Aral v. Earthlink, Inc.

• Decision Date: 29 November 2005
• Docket Number: No. B177146.,B177146.
• Citation: 36 Cal.Rptr.3d 229,134 Cal.App.4th 544
• Court: California Court of Appeals Court of Appeals
• Parties: Ozgur ARAL, Plaintiff and Respondent, v. EARTHLINK, INC., Defendant and Appellant.

36 Cal.Rptr.3d 229

134 Cal.App.4th 544

Ozgur ARAL, Plaintiff and Respondent, v. EARTHLINK, INC., Defendant and Appellant.

No. B177146.

Court of Appeal, Second District, Division Four.

November 29, 2005.

Seyfarth Shaw, Kenneth L. Wilton, Los Angeles, Daniel M. Blouin, and Christopher F. Robertson, for Defendant and Appellant.

Bill Lockyer, Attorney General, Tom Greene, Chief Assistant Attorney General, Albert Norman Shelden, Senior Assistant Attorney General, Ronald A. Reiter and Benjamin G. Diehl, Deputy Attorneys General, as Amicus Curiae on behalf of Plaintiff and Respondent.

Westrup Klick, R. Duane Westrup, Long Beach, Lawrence R. Cagney; Law Offices of Allan A. Sigel, Allan A. Sigel, Christine C. Choi, Los Angeles; Magana, Cathcart & McCarthy, Peter T. Cathcart, and Richard L. Bisetti, Los Angeles, for Plaintiff and Respondent.

CURRY, J.

Appellant EarthLink, Inc. appeals from an order denying its petition to compel arbitration of a putative statewide class action claim brought by respondent Ozgur Aral. The suit alleges that EarthLink charged fees to customers for Digital Subscriber Line (DSL) service for a period prior to providing customers with the equipment necessary to utilize the service. The complaint was brought under the Unfair Competition Law (UCL) (Bus. & Prof.Code, § 17200 et seq.), and seeks both injunctive and restitutionary relief on behalf of California residents who were affected by this practice. The trial court denied the petition on the ground that the gravamen of the complaint was injunctive relief, which cannot be obtained through arbitration.

We disagree with the trial court's ground for denying the petition. The claim for injunctive relief could have been severed from the claim for restitution, and the latter sent to arbitration. We nevertheless affirm. The arbitration provision in the DSL service agreement put forth as the parties' final agreement by EarthLink requires California consumers with minor monetary claims to arbitrate in Georgia and forbids class actions. Under recent Supreme Court authority, provisions in adhesion contacts that preclude class actions are unconscionable where the case involves allegations that a large number of consumers have been cheated out of a small sum of money. Moreover, EarthLink sought an order specifying that arbitration of a minor monetary claim by a California resident take place in Georgia. A forum selection clause that discourages legitimate claims by imposing unreasonable geographical barriers is unenforceable under well-settled California law.

FACTUAL AND PROCEDURAL BACKGROUND

The essential facts are that Aral, desiring to obtain faster Internet access, ordered DSL service from EarthLink in early June 2003. He did not receive the kit containing equipment needed to operate the service — a DSL modem — for approximately five weeks.¹ Yet when he received his EarthLink bill, he saw that he had been charged based on the date he ordered service.

EarthLink is a Delaware corporation with its principal place of business in Atlanta, Georgia. The DSL service agreement that EarthLink generally sent with the DSL installation kit to customers who, like Aral, ordered DSL service in June 2003 provided that the parties' agreement was "governed by Georgia law without regard to conflict-of-law provisions"; that "[a]ny controversy or claim arising out of or relating to this agreement, or the breach thereof, shall be settled by arbitration, and administered by the American Arbitration Association under its Commercial Arbitration Rules"; and that "[a]ny such arbitration will be governed by Georgia law and will be held in Atlanta, Georgia." It further provided: "There shall be no class action arbitration pursuant to this agreement."

Just prior to the provision mandating application of Georgia law was a provision "[u]nder California Civil Code Section 1789.3" which provided that "subscribers who are residents of California are entitled to the following specific consumer rights information: ..." There followed the address and telephone number of the complaint assistance unit of the division of the consumer services of the California Department of Consumer Affairs.²

Individuals who install EarthLink DSL service using EarthLink-provided software cannot complete installation until they click on an icon indicating that they have read and agreed to the terms and conditions of the DSL service agreement. However, Aral stated in a declaration, which EarthLink did not contradict, that he installed the DSL service through alternate means known to him as a software engineer that did not require using the software provided or clicking on the icon.

