Flora v. Prisma Labs.
| Docket Number | 23-cv-00680-CRB |
| Decision Date | 08 August 2023 |
| Parties | JACK FLORA, et al., Plaintiffs, v. PRISMA LABS, INC., Defendant. |
| Court | U.S. District Court — Northern District of California |
ORDER GRANTING MOTION TO COMPEL ARBITRATION
Plaintiffs Jack Flora, Nathan Stoner, Courtney Owens, Eric Matson, and D.J.[1](“Plaintiffs”) bring this putative class action against Defendant Prisma Labs, Inc. (“Prisma”), accusing Prisma of “collect[ing]” their “facial geometry” through Plaintiffs' use of Prisma's app, Lensa. See Compl. (dkt. 1). Plaintiffs contend that Lensa collects and stores the biometric data of users' faces obtained from their photos, violating the Illinois Biometric Information Privacy Act (BIPA). Prisma moves to compel arbitration, because Plaintiffs assented to Lensa's Terms of Use, which includes a binding arbitration clause. See Mot. (dkt. 21).
As explained below, finding this matter suitable for resolution without oral argument pursuant to Civil Local Rule 7-1(b) the Court vacates the hearing scheduled for August 18, 2023 and GRANTS Prisma's motion.
Prisma's app, Lensa, allows users to upload photos to edit and retouch. Compl. ¶ 1. In late 2022, Lensa's popularity skyrocketed with the launch of its “magic avatar” feature-using AI to turn user's photos into artistic or cartoonish depictions of their likeness, applying different styles such as “cosmic,” “anime,” or “fairy princess.” Id. ¶¶ 14, 17. Criticism from many corners soon followed: Artists contended that Lensa employed AI trained on copyrighted images created by humans who received no compensation for their contributions to the images generated by Lensa, id. ¶ 25; users found that the app would create sexualized images from non-sexual, fully-clothed photos, id. ¶ 26; and, the subject of this lawsuit, advocates concerned with Lensa users' privacy argued that Prisma was capturing and retaining “the facial geometry of the subjects of the images” uploaded to Lensa, without their subjects' consent. Id. ¶ 27.
When a user downloads the Lensa app, they are required to agree to Lensa's Terms of Use and Privacy Policy to use it. Compl. ¶ 19. Each of the Plaintiffs allege that they “received disclosure” of Lensa's Privacy Policy and agreed to its Terms of Use when they downloaded the app in December 2022. Id. ¶¶ 3-7.
At issue in this motion is the arbitration provision in Lensa's Terms of Use. The section, titled “Dispute Resolution; Binding Arbitration,” appears in larger, bolded font (like the other section headings in the document) and states in smaller, bolded font underneath it: “Please read the following Section carefully because it requires you to arbitrate certain disputes and claims with the Company and limits the manner in which you can seek relief from us.” Sadun Decl. (dkt. 21-1) Ex. A at 10 (“Terms of Use”).[2] The provision states that “all disputes arising out of or relating to these Terms or Lensa will be resolved through confidential binding arbitration held in Santa Clara County, California in accordance with the Streamlined Arbitration Rules and Procedures (“Rules”) of the Judicial Arbitration and Mediation Services (“JAMS”), which are available on the JAMS website and hereby incorporated by reference.” Id. The provision also forbids class arbitrations and class actions; requires that the enforceability of the arbitration provision be governed by the FAA; gives the arbitrator “exclusive authority to make all procedural and substantive decisions regarding any dispute”; that “for any arbitration [the user] intiate[s], [the user] will pay the filing fee and the Company will pay the remaining JAMS fees and costs”; and that users may opt out of binding arbitration if they notify Prisma in writing within 30 days. Id. at 10-11.
The Federal Arbitration Act (FAA) provides that contractual arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2; Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67-68 (2010). Private agreements to arbitrate under the FAA are enforced according to their terms. 9 U.S.C. § 4. Therefore, a party may petition a district court “for an order directing that such arbitration proceed in the manner provided for in such agreement.” Id.
