Berkson v. Gogo LLC

• Court: U.S. District Court — Eastern District of New York
• Writing for the Court: JACK B. WEINSTEIN, Senior District Judge
• Citation: Berkson v. Gogo LLC, 97 F.Supp.3d 359 (E.D. N.Y. 2015)
• Decision Date: 08 April 2015
• Docket Number: No. 14–CV–1199.,14–CV–1199.
• Parties: Adam BERKSON, individually and on behalf of all others similarly situated, and Kerry Welsh, individually and on behalf of all others similarly situated, Plaintiffs, v. GOGO LLC, and Gogo Inc., Defendants.

97 F.Supp.3d 359

Adam BERKSON, individually and on behalf of all others similarly situated, and Kerry Welsh, individually and on behalf of all others similarly situated, Plaintiffs

v.GOGO LLC, and Gogo Inc., Defendants.

No. 14–CV–1199.

United States District Court, E.D. New York.

Signed April 8, 2015.

Filed April 9, 2015.

George Volney Granade, II, Michael Robert Reese, Reese LLP, New York, NY, for Plaintiffs.

Anthony Joseph Laura, Epstein Becker Green, New York, NY, for Defendants.

MEMORANDUM & ORDER

JACK B. WEINSTEIN, Senior District Judge:

Table of Contents

I.	Introduction	365
II.	Procedural History	367
III.	Facts	368

A.	Defendant Gogo	368
B.	Monthly Service Charge	368
C.	Plaintiff Welsh	368

1.	Sign–In Portal in August 2011	370
2.	Create Account Page	371

D. Plaintiff Berkson 373

1.	Sign–In Portal Since 2012	373
2.	Create Account Page	374

E. Relationship Between Gogo Inc. and Gogo LLC 376

IV. Assessing Attributes of the “Average Internet User” 377

A.	Studies	377
B.	Anecdotal Evidence	381
C.	The Reasonable Communicativeness Test	381

V. Contract Formation and Assent 383

A. Legal Research and Scholarship 383

1.	“Informed Minority” Hypothesis	383
2.	American Bar Association Working Group	384
3.	Traditional Contract Doctrine and the Internet Age	384

B. Law 387

1.	Choice of Law	387
2.	Common Law Contracting	388

a.	Acceptance	388
b.	Adhesion Contracts	388
c.	Unconscionability	391

i.	Procedural	391
ii.	Substantive	391

d.	Material Terms and Material Alterations	392
e.	Notice	393

3. Electronic Adhesion Contracts 394

a.	Browsewrap	395
b.	Clickwrap	397
c.	Scrollwrap	398
d.	Sign–in–wrap	399
e.	General Principles	401

4. Assessing Validity and Enforceability of Electronic Adhesion Contracts 402

C. Application of Law to Facts 403

1.	Plaintiff Welsh	403
2.	Plaintiff Berkson	403
3.	Generally	404

VI. Constitutional Standing 405

A. Law 405

1.	Motion to Dismiss Standard	405
2.	Putative Class Representatives Cannot Be “Picked Off” by Defendants	406

a. Supreme Court Cases 406

i.	Deposit Guarantee Nat'l Bank v. Roper	406
ii.	Genesis Healthcare Corp. v. Symzcyk	407

b. Relevant Court of Appeals Rulings 408

i.	Offers of Judgment Must Fully Satisfy Claims	408
ii.	Acceptance of an Offer of Settlement Does Not Necessaril y Moot a Case or Controversy	409

c. Other Court Decisions 409

3. Putative Class Representatives Cannot Be Paid Off By Sidestepping No–Contact Rule 410

B. Application of Law to Facts 411

1.	Plaintiff Welsh	411
2.	Plaintiff Berkson	412

VII.	Disposition of Remaining Claims	413
VIII.	Conclusion	413

I. Introduction

There is a huge percentage of the United States population using the internet for purchases. See infra Part IV. In many instances, these consumers are accepting important contracts of adhesion when they order a product or service through a computer. With convenience has come much widened opportunities for consumer fraud and overreaching by merchants, as claimed in the present case. The instant putative class action involves purchase of internet service connection (“Wi–Fi”) on air flights.

Plaintiffs Adam Berkson and Kerry Welsh sue Gogo LLC and Gogo Inc. (collectively, “Gogo,” “the company,” or “defendants”). Alleged is that defendants improperly increased their sales and profits by misleading customers into purchasing a service that charged a customer's credit card, on an automatically-renewing continuing monthly basis, without adequate notice or consent. The graphics and text on defendants' website, it is argued, led internet consumers during the proposed class period—between February 2008 and December 2012—to believe that they were only buying a one-month subscription when they signed up for in-flight Wi–Fi through Gogo. Gogo's position is that the terms plaintiffs consented to not only clearly provided for automatic renewal, but that they included mandatory arbitration and waiver of venue protection.

Berkson, a New York State resident, claims that he sustained unauthorized charges to his credit card on October 25, 2012, November 26, 2012, and December 25, 2012. Welsh, a resident of California, posits that he suffered injury when he incurred unauthorized recurring charges over a sixteen-month span, from September 2011 through December 2012.

