Case Information
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA ELI SILVA, Case No. 24-cv-02890-SK Plaintiff, ORDER ON MOTION TO COMPEL v. ARBITRATION
WHALECO, INC., Regarding Docket No. 17 Defendant.
This matter comes before the Court upon consideration of the motion to compel arbitration
filed by Defendant WhaleCo, Inc. (“WhaleCo”). For the reasons stated below, the Court GRANTS that WhaleCo’s motion to compel and STAYS this action pending arbitration. BACKGROUND Defendant is WhaleCo, Inc., which operates Temu—an online retailer that makes, sells, and markets a variety of everyday use products and household necessities through a public website where it also advertises its products. (Dkt. No. 1, ¶¶ 7, 16.) Plaintiff is Eli Silva, an individual who made several purchases of WhaleCo products through the website, temu.com. ( . at ¶¶ 8, 15.) The gravamen of Plaintiff’s Complaint involves allegations that WhaleCo employed strikethrough advertising tactics that indicated that certain products were on sale but, in reality, were being sold at regular price. ( . at ¶¶ 8, 11.) Other tactics included a countdown that informed customers when such purported sales would expire. ( . at ¶ 8.)
In February 2024, when making purchases on the Temu website or Temu mobile application, prospective users were required to accept Temu’s Terms of Use. (Dkt. No. 17-1, July 20204 Declaration of Michale Trinh (“July 2024 Trinh Decl.”), ¶ 2; Dkt. No. 20-3, September 2024 Declaration of Michael Trinh (“September 2024 Trinh Decl.”), ¶ 3.) [1] As Declarant Michael Trinh, a Customer Service Manager at WhaleCo Inc. since October 2022, explains, when a person registers for a Temu account, they are shown two registration prompts. ( . at ¶ 3; Dkt. No 20-3, September 2024 Trinh Decl., ¶ 4.) The first registration prompt includes (i) a field to register for an account by entering an email or a phone number, along with a corresponding “Continue” button to affirm assent; and (ii) alternative buttons allowing the user to “Continue” by instead registering through their existing Google, Facebook, Apple, or X (Twitter) account.
(Dkt. No. 17-1, July 2024 Trinh Decl., ¶ 4.)
After a user enters their email address or phone number and the clicks the “Continue” button, a second notice relating to consent to Temu’s Terms of Use is displayed on a second registration prompt. ( Id . at ¶ 6.) ( Id .) A user then creates a password for the user’s Temu account and clicks the “Register” button, immediately above hyperlinks to the Terms of Use and Privacy Policy. ( . at ¶ 7.)
According to Trinh, “[a]fter a user assented to Temu’s Terms, the Terms continued to be available to them as a hyperlink in the footer of Temu’s website and within the menu of Temu’s mobile application.” ( . at ¶ 8.) In other words, registered Temu users, including Plaintiff, was required to assent to Temu’s Terms of Use each time they input their credentials to log into Temu’s website or mobile application. ( . at ¶ 9.) Further, “[o]nly after a user assented to Temu’s Terms of Use were they able to buy products, follow brands, leave product reviews, and receive notifications—among other methods of interacting with Temu.” ( Id . at ¶ 10.)
According to Temu’s records, on February 21, 2024, Plaintiff entered his email address and clicked the “Continue” button; he then created a password for his Temu account and clicked the “Register” button immediately above the Terms of Use hyperlink. ( Id . at ¶ 11; Dkt. No. 20-3, September 2024, Trinh Decl. ¶¶ 6-8.) Trinh explains that, in Temu’s regularly conducted business activity, Temu maintains database of account records, including records of when a user first registers for an account, the device they used to register, how the user chose to register, the number of subsequent logins associated with the account, and the purchase history of the account. (Dkt. No. 20-3, September 2024 Trinh Decl., ¶ 5.) Thus, Temu’s records show that on February 21, 2024, Plaintiff was shown both registration prompts on the Temu website and registered for an account with his email address. ( Id . at ¶ 9.) Plaintiff then completed the registration process by setting a password for his account and clicking “Register.” ( Id .) In response to WhaleCo’s motion to compel arbitration, Plaintiff filed a declaration wherein he admits that on February 21, 2024, he bought two electric massage guns from Temu through its website. (Dkt. No. 19-2, Declaration of Eli Silva (“Silva Decl.”), ¶ 2.) Plaintiff believed he was taking advantage of a deal, but he states that he would not have bought the massage guns had he known they were not on sale. ( . at ¶¶ 3-5.) In Plaintiff’s declaration, he states that “[w]hen I registered an account, I was not aware nor presented with Temu’s Terms and Conditions.” ( . at ¶ 6.) Plaintiff did not recall whether he saw the two registration prompts identified by Defendant. ( . at ¶ 7.)
