Honor Finance v. Spireon CA4/3

Filed 1/20/23 Honor Finance v. Spireon CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
HONOR FINANCE, LLC, et al.
Plaintiffs and Respondents, G061171
v. (Super. Ct. No. 30-2021-01178346)
SPIREON, INC., OPI NION
Defendant and Appellant.
Appeal from an order of the Superior Court of Orange County, Derek W.
Hunt, Judge. Reversed and remanded as directed.
Ford & Harrison, Daniel B. Chammas and Min K. Kim for Defendant and
Appellant.
Raines, Feldman, Kathy Bazoian Phelps, Robert M. Shore, Camilla Y.
Chan; Rachlis Duff & Peel, Drew G.A. Peel and Michael Rachlis for Plaintiffs and
Respondents.
* * *
Defendant Spireon, Inc. (Spireon) claimed plaintiff Honor Finance, LLC,
et al. (the Company) agreed to arbitrate certain disputes when it accepted various terms
and conditions prior to purchasing products over the Internet. The Company disputed it
had entered into any such agreement. The trial court denied Spireon’s motion to compel
arbitration (the arbitration motion) on grounds Spireon had failed to produce an
arbitration agreement signed by both parties. We find the court misapplied the applicable
law governing contract formation over the Internet. Parties are not required to sign an
agreement for it to be binding. In Internet transactions, assent to a contract is typically
manifested through a party’s conduct. Given the novelty of this area of law, the court’s
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error is understandable. But due to this legal error, we reverse the court’s order and
remand this case as directed.
I
FACTS AND PROCEDURAL HISTORY
A. The Complaint
The plaintiffs in this lawsuit are the Company and its parent entity, Honor
Finance Holdings, LLC (Holdings). The Company was formed in July 2011 to acquire
part of a subprime automobile loan portfolio from an unrelated but similarly named
company called Honor Finance Corporation (HFC). The acquisition was completed in
October 2011. Holdings was formed in September 2011 and was the sole member of the
Company. Spireon is a Tennessee corporation that sells global positioning system (GPS)
1
There appear to be only three published California cases relating to the acceptance of
terms and conditions over the Internet: Long v. Provide Commerce, Inc. (2016) 245
Cal.App.4th 855 (Long), Sellers v. JustAnswer LLC (2021) 73 Cal.App.5th 444 (Sellers),
and B.D. v. Blizzard Entertainment, Inc. (2022) 76 Cal.App.5th 931 (Blizzard). Of these
three cases, Sellers was published only a few days before the order at issue while Blizzard
was published over a year later.
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products for the installation in and the tracking of vehicles. Its principal place of business
is in Irvine.
Plaintiffs filed this lawsuit against Spireon in January 2021. Generally,
plaintiffs alleged Spireon was involved in an illicit scheme with nonparty Robert DiMeo,
who was an officer at HFC. After the Company acquired HFC’s loan portfolio, DiMeo
became a vice president and the chief operating officer for the Company. He remained
employed by the Company until 2018, when his fraudulent activity was uncovered.
The alleged illicit scheme involved GPS devices, which the Company sold
to its borrowers for purposes of tracking and repossessing vehicles if the borrower
defaulted. Plaintiffs alleged that between January 2012 and December 2015, DiMeo
purchased over 30,000 GPS devices directly from Spireon for roughly $2.3 million using
his personal credit card. DiMeo instructed Spireon to invoice a sham company he owned,
LHS Solutions, Ltd. (LHS). DiMeo then caused LHS to invoice the Company for the
GPS devices at a substantial mark up over the amount that DiMeo had paid Spireon.
After receiving payment from the Company, LHS reimbursed DiMeo for his credit card
charges and kicked back the profits to DiMeo and his collaborators. One of his
collaborators was Michael Walsh, an accountant who performed services for entities
2
controlled by DiMeo.