Complaint

Aral's complaint was filed July 25, 2003. It alleged that it was brought "on behalf of a class [of] customers of [EarthLink] who have been victims of [EarthLink's] practice of overcharging consumers for broadband access to the Internet." Specifically, the proposed class "consist[ed] of California residents who subscribed to [EarthLink's] Broadband Access Services, and were victims of [EarthLink's] practice of charging such persons for services during periods prior to [EarthLink's] provision of hardware necessary for members of the California UCL class to receive Broadband Access Services from [EarthLink]." The sole cause of action in the complaint was brought under the UCL, and sought an injunction and restitution of "all funds paid by [Aral] and other members of the general public as a result of any act or practice declared ... to constitute unfair competition under [the UCL]."

Petition to Compel Arbitration

On September 15, 2003, EarthLink sought to compel arbitration in Georgia and to dismiss or stay court proceedings. EarthLink, in its petition to compel arbitration, did not present to the court any version of the DSL service agreement containing the reference to California small claims court.³ It initially argued that Aral was bound by the DSL service agreement because "[t]he software can be installed only if the individual first clicks on an icon indicating they have read and agreed to the terms and conditions of the Agreement." However, when Aral presented evidence that he had not installed the DSL service in that fashion, EarthLink changed its contention and argued that the parties had entered into a binding written agreement because "[t]he EarthLink Internet Service Agreement is also posted by means of `hyperlinks' on the majority of the pages of EarthLink's website, including its home page"⁴ and because "the EarthLink DSL Internet Service Agreement was mailed as part of EarthLink's User Guide to every customer receiving an EarthLink modem kit, including [Aral]."

The trial court denied the motion to compel arbitration, stating in its order that "claims for injunctive relief under [the UCL] are not arbitrable" and that, although arbitrable claims such as restitution, disgorgement, and unjust enrichment can generally be severed from nonarbitrable claims, "[i]n the case at bar ... the gravamen of the case is the [Business and Professions Code] section 17200 claim for injunctive relief; there is essentially nothing to be severed."

EarthLink noticed a timely appeal from the denial of its petition to compel arbitration.

DISCUSSION

I

EarthLink contends that the trial court was incorrect in its determination that there was no arbitrable claim because the gravamen of the case was injunctive relief and there was nothing to be severed. We agree.

In Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 133 Cal.Rptr.2d 58, 66 P.3d 1157 (Cruz), the Supreme Court considered whether a claim for injunctive relief brought under the UCL was arbitrable. The court had previously held that claims for injunctive relief were not arbitrable in the case of Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 90 Cal.Rptr.2d 334, 988 P.2d 67 (Broughton) where a minor and his mother had sued for medical malpractice and for violations of the Consumers Legal Remedies Act (CLRA) (Civ.Code, § 1750 et seq.). Defendant in Broughton, supra, moved to compel arbitration under an arbitration clause in the health insurance plan. The trial court severed the causes of action, granted the petition to compel arbitration with respect to the medical malpractice claim, and denied arbitration with respect to the CLRA claim, which sought damages and injunctive relief relating to allegedly deceptive advertising. The Supreme Court affirmed in part and reversed in part, holding that the injunctive relief action must be decided in a judicial forum, but that all other claims, including the damage claim under the CLRA, were amenable to arbitration. (21 Cal.4th at p. 1088, 90 Cal.Rptr.2d 334, 988 P.2d 67.)

Not long after the opinion in Broughton, the United States Supreme Court decided two significant arbitration cases: Green Tree Financial Corp.-Ala. v. Randolph (2000) 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (Green Tree), and Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, 121 S.Ct. 1302, 149 L.Ed.2d 234 (Circuit City). Defendant in Cruz argued that the holdings in those two cases required the California Supreme Court to reconsider its position on the arbitrability of claims for injunctive relief. Our Supreme Court analyzed the two cases and disagreed: "In Circuit City, supra, 532 U.S. 105, 121 S.Ct. 1302, 149 L.Ed.2d 234, the court concluded that section 1 of the FAA, which exempts from the scope of the FAA `contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce' (9 U.S.C. § 1), did not exempt most employment contracts.... The majority rejected the position of various amici curiae, including attorneys general of 22 states, who argued that applying the FAA to employment contracts would interfere with the employment policies of the states.... The Circuit City court did not address the central question in Broughton — whether public injunctions were...