WhaleCo now moves to compel arbitration and to stay this action pending the arbitration. (Dkt. No. 17.) All parties have consented to the jurisdiction of a federal magistrate judge. (Dkt. Nos. 8, 13.) On October 7, 2024, the Court held a hearing on the matter.
ANALYSIS
A. Legal Standard Applicable to Motions to Compel Arbitration.
Pursuant to the Federal Arbitration Act (“FAA”), arbitration agreements “shall be valid,
irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2. “If an agreement exists, the FAA ‘leaves no place for
the exercise of discretion by a district court, but instead mandates that [it]
shall
direct the parties to
proceed to arbitration.’”
Fli-Lo Falcon, LLC v. Amazon.com, Inc
.,
If a party ignores its agreement to arbitrate, “the other party may ask a court to issue ‘an
order directing that such arbitration proceed in the manner provided for in such agreement.’” .
at 1194, quoting 9 U.S.C. § 4. The FAA “requires the court to enforce the arbitration agreement in
accordance with its terms” and limits the court’s role to deciding whether: (1) “a valid agreement
to arbitrate exists” between the parties and (2) the scope of the agreement encompasses the claims.
Chiron Corp. v. Ortho Diagnostic Sys., Inc
.,
Therefore, “[t]he presence of a delegation clause further limits the issues that a court may
decide.”
Caremark, LLC v. Chickasaw Nation
,
B. Formation of Agreement to Arbitrate.
Here, Plaintiff contends that no agreement was made between the parties because WhaleCo has failed to prove that Plaintiff was on notice of Temu’s Terms of Use. ( Id . at 9-14.) Plaintiff also argues that Temu’s Terms of Use are unconscionable and unenforceable and that the Court should make a determination on unconscionability in the first instance. ( Id . at 15-20.) WhaleCo responds by arguing that Plaintiff was on notice and accepted Temu’s Terms of Use. (Dkt. No. 20, 2-8.) Then, WhaleCo argues that all issues regarding any alleged unconscionability of the arbitration agreement have been delegated to the arbitrator. ( . at 9-10.) Finally, in any event, WhaleCo contends that the arbitration agreement is neither procedurally nor substantially unconscionable. ( . at 10-14.) The Court finds that Plaintiff accepted Temu’s Terms of Use, that the arbitration agreement is valid and covers Plaintiff’s claims, and that the issue of unconscionability has been delegated to the arbitrator. The parties agree that the Court is tasked with reviewing whether a valid agreement to arbitrate exists and, if it does, whether the agreement encompasses the dispute at issue. ( See Dkt. No. 19, 8-9.) Thus, the Court turns to the issue of whether Plaintiff entered into an agreement with Temu. As discussed further below, the Court finds that Plaintiff accepted Temu’s Terms of Use through its website’s “sign-in wrap” process, which put Plaintiff on constructive notice of its Terms of Use.
Under California law, there “must be actual or constructive notice of the agreement and the
parties must manifest mutual assent.”
Keebaugh
,
First, the Court finds that Temu provided reasonably conspicuous notice of its Terms of
Use. To be conspicuous, notice “must be displayed in a font size and format such that the court
can fairly assume that a reasonably prudent Internet user would have seen it.”