The complaint included e-mail orders made directly from DiMeo to
Spireon. It also attached internal Spireon e-mails from 2012 showing that DiMeo
requested that “Honor Finance” be removed from Spireon’s invoices because he
“want[ed] no paper trails whatsoever with the name Honor Finance. The goal [was] to
2
In May 2020, an indictment was filed against DiMeo and Walsh in the Northern District
of Illinois relating to this alleged scheme. They were both charged with 10 counts of
mail fraud. (18 U.S.C. § 1341.) Walsh accepted a plea agreement. The status of
DiMeo’s criminal case is unclear from the record.
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have Honor Finance not be liable for anything [so] the name [was] change[d] on the bill
to [LHS].”
The Company discovered DiMeo’s alleged scheme in May 2018, and
immediately terminated him. However, the Company lost substantial sums of money due
to the scheme, among other factors, and ceased operations in September 2018. Holdings
lost a $25 million equity investment in the Company. Based on the above allegations,
plaintiffs asserted four causes of action against Spireon: (1) aiding and abetting DiMeo’s
breaches of fiduciary duty, (2) conspiring with DiMeo to defraud the Company, (3) unfair
competition under Business and Professions Code section 17200, et seq., and (4) unjust
enrichment.
B. The Inconvenient Forum Motion
In March 2021, Spireon filed a motion to dismiss or stay the action on
grounds of inconvenient forum (the inconvenient forum motion). It argued the Company
and Spireon had entered into a subscription services agreement (SSA), which contained a
forum selection clause requiring plaintiffs’ claims to be litigated in Tennessee. The
inconvenient forum motion explained the Company had accepted the SSA’s terms over
the Internet. Specifically, an unnamed representative of the Company had logged onto
Spireon’s Web site on February 4, 2010. The representative was presented with the
SSA’s terms, which he or she purportedly clicked to accept. Unidentified representatives
of the Company subsequently accepted new versions of the SSA over the Internet from
2012 to 2020.
In support of the inconvenient forum motion, Spireon provided copies of all
versions of the SSA allegedly accepted by the Company. It also provided a spreadsheet
logging each of the Company’s purported acceptances of the SSA, which included the
user’s Internet Protocol (IP) address when accepting the SSA, the date the SSA was
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accepted, and the SSA version accepted (the SysDevX spreadsheet). Although Holdings
had not accepted the SSA’s terms, Spireon claimed it was closely related to the Company
and should also be bound.
Plaintiffs’ opposition claimed no enforceable agreement existed. They
pointed out that Spireon claimed the initial SSA had been accepted by the Company in
2010, but the Company did not exist at that time (it was formed in 2011). Further,
plaintiffs submitted a declaration from a forensics expert showing none of the IP
addresses listed on the SysDevX spreadsheet could be conclusively linked to the
Company. The expert declaration also opined Spireon’s representation that the Company
had accepted the terms of a SSA was “unsupported, forensically unsound, and
ambiguous.” Finally, to the extent Spireon claimed DiMeo had accepted the terms of the
SSA, plaintiffs submitted evidence that he had not been authorized by the Company to do
so.
The trial court, Judge Stephanie George presiding, denied the inconvenient
forum motion on grounds Spireon had failed to show a valid agreement between the
parties. Spireon then filed a petition for a writ of mandate in this Court, which we denied
on August 5, 2021.
C. The Motion to Compel Arbitration
A few days after this Court denied Spireon’s petition for a writ of mandate,
Spireon filed the arbitration motion, which was also based on the Company’s purported
3
“An IP address . . . is a ‘“unique identifier”’ that functions ‘“much like [a] Social
Security number[ ] or telephone number[ ],”’ each corresponding to ‘“a specific entity
connected to the Internet.”’” (Kinda v. Carpenter (2016) 247 Cal.App.4th 1268, 1273.)
“‘“The IP . . . address is unique to a specific computer. Only one computer would be
assigned a particular IP address.”’” (People v. Stipo (2011) 195 Cal.App.4th 664, 673.)
As explained below, SysDevX was the name of the system Spireon used for a time to
manage customer information.
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acceptance of the SSA’s terms. The arbitration motion was primarily supported by a
declaration from Michael Callinan, a senior manager of software development at Spireon.
