federal Arbitration Act (FAA), arbitration is solely a matter of contract.” State
ex rel. Pinkerton v. Fahnestock, 531 S.W.3d 36, 49 (Mo. banc 2017) (citing AT&T Techs., Inc. v.
Commc’ns Workers of Am., 475 U.S. 643, 648 (1986)). “‘[A] party cannot be required to arbitrate
a dispute that it has not agreed to arbitrate[,]’ and arbitration will only be compelled where ‘a valid
arbitration agreement exists and . . . the specific dispute falls within the scope of that agreement.’”
NutraPet Sys., LLC v. Proviera Biotech, LLC, 542 S.W.3d 410, 413-14 (Mo. App. W.D. 2017)
(quoting Granger v. Rent-A-Ctr., 503 S.W.3d 295, 298 (Mo. App. W.D. 2016)). “Just as the
arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that
dispute, so the question ‘who has the primary power to decide arbitrability’ turns upon what the
parties agreed about that matter.” Dotson v. Dillard’s, Inc., 472 S.W.3d 599, 603 (Mo. App. W.D.
2015) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995)).
5
A “delegation provision is an agreement to arbitrate threshold issues concerning the
arbitration agreement.” Soars, 563 S.W.3d at 114 (Mo. banc 2018) (quoting Rent-A-Ctr., West,
Inc. v. Jackson, 561 U.S. 63, 68 (2010)). “Accordingly, it ‘is simply an additional, antecedent
agreement the party seeking arbitration asks the . . . court to enforce, and the FAA operates on this
additional arbitration agreement just as it does on any other.’” Id. (quoting Rent-A-Ctr., 561 U.S.
at 70). “A delegation provision giving an arbitrator the power to decide threshold issues of
arbitrability ‘shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law
or in equity for the revocation of any contract.’” Id. (quoting 9 U.S.C. § 2). “The question of
arbitrability – whether an agreement creates a duty for the parties to arbitrate the particular
grievance – is undeniably an issue for judicial determination, unless the parties clearly and
unmistakably provide otherwise.” Caldwell v. UniFirst Corp., 2019 WL 1445220 at *3 (Mo. App.
E.D. April 2, 2019) (citing Dotson, 472 S.W.3d at 604; Latenser, 549 S.W.3d at 463). Therefore,
we must first look to the terms of the parties’ agreement to determine whether it contains a
provision that “clearly and unmistakably” delegates threshold issues of arbitrability to the
arbitrator.
“An arbitration agreement ‘need not recite verbatim that the parties agree to arbitrate
arbitrability’ in order to manifest [a] ‘clear and unmistakable’ agreement.” Caldwell, 2019 WL
1445220 at *4 (quoting Dotson, 472 S.W.3d at 604). “A delegation provision that gives an
arbitrator the authority to resolve disputes relating to the enforceability, validity, or applicability
of an arbitration agreement constitutes clear and unmistakable evidence that the parties intended
to arbitrate arbitrability.” Id. (quoting Dotson, 472 S.W.3d at 606). In Pinkerton, for example,
reference in the agreement that the arbitration proceedings would be governed by the AAA
commercial rules was sufficient to establish the parties’ intent to incorporate those rules into the
6
agreement. 531 S.W.3d at 48.7 In turn, those rules provided that “[t]he arbitrator shall have the
power to rule on his or her own jurisdiction, including any objections with respect to the existence,
scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.”
Id. at 41. This was held to be clear and unmistakable evidence of the parties’ intent to delegate
threshold issues of arbitrability to the arbitrator. Id. at 48; see also Latenser, 549 S.W.3d at 464;
Caldwell, 2019 WL 1445220 at *4. In the present case, the parties’ agreement similarly
incorporated the AAA Rules, including Consumer Arbitration Rule R-14(a), which states that
“[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any
objections with respect to the existence, scope, or validity of the arbitration agreement or to the
arbitrability of any claim or counterclaim.” This is identical to the provision at issue in Pinkerton,
Caldwell, and Latenser, and we too must find that Plaintiffs and Ancestry clearly and unmistakably
demonstrated an intent to delegate threshold issues of arbitrability to the arbitrator.
Having found the existence of a delegation provision, we must next determine its validity.
