B.F. v. Amazon.com, Inc.: Minor Children of Amazon’s Alexa Purchasers Do Not Have to Arbitrate Claims that the Device Recorded Them Without Consent, Says 9th Cir.

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When Amazon customers activate their Alexa devices and purchase products using the service, those customers enter into arbitration agreements with Amazon. There is no dispute in B.F. v. Amazon.com, Inc., 9th Cir., No. 20-35359, memorandum 4/23/21 (“B.F.”) (unpublished mem. available here), that those arbitration agreements are valid between Amazon and the customers who purchased the devices; these individuals agreed to the arbitration agreement when they set up their Alexa devices. However, their children did not.

The plaintiffs in B.F. are 23 minor children who are suing Amazon through their respective parents as legal guardians. They allege that the Alexa devices in their homes recorded their confidential communications without their consent, in violation of the laws of eight states. The children did not buy and activate the Amazon accounts and Alexa services, and, as a result, they are non-signatories to the arbitration agreement.

Non-signatories are generally not bound by a contract’s arbitration clause because “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Mem. at 2. An exception is “equitable estoppel.” As the court explained, “when a person ‘knowingly exploits’ a contract containing an arbitration clause, the person can be compelled to arbitrate despite having never signed the agreement.” Id. at 3.

So, did the children “knowingly exploit” their parents’ contracts containing arbitration provisions simply by using Alexa? The answer is “No,” says the Ninth Circuit. A non-signatory does not “knowingly exploit” a contract when they bring claims that “do not arise from the contract.” Mem. at 3-4. Here, the children brought state statutory claims that do not depend on their parents’ contracts with Amazon. Put another way, Amazon would owe the children the same legal duties under the statutes that were allegedly violated, whether the contracts existed or not. Id. at 4.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

Smith v. LoanMe, Inc.: Invasion of Privacy Act Protects Against Recording by Parties to Cell and Cordless Phone Calls, Not Just Third-Party Eavesdroppers, Says Cal. Supreme Court

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Smith v. LoanMe, Inc., No. S260391 (April 1, 2010) (“Smith”) (slip op. available here) presents a familiar scenario—a person answers his or her cellular or cordless phone and hears a “beep” during a call. The caller then records the call without first seeking the receiving party’s consent. In Smith, a unanimous California Supreme Court interpreted Penal Code section 632.7 to prohibit parties to a call made between a cellular or cordless phone and another telephone device from intentionally recording the call without the consent of all parties to the communication. Slip op. at 26. Smith reversed an appellate court that held that section 632.7 only applied to third parties who intentionally recorded calls.

In Smith, the defendant had extended a loan to the plaintiff’s wife. In connection with the loan, one of the defendant’s employees called the phone number provided by the wife. The plaintiff answered the call on a cordless phone. Three seconds later, the defendant caused a “beep” tone to sound on the call and recorded the call. Smith told the defendant’s representative that his wife was not home and the call ended. Slip op. at 2.

The Court of Appeal found this conduct to be legal, holding that section 632.7 was unambiguous and only prohibited intentional recording of phone calls on cellular and cordless phones by third party eavesdroppers. The appellate decision turned on statutory construction. “The statute . . . requires that the interception or receipt of the [covered] communication be without the parties’ consent. But the parties to a phone call always consent to the receipt of their communications by each other — that is what it means to be a party to the call.” Slip op. at 3. The appellate court concluded that “parties to a phone call are incapable of violating section 632.7, because they do not intercept or receive each other’s communications without all parties’ consent.” Id. at 3-4.

The California Supreme Court allowed that section 632.7 could conceivably support the Court of Appeal’s interpretation, but found that the statute was ambiguous. Considering the context, legislative history, and public policy of section 362.7, the court came to the opposite conclusion—that section 326.7 does apply to parties to a phone call. Id. at 10-22.

In particular, Smith brought the interpretation of section 632.7 in line with section 632 (applying to landlines) and vindicated the legislature’s intent that section 326.7 provides a greater degree of privacy and security to persons who use cellular or cordless telephones. Section 632 already provided parties as well as nonparties from nonconsensual recording of “confidential communications.” Slip op. at 7. Smith held that the same protection should be afforded users of cellular and cordless phones. In addition, the legislature intended that users of cellular and radio telephone technology have greater privacy protections because such systems inherently have less of a guarantee of privacy than landline systems. Id. at 20. Section 632.7 extends the protections of the Invasion of Privacy Act even to non-confidential communications. Id. at 9-10.