The arbitration motion and supporting evidence explained that since 2010,
all buyers of Spireon’s GPS devices are required to accept the SSA’s terms in order make
purchases. Specifically, in 2010, Spireon used a system known as SysDevX that
managed customer orders, billing information, and customer account information. Every
customer was assigned a unique identification number. Under SysDevX, each customer
could only have one user to log in to the system and place orders. The user had to
provide an individual name and e-mail address to sign up. The first time a user logged
into SysDevX, he or she had to accept the terms of the SSA to proceed any further.
Every time the SSA was updated, SysDevX required the user to agree to the new version
of the SSA upon logging in. Users were permitted to review the terms of the SSA before
accepting them but were not required to do so. SysDevX tracked user acceptances of the
various SSA versions, including the user’s IP address, the version of the SSA accepted,
and the date and time of acceptance.
Callinan’s declaration averred that “SysDevX has a record of an ‘Honor
Finance’ entity as a customer in June 2009.” The Company name is listed as “‘Honor
Finance,’” and the associated username for the account was “Gary Little.” In May 2011,
the username was changed to “Rob Dimeo.” On January 13, 2016, the Company name
was changed from “‘Honor Finance’ to ‘Honor Finance LLC.’” Callinan’s declaration
again attached the SysDevX spreadsheet to show that users of the “Honor Finance”
account had accepted various versions of the SSA seven times between February 4, 2010,
and October 8, 2014.
The arbitration motion further explained that from October 2014 to May
2015, Spireon migrated the “Honor Finance” account from SysDevX to a new platform
called NSpire Internet of Things (NSpire), which also tracked customer information.
NSpire allowed customers to authorize multiple unique users to log in to Spireon’s
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system and place orders. A user needed to provide a name and e-mail address to become
an authorized user on NSpire. At the time the Company’s account was migrated to
NSpire, the last acceptance of the SSA was version 4.2 from SysDevX user “‘Rob
Dimeo’” on October 8, 2014.
Like SysDevX, every time the SSA was updated, NSpire required users to
agree to the new version when logging in. Users were permitted but not required to
review the SSA before accepting its terms. Information relating to a user’s acceptance of
an SSA version was stored in NSpire, including the username, the user’s IP address, the
user’s e-mail address, the date of acceptance, and the version of the SSA accepted.
Callinan’s declaration attached a list of the “Honor Finance” account’s authorized users
on NSpire (the NSpire user list). It also included a spreadsheet showing all the instances
a user associated with the “Honor Finance” account had accepted a version of the SSA
(the NSpire spreadsheet). The NSpire spreadsheet showed 45 different users with Honor
Finance e-mail accounts accepted a version of the SSA 81 times between May 5, 2015
and January 14, 2016.
Spireon’s arbitration motion focused on two users that had purportedly
accepted multiple versions of the SSA on behalf of the Company. The first was DiMeo.
The second was Kurt Koeckritz, who supposedly accepted the SSA’s terms on October
16, 2015, and December 4, 2015. Spireon submitted a copy of Koeckritz’s LinkedIn
profile via a request for judicial notice, which stated he worked for “Honor Finance” as
an Assistant Vice President between April 2010 and May 2018.
Plaintiffs’ opposition and supporting evidence argued Spireon had failed to
show the Company had accepted any version of the SSA. To begin, they argued
Callinan’s declaration lacked foundation. Plaintiffs also asserted that prior to January 13,
2016, when the account name changed to “Honor Finance LLC,” the “Honor Finance”
account referred to HFC and/or LHS, not the Company. Among other things, the “Honor
Finance” account was created in SysDevX in June 2009, two years before the Company
7
was formed. Evidence indicated HFC purchased GPS devices from Spireon until at least
October 2011, and that HFC continued operations after October 2011. Further, there was
evidence HFC personnel used “honorfinance.com” e-mail addresses. Plaintiffs also
presented evidence from which it could be inferred that the “Honor Finance” account was
associated with LHS, not the Company, from October 2011 until January 2016.
