Written by Ernesto Mendieta
A California Court granted Defendant’s motion to compel arbitration based on a duly formed and consented arbitration clause via a “clickwrap” agreement, despite Plaintiff’s argument that no contract was ever formed because the purpose of the contract was to facilitate the selling and distribution of marijuana, which is illegal under federal law. Williams v. Eaze Solutions, 2019 U.S. Dist. LEXIS 182942 (N.D. Ca. Oct 21, 2019).
On early 2018, Defendant Eaze was hit with a putative class action in California federal court claiming it violated the Telephone Consumer Protection Act. Plaintiff Farrah Williams said in her complaint that Eaze, which she called the “Uber of weed,” routinely bombards users with advertising SMS texts without their consent and without offering an option to opt out, breaching the TCPA. Eaze filed a motion to compel arbitration based on its terms and conditions, and the Court granted it.
The facts of this case are as follows: Plaintiff Williams signed up for Eaze’s service in September 2017. Eaze operates a marijuana mobile app which facilitates the delivery of cannabis products from dispensaries to consumers. Eaze's terms of service, which were hyperlinked in the sign-up box, contained a clause providing for arbitration of disputes with a class-action waiver.
Specifically, the terms of service state that the customer and Eaze "agree that any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof or the use of the Service or Application (collectively, "Disputes") will be settled by binding arbitration."
Even when Plaintiff did not deny that she clicked the box stating she consented to the terms of service, or that such a "clickwrap" agreement is enforceable, Williams contended that no contract was ever formed between her and Eaze. She argued that, because the contract's purpose was to facilitate the selling and distribution of marijuana, which is illegal under federal law, the contract lacked a "lawful object," as required by California law, and so no contract or enforceable arbitration clause was ever formed.
In its opinion, the Court first analyzed whether federal law or California law applied to review the arbitration clause, and found that the Federal Arbitration Act (FAA) applied to this case. This, since Eaze's business has a substantial interstate commerce effect. This conclusion by the Court was supported by the Supreme Court opinion Gonzales v. Raich, 545 U.S. 1, 17 (2005), which determined that even purely intrastate marijuana possession and distribution in compliance with California's Compassionate Use Act had a "substantial effect on interstate commerce," and that regulation of that activity was within Congress's commerce power.
Also, the Court found that the TCPA allegations in the complaint make it clear that such claims depend on the presence of interstate commerce. Williams alleged Eaze violated the TCPA by harassing her with text messages, and she was seeking to represent a nationwide class. The federal and nationwide claims necessarily imply that Eaze is engaged in interstate commerce.
The Court recognized that the parties could have agreed otherwise regarding the applicability of the FAA, but they did not do so. The terms of service expressly state that the "Federal Arbitration Act will govern the interpretation and enforcement" of the dispute resolution section.
Once the applicability of the FAA was determined, the court said that the "overarching purpose" of the FAA "is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings” and therefore was willing to grant its enforcement.
The Court finally found that under the FAA, an arbitration provision is severable from the rest of a contract that is challenged as being void or voidable for illegality. Consequently, the arbitration agreement can be severed and enforced regardless if Williams's underlying contract with Eaze has an unlawful object or not. Eaze’s motion to compel arbitration was granted, and the company avoided the class action.
This is another case that evidences the importance for companies sending text messages to have a well written arbitration provision in their terms and conditions, and to implement a proper process to obtain consent. An arbitration provision could be severed from the rest of the contract and enforced, even if the underlying contract is challenged as being void or voidable for illegality.
Master the TCPA Fundamentals with our TCPA Survival Guide: The RULES Edition