Knutson v. Sirius XM Radio Inc.

• Decision Date: 10 November 2014
• Docket Number: No. 12–56120.,12–56120.
• Citation: 771 F.3d 559
• Parties: Erik KNUTSON, individually and on behalf of all others similarly situated, Plaintiff–Appellant, v. SIRIUS XM RADIO INC., Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

771 F.3d 559

Erik KNUTSON, individually and on behalf of all others similarly situated, Plaintiff–Appellant

v.SIRIUS XM RADIO INC., Defendant–Appellee.

No. 12–56120.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 7, 2014.

Filed Nov. 10, 2014.

Abbas Kazerounian (argued) and Mohammad Kazerouni, Kazerouni Law Group, APC, Costa Mesa, CA, for Plaintiff–Appellant.

Chad S. Hummel (argued), Becca Wahlquist, and Lydia M. Mendoza, Manatt Phelps & Phillips, LLP, Los Angeles, CA, for Defendant–Appellee.

Appeal from the United States District Court for the Southern District of California, Anthony J. Battaglia, District Judge, Presiding. D.C. No. 3:12–cv–00418–AJB–NL.

Before: HARRY PREGERSON, MICHAEL R. MURPHY^* , and MARSHA S. BERZON, Circuit Judges.

OPINION

PREGERSON, Circuit Judge:

Plaintiff Erik Knutson (“Knutson”) appeals the district court's order dismissing his putative class action and granting Defendant Sirius XM Radio Inc.'s (“Sirius XM”) motion to compel arbitration pursuant to the Federal Arbitration Act (“FAA”). Knutson alleges that he did not consent to enter into a binding Customer Agreement with Sirius XM, and that the Customer Agreement as a whole, and the arbitration provision specifically, are unconscionable.

In November 2011, Knutson purchased a vehicle from Toyota that included a 90–day trial subscription to Sirius XM satellite radio. About a month after his trial subscription was activated, Knutson received a “Welcome Kit” from Sirius XM that contained a Customer Agreement. Knutson alleges that during his trial subscription, he received three unauthorized calls from Sirius XM on his cellphone. In response to these calls Knutson, in February 2012, brought a class action suit against Sirius XM alleging violations of the federal Telephone Consumer Protection Act. The district court found that both parties consented to enter into the Customer Agreement and that the arbitration clause was valid and enforceable under the FAA.

Knutson timely appealed the district court's judgment. We have jurisdiction under 28 U.S.C. § 1291. For the reasons set forth below, we reverse.

FACTUAL BACKGROUND

I. Knutson's 90–day Trial Subscription to Sirius XM Radio

Sirius XM is a satellite radio service that broadcasts commercial-free channels to more than 20 million subscribers. Sirius XM has arrangements with many major automakers, including Toyota, to install satellite radio receivers in new vehicles. Under these arrangements, automakers, including Toyota, include a trial subscription to Sirius XM for some fixed period of time with the purchase or lease of a vehicle. In November 2011, Knutson purchased a Toyota Tacoma truck, which came with a 90–day trial subscription to Sirius XM satellite radio. Knutson's Sirius XM account was activated on November 7, 2011, for a trial period ending February 7, 2012.

On November 29, 2011, Sirius XM mailed a “Welcome Kit” to Knutson. The Welcome Kit arrived in the mail on or about December 12, 2011, over a month after Knutson's satellite receiver was activated. The Welcome Kit contained a Sirius XM Customer Agreement.

II. Sirius XM's Customer Agreement

The Sirius XM Customer Agreement sets out the terms and conditions of use during a 90–day trial subscription. The Agreement states that failure to cancel the subscription within three business days of activation legally binds the customer to the agreement:

BY ACCESSING OR USING THE SITE OR THE SERVICE, YOU AGREE TO BE LEGALLY BOUND BY THIS AGREEMENT. PLEASE DO NOT USE THE SITE OR THE SERVICE IF YOU DO NOT AGREE WITH THIS AGREEMENT.

IF YOU DO NOT ACCEPT THESE TERMS, PLEASE NOTIFY U.S. IMMEDIATELY AND WE WILL CANCEL YOUR SUBSCRIPTION. IF YOU DO NOT CANCEL YOUR SUBSCRIPTION WITHIN 3 BUSINESS DAYS OF ACTIVATION OF YOUR RECEIVER, IT WILL MEAN THAT YOU AGREE TO THIS AGREEMENT WHICH WILL BE LEGALLY BINDING ON YOU.

A separate section entitled, “Cancellation,” provides: “You may cancel your Subscription at any time by notifying Listener Care. Your cancellation will become effective on your next Subscription ‘cycle date.’ ”

Sirius XM also retains the right to modify the Customer Agreement by “unilateral amendment ... and the posting of such amended version” on the Sirius XM website. Section B.1 of the Agreement reserves Sirius XM's right to change the terms of the agreement at any time, and makes the changes effective once Sirius XM posts the revised terms on its website. Customers are also advised to review the website from time to time to check for revisions.