See Soars, 563 S.W.3d at 114; Dotson, 472 S.W.3d at 608; Caldwell, 2019 WL 1445220 at *4;
Latenser, 549 S.W.3d at 463-64. “A delegation provision may be invalidated, revoked, or
otherwise found unenforceable upon such grounds as exist in law or in equity for the revocation
of any contract.” Caldwell, 2019 WL 1445220 at *4 (citing Soars, 563 S.W.3d at 114). “However,
because a delegation provision is an additional arbitration agreement, the delegation provision is
severable and should be considered separately from the underlying arbitration agreement.” Id.
(citing Soars, 563 S.W.3d at 114). “For [a party] to properly contest the validity of the delegation
7
Missouri courts have found that “‘[t]erms not explicit in a contract may be incorporated into the contract by reference’
so long as the ‘intent to incorporate [is] clear.’” Pinkerton, 531 S.W.3d at 45 (quoting State ex rel. Hewitt v. Kerr, 461
S.W.3d 798, 810-11 (Mo. banc 2015)). Parties may incorporate terms from another document, even one that is separate
and unsigned, if the contract makes clear reference to the document and describes it so that it can be recognized beyond
a doubt. Id. “There is no requirement that an incorporated document be attached to the contract or provided to the
parties prior to the execution of the contract.” Id.
7
provision, [it] must have challenged the delegation provision specifically. Otherwise it is treated
as valid and enforced – ‘leaving any challenge to the validity of the Agreement as a whole for the
arbitrator.’” Soars, 563 S.W.3d at 114 (quoting Rent-A-Ctr., 561 U.S. at 72) (additional citations
omitted). “A direct challenge is one that specifically addresses the delegation provision.” Latenser,
549 S.W.3d at 464 (citation omitted).
Before the trial court, Ancestry argued that the parties had agreed to delegate issues of
arbitrability to the arbitrator. In response, Plaintiffs did not specifically challenge the delegation
provision. Instead, Plaintiffs rested upon the same arguments they directed at the arbitration
agreement as a whole;8 an approach that has been specifically rejected by our courts. See Soars,
563 S.W.3d at 114. Because Plaintiffs failed to separately contest the validity of the delegation
provision, it must be “treated as valid and enforced.”9 Id.
Point III is granted.
8
Plaintiffs focus their argument on whether there was sufficient consideration for the formation of the entire arbitration
agreement, relying on Caldwell v. UniFirst Corp., 2018 WL 4568885 (Mo. App. E.D. September 25, 2018)
(transferred to Mo. Sup. Ct. on January 29, 2019) (“Caldwell I”). In Caldwell, the plaintiff argued, like Plaintiffs do
here, that the arbitration agreement lacked consideration because the defendant maintained a unilateral right to amend
the agreement. 2018 WL 4568885 at *5-6. In Caldwell I, the eastern district of this Court agreed, finding that the
arbitration agreement as a whole lacked consideration and, because the delegation provision was part of the arbitration
agreement, neither was enforceable. Id. at *8. While the instant appeal was pending, the Missouri Supreme Court
handed down Soars, which held that a delegation provision is “severable and should be considered separately from
the underlying arbitration agreement.” 563 S.W.3d at 114. Our Supreme Court re-transferred Caldwell to the eastern
district for reconsideration in light of Soars. In Caldwell II, the eastern district examined the delegation provision in
isolation and found that it was supported by sufficient consideration and the plaintiff’s “challenges to the validity and
enforceability of the agreement as a whole, including his contention that the arbitration agreement itself lacked
consideration, are for the arbitrator.” 2019 WL 1445220 at *4. Our decision today is consistent with Soars and
Caldwell II.
9
Even if a proper challenge specific to the delegation provision had been made by Plaintiffs, the outcome of this
appeal would not change. “A contract consisting of mutual promises to undertake a legal duty or liability between
parties is a bilateral contract.” Soars, 563 S.W.3d at 116 (citation omitted). When we consider the delegation provision
applicable to this matter in isolation, as we are required to do, it is clear that the parties mutually agreed to arbitrate
questions of arbitrability. Thus, the agreement is bilateral and supported by consideration. See Caldwell, 2019 WL
1445220 at *4 (citing Soars, 563 S.W.3d at 117).
8
IV. Conclusion
The judgment of the circuit court is reversed and remanded with directions to stay the
litigation and order the parties to proceed to arbitration where issues of arbitrability can be
addressed.
__________________________________________
EDWARD R. ARDINI, JR., JUDGE
All concur.
9