As to the SysDevX spreadsheet, plaintiffs’ expert again stated that of the
seven acceptances logged, the associated IP addresses did not show a conclusive link to
the Company. The expert likewise opined the NSpire spreadsheet was unreliable.
Among other things, the names listed on it did not match the NSpire user list. Further,
the NSpire spreadsheet showed the Company’s users accepted versions of the SSA in
2020 and 2021, years after the Company had suspended business operations. Further,
several persons who accepted versions of the SSA did not have “honorfinance.com” e-
mail addresses and had no clear association with the Company.
Moreover, plaintiffs asserted Spireon’s evidence failed to establish that any
NSpire or SysDevX user was authorized to bind the Company to an SSA. They
submitted evidence showing DiMeo lacked authority to enter into the SSAs on behalf of
the Company, and the Company had not ratified any SSAs he purportedly accepted.
Further, it was unclear whether DiMeo had actually accepted the SSA’s terms himself.
Plaintiffs noted that Spireon’s records from SysDevX list the e-mail address for user
“Rob Dimeo” as an e-mail address that appears to belong to Walsh, DiMeo’s
coconspirator. Walsh does not appear to have ever been employed by the Company.
Further, there was evidence linking the street address listed for user “Rob Dimeo” in
SysDevX to “Michael Walsh & Associates.” Likewise, on the NSpire spreadsheet, some
of the entries for user “Rob Dimeo” list an e-mail address that again appears to belong to
Walsh. As for Koeckritz, plaintiffs argued that while the trial court could take judicial
notice of the existence of his LinkedIn profile, it could not accept the truth of that
document’s contents.
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Similarly, plaintiffs maintained there was no evidence showing any NSpire
or SysDevX user intended to bind the Company when it accepted the terms of the SSA.
There was no evidence showing users knew they were accepting the SSA’s terms on
behalf of the Company rather than individually. Among other things, the SSA stated the
parties entering the agreement were Spireon and “you,” which plaintiffs argued was
ambiguous. They also cited language within certain SSA’s suggesting “you” only
referred to the individual user.
Spireon filed a reply brief, but it mainly reiterated the points made in the
4
arbitration motion.
The arbitration motion was not heard by Judge George. Rather, it was
heard by Judge Derek W. Hunt, who denied the arbitration motion on grounds the parties
had not shown a valid agreement was formed. The trial court issued a brief, single
paragraph order explaining, “[t]here was no signature by either side put before the court
—not even an electronic or digital signature.”
Spireon appeals the order denying the arbitration motion. It also requests
that we review the trial court’s denial of the inconvenient forum motion per the
discretionary authority granted in Code of Civil Procedure section 1294.2.
II
DISCUSSION
It appears the trial court may have misunderstood the relevant law.
Specifically, it was unaware of the various ways contracts can be formed over the
Internet. As Internet contract formation is a relatively new area of law, the court’s error
4
With its reply brief, Spireon submitted a declaration from Konstantin Bereznyakov, a
senior information consultant at Spireon. The Bereznyakov declaration primarily repeats
the information in the Callinan declaration but provides more foundation for
Bereznyakov’s statements.
9
is understandable. But we must reverse the order and remand this case so the court can
weigh the evidence above in the first instance under the correct legal principles.
The trial court denied the arbitration motion because “[t]here was no
signature by either side put before the court.” In support, it cited Fuentes v. TMCSF, Inc.
(2018) 26 Cal.App.5th 541, and Flores v. Nature’s Best Distribution, LLC (2016) 7
Cal.App.5th 1, for the proposition that the moving party’s (i.e., Spireon) lack of a
signature on an arbitration agreement is grounds for denying a motion to compel
arbitration. Similarly, the court’s questions at oral argument focused on the identities of
5
the persons who had signed the SSA for both Spireon and the Company. However, as
explained below, Spireon did not have to show a signature from either party to establish a
valid arbitration agreement.