The Arbitration Provision

The arbitration provision of the Customer Agreement states that “ANY DISPUTE MAY BE RESOLVED BY BINDING ARBITRATION.”¹ By agreeing to arbitration, “YOU ARE HEREBY WAIVING THE RIGHT TO GO TO COURT, INCLUDING THE RIGHT TO A JURY.” The Agreement requires that “[t]he party initiating arbitration must follow the rules and procedures of the American Arbitration Association (“AAA”) ... and the parties agree that the arbitration shall be administered by the AAA.” A copy of the AAA rules did not accompany the Customer Agreement in the Welcome Kit.

Parties also waive their “right or authority for any claims to be arbitrated on a class action basis.” The customer does not “have the right to act as a class representative or participate as a member of a class of claimants with respect to any Claim submitted to arbitration (‘Class Action Waiver’).” The Class Action Waiver is “material and essential to the arbitration of any disputes ... and is nonseverable from this agreement to arbitrate.” But the “validity and effect of the Class Action waiver” must be decided by a court.

Whoever files for arbitration pays the initial filing fee, unless that party obtains a fee waiver. If the customer prevails, Sirius XM will reimburse the filing fee. If there is a hearing, Sirius XM will pay the arbitrator fees for the first day of the hearing, and other fees “will be allocated as provided by the rules of the arbitration firm and applicable law.” The customer will not be “required to reimburse [Sirius XM] for any arbitration filing, administrative, or hearing fees in an amount greater than what [their] court costs would have been if the Claim had been resolved in a state court with jurisdiction.” Each party bears its own costs, regardless of which party prevails, but “a party may recover any or all expenses from another party if the arbitrator, applying applicable law, so determines.”

If any portion of the arbitration agreement or the Class Action waiver is “limited, voided or cannot be enforced, then the parties' agreement to arbitrate ... shall be null and void with respect to such proceeding.” The parties have the “right to appeal the limitation or invalidation of the Class Action Waiver.” The limited or voided portion of the arbitration agreement would then be severed, and “the rest of the arbitration agreement will continue to apply.” If the entire arbitration agreement is declared “ and void, then the parties agree that any actions shall be brought in the State or Federal courts of New York, New York.”

Knutson did not read the Customer Agreement when it arrived in the mail because he did not think “that any of the documents contained therein were a contract governing the terms of Sirius' service.” Knutson stated,

I did not realize that there was [an arbitration] clause in the Customer Agreement until my attorneys so informed me.... I was not given an opportunity to review the arbitration clause or even the Customer Agreement itself at the time that my receiver was activated given that the Customer Agreement was not provided to me at that time.

Knutson neither contacted Sirius regarding his subscription, nor asked to end his trial subscription.

During the 90–day trial period, Knutson received three telemarketing calls from Sirius XM. Knutson alleges that these calls were “unauthorized and unsolicited,” and violated the Telephone Consumer Protection Act. Knutson then sought to become a representative plaintiff in a nationwide class action asserting violations of the Telephone Consumer Protection Act.

PROCEDURAL BACKGROUND

In February 2012, Knutson brought a class action suit against Sirius XM, alleging violations of the federal Telephone Consumer Protection Act. In response to Knutson's class action complaint, Sirius XM filed a motion to compel arbitration on April 23, 2012. Sirius XM asserted that the Customer Agreement is a binding contract that governs the parties' relationship. Thus, the Customer Agreement “requires [Knutson] to arbitrate on an individual basis and waive any right to participate as a class representative ... with respect to any claim against Sirius XM.”

On May 9, 2012, Knutson filed an opposition to Sirius XM's motion to compel arbitration. Knutson responded that the Customer Agreement was not binding because Sirius XM mailed the Agreement over a month after the three-day designated period in which Knutson could reject the terms of the Agreement. Therefore, Knutson argued, there was no mutual assent to the terms. Knutson also claimed that enforcement of the arbitration clause would limit his potential remedies, specifically his statutory right to seek damages under the Telephone Consumer Protection Act. In addition, Knutson alleged that Sirius XM's Customer Agreement “is unenforceable as it is an unconscionable adhesion contract.”

On May 20, 2012, District Judge Anthony J. Battaglia held that there was a binding contract requiring arbitration because the terms of the Customer Agreement are conspicuous, and the contract is enforceable even though Knutson received the Agreement over one month after the service was activated. Although the arbitration provision in the Customer Agreement had “elements of procedural unconscionability” for failing to provide a copy of the AAA rules, “the Agreement contains all the hallmarks of substantive conscionability.” The district court granted Sirius XM's motion to compel arbitration, and dismissed Knutson's case. The instant appeal followed.

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