Generally, a party “cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986) (internal quotation marks omitted). However, courts have developed a “liberal federal policy favoring arbitration agreements,” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), such that courts should not refuse to enforce them unless the agreement is “not susceptible of an interpretation that covers the asserted dispute.” AT&T Techs., 475 U.S. at 650. Under the FAA, in assessing the enforceability of a contractual arbitration provision, a district court's role is “limited to determining (1) whether a valid agreement to arbitrate exists, and if it does, (2) whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). If the answer to both inquiries is affirmative, then the FAA requires the court to enforce the agreement in accordance with its terms. Id. “[T]he party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration.” Green Tree Fin. Corp.- Ala. v. Randolph, 531 U.S. 79, 91 (2000).
Plaintiffs make two arguments against compelling arbitration:[3] First, the arbitration provision is unconscionable; and second, because some provisions in the arbitration agreement arguably fall below JAMS' Consumer Arbitration Minimum Standards, the arbitration provision is illusory.
First, Plaintiffs argue that the arbitration agreement is unenforceable because it is unconscionable. In analyzing contracts under the FAA, courts generally “apply ordinary state-law principles that govern the formation of contracts.” First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014). Because the choice-of-law provision in Lensa's Terms of Use requires that California law be applied, see Terms of Use at 11, the Court applies California law to the extent that it does not directly conflict with the FAA.[4] Bridge Fund Cap. Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1002 (9th Cir. 2010). Under California law, a contract is unenforceable when it is both procedurally and substantively unconscionable:
[T]he prevailing view is that procedural unconscionability and substantive unconscionability need not both be present to the same degree: Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation . . . in proportion to the greater harshness or unreasonableness of the substantive terms themselves.
Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir. 2006) (internal quotation marks omitted) (quoting Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 114 (2000)).
1. Procedural Unconscionability
A determination of procedural unconscionability involves the analysis of two factors: (1) oppression; and (2) surprise. Id. at 1280. Oppression is found when there is such an inequality in bargaining power between two parties that there is no actual negotiation and a lack of meaningful choice. Id. Surprise is found when the “supposedly agreed-upon terms are hidden in a prolix printed form drafted by the party seeking to enforce them.” Id. (quoting Flores v. Transamerica HomeFirst, Inc., 93 Cal.App.4th 846, 853 (2001)).
Plaintiffs' only argument for procedural unconscionability hinges on the Terms of Use being a contract of adhesion, giving Plaintiffs “no ability to negotiate its terms.” Opp'n (dkt. 25) at 7. As a preliminary matter, California courts consider contracts of adhesion procedurally unconscionable to at least a minimal degree due to a lack of bargaining power. Bridge Fund Cap. Corp., 622 F.3d at 1004. However, California courts only refuse to enforce contracts of adhesion if they are “unduly oppressive.” Armendariz, 24 Cal.4th at 113. But, crucially, Plaintiffs argue only that the arbitration provision in Lensa's Terms of Use is unconscionable, see Opp'n at 7-9, and that provision allows users to opt out of binding arbitration by mailing a notification of their intent to do so to Lensa within 30 days. See Terms of Use at 10-11.
The Ninth Circuit has squarely held that where there is a meaningful opportunity to opt out of an arbitration agreement, that agreement is not adhesive. Mohamed v Uber Techs., Inc., 848 F.3d 1201, 1211 (9th Cir. 2016) (citing Circuit City Stores, Inc. v. Ahmed, 283 F.3d 1198, 1199 (9th Cir. 2002)). While Mohamed and Ahmed addressed employment contracts, courts have routinely applied the same principles to consumer contracts like Lensa's. See James v. Comcast Corp., No. 16-CV-02218-EMC, 2016 WL 4269898, at *3 (N.D. Cal. Aug. 15, 2016); Mohammad v. T-Mobile USA, Inc., No. 2:18-CV-00405-KJM-DB, 2018 WL 6249910, at *5 (E.D. Cal. Nov. 29, 2018); Lag Shot LLC v. Facebook, Inc., 545 F.Supp.3d 770, 779-80 (N.D. Cal. 2021); McLellan v. Fitbit, Inc., No. 3:16-CV-00036-JD, 2017 WL 4551484, at *3 (N.D. Cal. Oct. 11, 2017); Alkutkar v. Bumble Inc., No. 22-CV-00422-PJH, 2022 WL 4112360, at *9 (N.D. Cal. Sept. 8, 2022), reconsideration denied, No. 22-CV-00422-PJH, 2022 WL 16973253 (N.D. Cal. Nov. 16, 2022). After all, employees signing employment contracts might feel inclined not to opt out of an arbitration provision for fear of...
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