“‘Under “both federal and state law, the threshold question presented by a
petition to compel arbitration is whether there is an agreement to arbitrate.”’ [Citation.]
This threshold inquiry stems from the ‘“basic premise that arbitration is consensual in
nature.”’” (Long, supra, 245 Cal.App.4th at p. 861.) A signed arbitration agreement is
one manner of manifesting consent. (See Binder v. Aetna Life Ins. Co. (1999) 75
Cal.App.4th 832, 850.) But it is not the only manner. “‘[I]t is not the presence or
absence of a signature [on an agreement] which is dispositive; it is the presence or
absence of evidence of an agreement to arbitrate which matters.’ [Citation.] Evidence
confirming the existence of an agreement to arbitrate, despite an unsigned agreement, can
be based, for example, on ‘conduct from which one could imply either ratification or
implied acceptance of such a provision.’” (Serafin v. Balco Properties Ltd., LLC (2015)
235 Cal.App.4th 165, 176.) For example, “[w]hen an employee continues his or her
employment after notification that an agreement to arbitration is a condition of continued
5
We note that the trial court suggested clicking to accept an agreement would constitute
an electronic signature. But, as explained below, an agreement can be formed over the
Internet by means other than a clicked acceptance of offered terms.
10
employment, that employee has impliedly consented to the arbitration agreement.” (Diaz
v. Sohnen Enterprises (2019) 34 Cal.App.5th 126, 130.)
“While Internet commerce has exposed courts to many new situations, it
has not fundamentally changed the requirement that ‘“[m]utual manifestation of assent,
whether by written or spoken word or by conduct, is the touchstone of contract.”’
[Citation.] ‘“‘Mutual assent is determined under an objective standard applied to the
outward manifestations or expressions of the parties, i.e., the reasonable meaning of their
words and acts, and not their unexpressed intentions or understandings.’”’” (Long, supra,
245 Cal.App.4th at p. 862.) Assent to a contract over the Internet is generally manifested
by a user’s conduct rather than an electronic signature. “[I]f a website offers contractual
terms to those who use the site, and a user engages in conduct that manifests her
acceptance of those terms, an enforceable agreement can be formed.” (Berman v.
Freedom Fin. Network, LLC (9th Cir. 2022) 30 F.4th 849, 855-856 [applying California
law], italics added.)
Absent a showing of actual notice, “a manifestation of assent may be
inferred from the consumer’s actions on the website—including, for example, checking
boxes and clicking buttons—but any such action must indicate the parties’ assent to the
same thing, which occurs only when the website puts the consumer on constructive notice
of the contractual terms.” (See Sellers, supra, 73 Cal.App.5th at p. 461; Berman v.
Freedom Fin. Network, LLC, supra, 30 F.4th at pp. 855-856.) “‘[A]n offeree, regardless
of apparent manifestation of his consent, is not bound by inconspicuous contractual
provisions of which he was unaware, contained in a document whose contractual nature
is not obvious.’” (Long, supra, 245 Cal.App.4th at p. 862.) “Thus, in order to establish
mutual assent for the valid formation of an internet contract, a provider must first
establish the contractual terms were presented to the consumer in a manner that made it
apparent the consumer was assenting to those very terms . . . .” (See Sellers, at p. 461.)
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“Most courts now have identified at least four types of internet contract
formation, most easily defined by the way in which the user purportedly gives their
assent to be bound by the associated terms: browsewraps, clickwraps, scrollwraps, and
sign-in wraps.” (Sellers, supra, 73 Cal.App.5th at p. 463.) “‘A “browsewrap” agreement
is one in which an internet user accepts a website’s 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” 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 must physically scroll to the bottom of it to find the “I agree” or
“I accept” button. . . . “Sign-in-wrap” agreements are those in which a user signs up to
use an 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 to the
separate agreement is provided, users are not required to indicate that they have read the
agreement’s terms before signing up.’” (Id. at pp. 463-464.)