A variety of claims are pleaded in the amended class action complaint. Three causes of action are brought on behalf of a nationwide class—common law breach of the implied covenant of good faith and fair dealing, common law unjust enrichment, and violation of various consumer protection statutes. A New York sub-class is alleged to have a claim under the State's General Business Law, section 349. Asserted on behalf of a California sub-class is violation of that State's Consumers Legal Remedies Act, Cal. Civ.Code § 1750 et seq., its Unfair Competition Law, Cal. Bus. & Prof.Code § 17200 et seq., and its False Advertising Law, Cal. Bus. & Prof.Code § 17500 et seq.

Before the court are defendants' three motions: (1) to transfer venue; (2) to compel arbitration; and (3) to dismiss for lack of standing.

The motions to transfer venue and compel arbitration are premised on the company's “terms of use,” which defendants argue plaintiffs assented to online when they subscribed to Gogo's in-flight Wi–Fi. Plaintiff alleges that these terms and conditions were “hidden” and never seen, or agreed to, by them. Hidden provisions in an electronic contract of adhesion do not bind the parties; they cannot dictate venue or compel arbitration.

The central factual-legal question in the case is: were plaintiffs given effective notice of the need to make inquiry (“inquiry notice”) of the “terms of use,” in what can be characterized as Gogo's electronic contract of adhesion? The question is answered in the negative, compelling denial of defendants' motions on venue and arbitration.

Plaintiffs' standing depends on whether they suffered concrete and particularized injury on the dates their credit cards were billed for allegedly unauthorized charges. That Berkson was reimbursed by his credit card company when defendants refused to do so does not defeat his standing. Nor has Welsh's standing been negated because, when put on notice of the class action lawsuit, Gogo directly sent him—not his attorney—a settlement offer in the form of a full refund. Defendants' motion to dismiss for lack of standing is denied.

The case raises three policy questions:

• First, how should courts deal with hybrid versions of “browsewrap” and “clickwrap” electronic contracts of adhesion (referred to in this memorandum as “sign-in-wraps”) that do not provide internet users with a compelling reason to examine terms favoring defendants?¹

• Second, if a credit card company reimburses an individual for losses, later claimed against a merchant, does full payment by the credit card company shield the vendor from liability to the consumer?

• Third, is the filing of a mandatory putative class action demand letter under a state's consumer protection statute the functional equivalent—for the purpose of providing notice—of a federal class action complaint?

In the absence of documentary, testimonial, or expert evidence about the expertise of these plaintiffs with respect to internet use, the court inferred their average capacity and understanding as internet users when they ordered Gogo's services. Relied upon were exploratory sociological research about average internet users, limited empirical studies conducted by legal scholars and economists, and somewhat arbitrary assumptions by the court itself about the average internet user.

It is concluded that the average internet user would not have been informed, in the circumstances present in this case, that he was binding himself to a sign-in-wrap. The sign-in-wrap used in this case does not support the venue and arbitration clauses relied upon by defendants. It was open to defendants to show special circumstances indicating that the plaintiffs were aware, or should have been aware, of such clauses because of their special knowledge, but they have not done so.

Applied is a four-part test to analyze the validity of electronic contracts of adhesion generally. See infra Part V.B.4. This approach casts significant doubt on the validity of those sign-in-wrap and clickwrap agreements that fail to adequately present material terms to internet users.

A putative class representative's standing is not eliminated when a credit company reimburses him for grievances later filed against a third-party merchant. Credit card companies do not serve as shields for allegedly fraudulent merchants.

Filing of a mandatory putative class action demand letter under a state's consumer protection statute is the functional equivalent—for the purpose of providing notice—of filing a class action complaint in federal court.

Defendants' motions to transfer venue, compel arbitration, and dismiss the amended class action complaint are denied.

II. Procedural History

On February 25, 2014, Berkson filed a class action complaint in the United States District Court for the Eastern District of New York. (Compl., Feb. 25, 2014, ECF No. 1.) On behalf of a New York sub-class, he alleged violation of New York General Business Law section 349, and, on behalf of a nationwide class, he alleged breach of the implied covenant of good faith and fair dealing, and violation of various consumer protection statutes. (Id. ) A fourth cause of action on behalf of the nationwide class, unjust enrichment, was alleged in the alternative. (Id. ) On the same day, a motion for class certification was filed. (Class Certification Mot., Feb. 25, 2014, ECF No. 5.)

On April 4, 2014, defendants filed a motion to compel arbitration or transfer the action to the Northern District of Illinois, or, alternatively, to dismiss the action for lack of jurisdiction or failure to state a claim. (Defs.' Mots. to Dismiss, Apr. 4, 2014, ECF No. 9.)

Three weeks later, on April 24, 2014, plaintiff Berkson, joined by plaintiff Welsh, filed an amended class action complaint adding three new causes of action for purported violations of several California statutes. (...