Privacy-Class-Action-Plaintiffs' Emerging Litigation Strategy Avoids Arbitration
On September 5, 2017, the Ninth Circuit Court of Appeals reversed a district court’s decision granting Turn Inc.’s motion to compel arbitration of a putative, privacy class action related to targeted adverting efforts on mobile devices.
In Re Anthony Henson and William Cintron v. Turn, Inc. was filed in the Northern District of California by two Verizon cellular and data subscribers against Turn. The case reflects a notable pivot in strategy in data privacy litigation. Data privacy cases have, previously, been directed at the webpage/content-providers or telecommunication providers that shared or processed users’ online activities. The plaintiffs in Henson did not sue Verizon or the webpages; instead, they sued the technology companies that enable the targeting.
The Circuit describes Turn as a “middle-man” for internet-based advertisements. Turn is alleged to contract with Verizon to deliver targeted advertisements to subscribers based on usage data collected from users’ mobile devices. Plaintiffs’ charging allegations focus on Turn’s creation of “zombie” cookies that track and collect users’ data without their permission or knowledge, which can bypass users’ attempts to shield their identity and online activity from companies’ tracking, scraping and collecting their data and privacy.
Plaintiffs alleged that Turn created unique identifiers and developed profiles for each user, based on their online activity. Turn would then auction off the users’ collected data so that advertisers could place targeted advertisements on users’ mobile phones. Verizon received a portion of the advertisement proceeds.
Turn moved to stay the action and compel arbitration based on the user agreements with Verizon under the theory of equitable estoppel. The district court granted Turn’s motion. The Ninth Circuit granted a writ and vacated the order.
The choice-of-law question and posture of the case brings back memories of a law school examine. Although the case was pending in the Northern District of California, the two plaintiffs were New York residents asserting violations of New York law. The presiding district court judge was sitting by designation from Arizona. (Warning, students, this is a red herring!) The district court applied New York procedural law in compelling arbitration. The Ninth Circuit held this was clear error, holding the forum state, California, governed. The Circuit found that Turn could not compel arbitration as to the plaintiffs, given it did not have a direct arbitration agreement with them.
The Circuit found Turn’s attempt to piggyback off Verizon’s arbitration agreement with its subscribers was unpersuasive in light of Turn’s contract with Verizon, which expressly stated that “neither party shall have the authority to bind the other in any way.” Turn filed its agreement with Verizon under seal, which the Circuit went out of its way to deny, implying that the motion to seal was an attempt to hide the contract terms because they contradicted the representations that Turn made to the Court about its relationship with Verizon. Regardless, the Circuit held that the complained-of-conduct by Turn had little to do with the customer agreement with Verizon, undermining a key element of the equitable estoppel doctrine.