Of these four types of agreements, browsewrap agreements are generally
unenforceable, clickwrap agreements are normally enforceable, and scrollwrap
agreements are consistently found to be enforceable. (Sellers, supra, 73 Cal.App.5th at
p. 470.) “Sign-in wrap agreements fall somewhere in the middle of the two extremes of
browsewrap and scrollwrap agreements.” (Id. at p. 471.) The enforceability of a sign-in
wrap agreement generally depends on the nature of the transaction and the
conspicuousness of the notice given to the user. (See, e.g., id. at pp. 480-482 [finding
sign-in wrap agreement unenforceable]; Blizzard, supra, 76 Cal.App.5th at pp. 949-954
[finding sign-in wrap agreement enforceable].) Whether notice is sufficient must be
evaluated within “‘the full context of the transaction.’” (Id. at p. 950.)
Here, the trial court erred by focusing on whether persons associated with
the Company and Spireon had signed the SSA. As explained above, such signatures are
unnecessary. Instead of a signature, Spireon could prove assent by showing it presented
12
the SSA’s terms to an authorized agent of the Company, the agent was given sufficient
notice of those terms, and then accepted them through his or her conduct. (See Sellers,
supra, 73 Cal.App.5th at p. 461; Berman, supra, 30 F.4th at pp. 855-856; Mannion v.
Campbell Soup Co. (1966) 243 Cal.App.2d 317, 320 [a company is bound if its agent had
authority to contract on its behalf].) Manifestation of assent could be demonstrated by
the agent clicking acceptance of those terms, agreeing to the terms as a condition of
creating an account, accepting terms to sign into an account, or other conduct. (See, e.g.,
Blizzard, supra, 76 Cal.App.5th at pp. 949-954; Cordas v. Uber Tech., Inc. (N.D.Cal.
2017) 228 F.Supp.3d 985, 990-991 [finding valid sign-in wrap agreement].) Based on
our review of the record, the trial court did not perform this analysis. Specifically, it did
not consider whether an agent of the Company had assented to the SSA’s terms through
his or her conduct, nor did it determine whether Spireon provided sufficient notice of
those terms.
We cannot decide these issues on appeal as they involve numerous
questions of fact (as seen in the recitation of facts above), which the trial court never
resolved. As such, we reverse and remand to the trial court to determine the issues set
forth in this opinion in the first instance, as well as any other related arbitration issues
6
that arise. (See, e.g., Hopkins v. Kedzierski (2014) 225 Cal.App.4th 736, 756 [matter
remanded to allow trial court to make factual findings on previously undecided issue].)
Because the arbitration motion must still be resolved by the court, we do not address
Spireon’s request to revisit the ruling on the inconvenient forum motion.
6
Because the trial court applied the wrong legal standard, it never addressed any of the
parties’ respective evidentiary objections. We express no opinion as these objections.
The court shall consider any evidentiary objections when evaluating the evidence on
remand.
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III
DISPOSITION
The trial court’s order is reversed. On remand, the court is directed to
review the evidence submitted by the parties and make findings as to several issues.
First, it should determine whether an agent of the Company manifested assent to the
terms of the SSA. If so, the court must decide whether the terms of the SSA were
sufficiently conspicuous to provide constructive notice to that user. (Long, supra, 245
Cal.App.4th at p. 862; see, e.g., Sellers, supra, 73 Cal.App.5th at pp. 477-484; Blizzard,
supra, 76 Cal.App.5th at pp. 949-954.) If they were, then the court must review whether
the user that accepted the SSA did so on behalf of the Company (as opposed to accepting
in his or her individual capacity), and, if so, whether the user had authority to do so. We
stress that Spireon need only show that one authorized agent of the Company accepted
the version of the SSA it believes governs the transactions at issue. Should the court
determine a valid arbitration agreement exists, it must then address any other arguments
by the parties as to arbitrability or enforceability. The court, in its discretion, may allow
the parties to submit supplemental briefing and evidence to address any of the above
issues on remand. Each party shall bear their own costs on this appeal. (Cal. Rules of
Court, rule 8.278.)
MOORE, J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
DELANEY, J.
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