Smith is also important because the appellate court’s decision was the first published opinion by a California appellate court to have specifically addressed whether section 632.7 applies to the intentional recording of a communication by a party. The majority of federal district courts hold that section 632.7 applies to parties to a call, but a minority aligns with Court of Appeal’s conclusion that the section only prohibits intentional recording of calls by third parties. Slip op. at 8-9. Had the California Supreme Court not granted review, federal courts could have followed the minority view, chipping away at the protections intended by the Invasion of Privacy Act.

Unresolved by Smith is whether a “beep” tone at the beginning of a phone call gives a person sufficient notice that their conversation is being recorded. Slip op. at 26. Given that a “beep” tone at the beginning of a telephone call has become ubiquitous, that will be an important issue for another day.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

Magana v. Zara USA, Inc.: Release in Wage-And-Hour Case No Bar to Subsequent Suitable Seating PAGA Action, Says 9th Cir.

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The unpublished opinion in Melissa Magana v. Zara USA, Inc. (9th Cir. Feb. 2, 2021) (“Magana”) (slip op. available here), highlights a notable concern when bringing an action under the Private Attorneys General Act (“PAGA”). If the PAGA representative was an unnamed class member in a prior wage-and-hour class action that settled, is he or she barred from maintaining a later action under PAGA?

In Magana, the plaintiff filed a lawsuit seeking PAGA penalties based on suitable seating violations under the California Labor Code. The defendant Zara moved to dismiss. The district court held that the PAGA action was not contractually barred by the terms of the prior settlement, but was barred under the doctrine of claim preclusion. The Ninth Circuit reversed.

On the first issue, the defendant argued that the plaintiff’s PAGA action based on suitable seating violations was barred because the settlement agreement defined “PAGA Settlement Amount” as constituting “full satisfaction of all claims for PAGA civil penalties under the California Labor Code, Wage Orders, regulations, and/or other provisions of law alleged to have been violated with respect to the settlement class.” Slip op. at 2-3. The majority of the court disagreed. The Release of Claims in the prior action applied only to “claims for relief based on the facts alleged in [the complaint].” Id. at 3. Those claims included unpaid overtime, unpaid minimum wages, noncompliant wage statements, failure to provide meal and rest breaks, and the untimely payment of wages in violation of the California Labor Code, as well as a derivative claim for PAGA penalties. However, the complaint did not allege any facts relating to seating. Id. at 4.

The panel’s conclusion was not unanimous. Justice VanDyke argued in a dissent that the prior release did bar the later action because the “all claims for PAGA civil penalties” language in the definition of the PAGA Settlement Amount “is pretty clear,” while the “based on facts alleged” language of the Release of Claims is ambiguous. Slip op., VanDyke, J., dissenting at 1-2. The dissenting justice concluded, “I would not use an ambiguous phrase to limit a clear one.” Id.

On the second issue, the majority of the court held that claim preclusion did not apply to bar the plaintiff’s suitable seating claim because the “primary rights” at issue in the earlier action did not implicate the same primary rights as the plaintiff’s suitable seating claim. Slip op. at 5. The justices reasoned that it makes sense to draw a distinction between wage-related claims such as those in the earlier action, and non-wage claims such as Magana’s suitable seating claim. Id. at 6. The court stated that the harm at the center of the earlier case was “nonpayment of wages,” while “the harm of a suitable seating violation is much more abstract and cannot be redressed via the payment of wages.” Id. at 9. However, the court’s reasoning in this unpublished case is not unequivocal. It stated, “[w]e recognize that the resolution of the primary-rights question ultimately boils down to a question of framing: does the suitable seating claim narrowly implicate the right to seating, or does it implicate a broader right to a minimum guaranteed standard of labor?” Id. at 6.