Berman
, 30 F.4th at
856. “While terms may be disclosed through hyperlinks, the presence of a hyperlink ‘must be
readily apparent,’ and ‘[s]imply underscoring words or phrases . . . will often be insufficient to
alert a reasonably prudent user that a clickable link exists.’”
Keebaugh
,
The Ninth Circuit’s recent decisions in
Oberstein
and
Keebaugh
are instructive. In
Oberstein
, the Court held that notice was conspicuous where users were presented with the Terms
of Use three times (when creating an account, signing into an account, and completing a
purchase), and “the ‘Terms of Use’ hyperlink [was] conspicuously distinguished from the
surrounding text in bright blue font, making its presence readily apparent.”
A comparison of Temu’s notice with the notices at issue in Oberstein and Keebaugh reveals that Temu’s notice clearly passes the test. As in Oberstein and Keebaugh , Temu users are presented with hyperlinks to “Terms of Use and Privacy Policy” which are displayed directly below the “continue” button. (Dkt. No. 17-1, July 2024 Trinh Decl., ¶ ¶ 4, 6.) The language of “Terms of Use and Privacy Policy” is large enough to read, and it is capitalized and underlined in blue, which stands out from the surrounding text. ( .) This denotes the existence of a hyperlink to a reasonably prudent internet user. And like the notice at issue in Oberstein , Temu users encounter the “Terms of Use and Privacy Policy” more than once during the registration process. ( .) Further, Temu registration pop-up windows are uncluttered and contain no extraneous information. ( Id .) Temu further reduces distractions by greying out the product purchase page in the background. ( Id .) Finally, the largest visual on the window is a big orange button with the word “Continue” on it, leaving no mistake that by clicking the Continue button, a user would be agreeing to Temu’s Terms of Use. ( Id .) [2]
Second, the Court finds that Plaintiff unambiguously manifested his assent to those terms. Plaintiff created an account, which required clicking both the Continue and Register buttons. Indeed, Plaintiff admits in his declaration that he “registered [for] an account,” (Dkt. No. 19-2, Silva Decl., ¶ 6,), of which WhaleCo has specific records. (Dkt. No. 20-3, September 2024 Trinh Decl., ¶ 9.) Plaintiff attempts to gloss over this fact by asserting that he was “not aware nor presented with Terms and Conditions.” ( .) Moreover, Plaintiff states that he did not recall the registration window prompts when he registered. ( . at ¶ 7.) As should be apparent, the definition of a sign-in wrap agreement is that the Terms of Use
are
available
to a prospective user, usually through a hyperlink. In other words, a valid sign-in
wrap agreement does not require that the Terms of Use appear separately to a consumer unless he
or she clicks the hyperlink. Thus, Plaintiff’s statement that he was not presented with Temu’s
Terms of Use is of no moment.
Plaintiff’s statements that he was not aware of Temu’s Terms of Use or that he did not
recall the exact registration window prompts are similarly unpersuasive. Basic principles of
contract law provide that “[i]f a party could get out of a contract by arguing that he did not recall
making it, contracts would be meaningless.”
Whalen v. Facebook, Inc
., No. 20-cv-06361-JST,
C. Agreement’s Requirement for Arbitration.
Having concluded that Plaintiff is bound to Temu’s Terms of Use, which contain an arbitration agreement, the Court likewise concludes that all of Plaintiff’s claims are subject to the Terms of Use. As relevant here, Temu’s arbitration agreement provides:
Subject to the terms of this Arbitration Agreement, you and we agree that any dispute, claim, or disagreement arising out of or relating in any way to your access to or use of the Services, any communications you receive, any products sold or distributed through the Services, or the Terms, including claims and disputes that arose between us before
the effective date of the Terms (each, a “Dispute”) will be resolved by binding arbitration . . . .
(Dkt. No. 17-2, p. 10.) Plaintiff brings four claims: a violation of California’s Unfair Competition Law, a violation of California’s Consumer Legal Remedies Act, False and Misleading Advertising, and Unjust Enrichment. (Dkt. No. 1, 16-21.) Each of these claims involves allegations that WhaleCo, via the Temu website, employed strikethrough advertising tactics that indicated that certain products were on sale but, in reality, they were being sold at regular price. ( . at ¶¶ 8, 11.). Therefore, the arbitration agreement covers the claims at issue. D. Unconscionability Delegated to Arbitrator.
The final matter before the Court is the delegation of the issue of unconscionability. Plaintiff begins with an odd pronouncement that should this matter go to arbitration, Plaintiff intends to raise the issue of enforceability of the arbitration agreement with the arbitrator. (Dkt. No. 19, 8.) Plaintiff then argues that, because in his view he and Temu never entered into an agreement, the delegation clause cannot be enforced. ( .) Last, Plaintiff states that “the issue of enforceability cannot be delegated to an arbitrator because the delegation clause itself is unconscionable and unenforceable.” ( . at 9.) While Plaintiff is free to bring the issue of enforceability to the arbitrator, Plaintiff is otherwise wrong on this issue.
As relevant here, the arbitration agreement contains the following provision regarding authority to the arbitrator:
19.7 Authority to Arbitrator . The arbitrator shall have exclusive authority to resolve any Dispute, including, without limitation, disputes arising out of or related to the interpretation or application of the Arbitration Agreement, including the enforceability, revocability, scope, or validity of the Arbitration Agreement or any portion of the Arbitration Agreement . . . . (Dkt. No. 17-2, p. 11.) As analyzed above, the Court finds that Plaintiff and Temu entered into an agreement when Plaintiff agreed to Temu’s Terms of Use by creating a Temu account. Therefore, that argument is without merit.
Regarding Plaintiff’s final argument, the Court takes Plaintiff’s position to be that the
Court cannot enforce the delegation clause because the delegation clause itself is unconscionable.
Yet Plaintiff has not carried his burden of proving that the delegation clause is unconscionable.
See Lim v. TForce Logistics, LLC
,
In any event, the Court finds that the delegation provision clearly and unmistakably delegates to the arbitrator the issues of “enforceability, revocability, scope, or validity of the Arbitration Agreement or any portion of the Arbitration Agreement.” (Dkt. No. 17-2, p. 11.) Therefore, the Court concludes that the issue of enforceability — and therefore unconscionability of the delegation clause and the arbitration agreement itself — are reserved for the arbitrator.
CONCLUSION
For the foregoing reasons, the Court GRANTS WhaleCo’s motion to compel arbitration and STAYS this action pending the arbitration. The Court FURTHER ORDERS that the parties shall file a joint status report regarding the status of the arbitration proceedings every four months hereafter until the arbitration proceedings are completed. IT IS SO ORDERED . Dated: October 10, 2024 ______________________________________ SALLIE KIM United States Magistrate Judge
Notes
[1] Both parties have included declarations for the Court’s consideration; WhaleCo has also 25 included exhibits of two registration prompts that were in use when Plaintiff signed up for Temu and the relevant Terms of Use. While neither party has formally moved for judicial notice or incorporation, the Court sua sponte takes judicial notice of the declarations and incorporates the 26 registration prompts and Terms of Use. The Court has considered Plaintiff’s objections (Dkt. No. 27 19-3) and overrules them. ( See Dkt. No. 20-3); see e.g., Aggarwal v. Coinbase, Inc ., 685 F. Supp. 3d 867, 871-74 (N.D. Cal. 2023) (relying on same type of evidence in enforcing arbitration 28 agreement).
[2] Plaintiff’s cited authority on this issue is distinguishable or otherwise inapposite. For
24
example,
Berman
involved a website registration prompt with a terms and conditions hyperlink
that was several font sizes smaller than most of the lengthy registration prompt, and the terms and
25
conditions link were in all grey, which does not necessarily indicate a hyperlink.
[3] The Terms state that “in the event that there are twenty-five (25) or more individual Arbitration Notices of a substantially similar nature filed against us by or with the assistance of the same law firm, group of law firms, or organizations, within a thirty (30) day period, AAA shall . . . administer the arbitration demands in batches of 100 Arbitration Notices per batch . . . concurrently.” (Trinh Decl., Ex. A § 19.9).