Magana underscores that California citizens who plan to file actions under PAGA need to take care if they were class members in a prior class action against the employer that has settled. Even if the prior class action involved facially different Labor Code violations, broad language in a settlement agreement, or similar “primary rights,” could bar a subsequent PAGA action.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

COVID-19 Airline Refund Cases Survive Headwinds

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Shortly after the outbreak of the COVID-19 pandemic last year, some consumers sued airlines for refusing to refund the money they spent on flights that their airlines did not provide. We had reported on some of these cases, including Bombin v. Southwest Airlines Co., No. 20-01883 (E.D. Penn., filed April 13, 2020) (“Bombin”), and Levey v. Concesionaria Vuela Compania de Aviacion SAPI de CV et al., No. 20- 02215 (N.D. Ill., filed May 8, 2020) (“Levey”). A year later, we have decided to check in on the progress of these airline refund cases.

Bombin is a typical example; in Bombin, the plaintiffs booked flights to Cuba and Arizona. The flight to Cuba was cancelled and the flight to Arizona was rescheduled three times. Both of the plaintiffs sought refunds from Southwest, and were denied. Instead, Southwest offered the plaintiffs travel credits toward future flights in lieu of refunds. The plaintiffs then filed a class action against Southwest alleging breach of contract.

The Bombin plaintiffs’ breach of contract class action recently survived a motion to dismiss. Bombin v. Southwest Airlines Co., No. 20-01883 (E.D. Penn. March 29, 2021) (slip op. available here). In its motion, Southwest argued that the claim should be dismissed because its Contract of Carriage is unambiguous and vests Southwestern with discretion to issue fare credits instead of refunds. Id. at 10. The plaintiffs argued that the Contract of Carriage is ambiguous, stating that it can reasonably be interpreted to provide customers with the right to choose a refund. The court agreed with the plaintiffs. Acknowledging “the labyrinthine nature of the Contract of Carriage,” the district court held that the plaintiffs plausibly alleged a breach of contract claim under the unclear contract because “Southwest failed to give Plaintiffs the option of a refund.” Id. at 10, 13.

The Bombin court also rejected Southwest’s argument that the plaintiffs’ breach of contract claim is preempted by the Airline Deregulation Act (“ADA”). Id. at 13. The ADA “stops States from imposing their own substantive standards with respect to rates, routes, or services, but not from affording relief to a party who claims and proves that an airline dishonored a term the airline itself stipulated.” Am. Airlines v. Wolens, 513 U.S. 219, 232-233, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995). Because the plaintiffs’ claim is based on Southwest’s alleged breach of its own Contract of Carriage (i.e., “a term the airline itself stipulated”), the court held that Southwest’s preemption argument fails under Wolens.

Other courts have reached similar conclusions. In Levey, the plaintiff alleged the airline canceled flights amid the pandemic and refused to refund travelers or let them rebook their flights without penalty. The airline moved to dismiss, arguing (among other things) that it did not breach its Contract of Carriage and that the plaintiff’s claims are preempted by the ADA. As in Bombin, the district court declined to dismiss the breach of contract claim at the pleading stage, holding that it is plausible that the plaintiff was entitled to a prompt refund of her airfare under the terms of the Contract of Carriage. Levey v. Concesionaria Vuela Compania de Aviacion SAPI de CV, et al., No. 20- 02215 (N.D. Ill., March 29, 2021), at 12. The court also rejected the airline’s preemption argument, citing the “Wolens exception” to ADA preemption, discussed in Bombin. Id. at 7.

In another case filed after the onset of the pandemic, the plaintiffs alleged that British Airways breached its Contract of Carriage by failing to provide them with refunds after their flights were cancelled. Ide, et al. v. British Airways, PLC, No. 20-3542 (S.D.N.Y., March 26, 2021) at 1 (slip op. available here). First, the plaintiffs alleged that the airline offered them travel vouchers instead of refunds to which they are entitled under the contract. Second, the plaintiffs alleged that British Airways actually frustrated their attempts to obtain refunds: “[B]y removing refund claim forms from its website and channeling their refund requests through overburdened and inadequate call centers, British Airways frustrated their ability to secure refunds.” Id. at 13-14. British Airways moved to dismiss. The district court found that the plaintiffs plausibly alleged breaches of contract on both theories. Also, as in the other cases, the court rejected the airline’s preemption argument based on the “Wolens exception.” Id. at 14-15.

One year since March 2020, these airline refund cases have set the course. They have generally been successful in alleging breaches of the airlines’ Contract of Carriage and evaded preemption under the ADA based on the Wolen exception. We will check in with them again when there are further developments.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC