Intuit Inc. v. 9, 933 Individuals
| Decision Date | 29 July 2021 |
| Docket Number | B308417 |
| Court | California Court of Appeals Court of Appeals |
| Parties | INTUIT INC. et al., Plaintiffs and Appellants, v. 9, 933 INDIVIDUALS, Defendants and Respondents. |
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County No 20STCV22761, Terry A. Green, Judge. Affirmed.
Fenwick & West, Rodger R. Cole and Molly R. Melcher Wilmer Cutler Pickering Hale and Dorr, Matthew Benedetto Jonathan E. Paikin, Daniel S. Volchok, and Kevin M. Lamb for Plaintiffs and Appellants.
Mayer Brown and Archis A. Parasharami for the U.S. Chamber of Commerce as Amicus Curiae on behalf of Plaintiffs and Appellants.
Keller Lenkner and Warren Postman; Custis Law and Keith A. Custis for Defendants and Respondents.
The parties in this case have not just been forum shopping; they have been on a veritable shopping spree. When customers who purchased a tax preparation and e-filing program sued the software manufacturer in federal class actions, the manufacturer successfully moved to compel individual arbitration of their claims. When the customers then filed demands for arbitration and the manufacturer realized that its arbitration agreement precluded class arbitration, the manufacturer found itself facing 40, 000 individual arbitrations, each with at least a $3, 200 price tag in arbitration fees owed by the manufacturer. So the manufacturer filed a lawsuit in state court and then moved for a preliminary injunction to halt the arbitrations and to push each arbitration into small claims court. While the state lawsuit was pending, the customers filed a lawsuit in federal court seeking to compel arbitration in light of the federal antitrust claims they had added to their arbitration demands. The federal court declined to intervene, leaving the matter in state court. The state court thereafter denied the motion for a preliminary injunction. The manufacturer has appealed that denial. We conclude the denial was correct, and accordingly affirm.
Intuit Inc. and its subsidiary, Intuit Consumer Group LLC (collectively, Intuit) is the maker of the online tax preparation and e-filing software TurboTax. Fearing that the Internal Revenue Service (IRS) would start offering similar services for free, Intuit and others in that industry formed a consortium and agreed to provide free online tax preparation and e-filing services to qualifying, low-income taxpayers as long as the IRS stayed out of the industry. Intuit then did a “bait and switch”: Intuit lured consumers to its TurboTax website with the promise of free software (called the “Freedom Edition”), but once consumers got to the website, Intuit (1) made it nearly impossible to locate the free software, (2) informed consumers that they only qualified for its paid software (called the “Free Edition”), and then (3) sold consumers that paid software.
Consumers who use TurboTax software may do so only after they click that they accept Intuit's terms of service.
The terms of service contain an arbitration agreement mandating the arbitration of “any dispute or claim relating in any way to the services or this agreement.” The arbitration agreement has three carve-outs or limitations: (1) it provides that “you”-which the terms of service elsewhere implicitly define as being the consumer because “we, ” “our” or “us” refers to Intuit-“may assert claims in small claims court if your claims qualify”;[2] (2) it provides that “any party to the arbitration may at any time seek injunctions or other forms of equitable relief from any court of competent jurisdiction”; and (3) it provides that “we each agree that any and all disputes must be brought in the parties' individual capacity and not as a plaintiff or class member in any purported class or representative proceeding.” (Italics added.)
The terms of service also provide that any arbitration will be conducted by the American Arbitration Association (AAA) and “under the AAA's rules.”
1. Federal class actions
Consumers filed several class actions in federal court against Intuit challenging its concealment of the free TurboTax software and its redirection toward the paid software. After the actions were consolidated, Intuit moved to compel individual arbitration with the named plaintiffs pursuant to the agreement to arbitrate set forth in the terms of service. The court eventually granted that motion.
2. Multiplicity of arbitration demands
Bounced out of federal court, approximately 40, 000 TurboTax consumers then filed individual arbitration demands with the AAA.[3] The demands were filed in three waves-in October 2019, January 2020, and March 2020-by a single law firm. Another 85, 000 individual demands may be waiting in the wings.
To initiate arbitration with the AAA, a consumer must pay a nonrefundable $200 filing fee to file its demand. Per the arbitration agreement, Intuit must pay the remaining AAA-set fees-a nonrefundable $300 fee to file a response to the demand, another $2, 900 in fees to litigate the demand, and another $1, 500 if the litigation requires a telephonic or in-person hearing. It therefore costs Intuit either $3, 200 or $4, 700 to litigate each demand, which is typically in excess of the amount sought by each consumer. Even if all 40, 000 arbitrations are conducted without hearings, the total cost to Intuit would be $128 million.
The law firm representing the consumers has sought to reach a global settlement with Intuit.
To avoid the staggering cost of arbitrating each individual arbitration demand, Intuit requested that the AAA administratively close the vast majority of the pending arbitrations so they could be litigated in small claims court.[4] In making this request, Intuit argued that the arbitration agreement in the terms of service incorporates the AAA's rules, that rule 9 of the AAA's Consumer Arbitration Rules (consumer rules) grants either party the right to opt out of the arbitral forum if a claim otherwise meets the jurisdictional prerequisites for small claims court, and that rule 9 obligates the AAA to administratively close any qualifying arbitrations upon request if they have not yet been assigned to an arbitrator. The consumers objected to Intuit's requests. After a barrage of increasingly blistering letters from Intuit, the AAA ruled-and thereafter reaffirmed its ruling-that the decision whether to send each consumer's demand to small claims court was a question of arbitrability to be decided by the arbitrator in each case.
3. Intuit's state court lawsuit
In June 2020, Intuit filed a declaratory relief action in Los Angeles Superior Court against 9, 933 consumers from the first and second waves of demands filed with the AAA seeking a declaration that the consumers' claims belonged in small claims court, and not in arbitration.
4. The consumers' federal claims and federal court action
In July and August 2020, the consumers amended their arbitration demands to add claims for violations of the federal Sherman Act (15 U.S.C. § 1 et seq.).
Immediately thereafter, the consumers sued Intuit in federal court to compel arbitration and to stay Intuit's declaratory relief action. The federal court dismissed the consumers' petition to compel arbitration: Although the court found one of the consumers' antitrust theories not to be frivolous (namely, that Intuit had violated federal law by “engag[ing] in unlawful price fixing” by “colluding with its competitors to hide the” free services), the court nevertheless declined to exert jurisdiction “in deference to [the] earlier-filed state suit.”
As noted above, Intuit filed a declaratory relief action against thousands of the consumers who filed the first and second waves of arbitration demands.[5] The action sought declarations that (1) Intuit was contractually entitled to have AAA administratively close the pending arbitrations because rule 9 of the consumer rules granted Intuit the right to elect to proceed in small claims court, (2) the statutes enacted as part of Senate Bill No. 707 (SB 707) were preempted by the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) because they discourage arbitration by mandating penalties against businesses (and employers) who do not pay arbitration fees within 30 days of the date they are due (Code Civ. Proc., § 1281.97 et seq.), and (3) the consumers' newly added Sherman Act claims constitute a “de facto class action” that is barred by the class action waiver contained in the terms of service's arbitration agreement.
On September 2, 2020, Intuit filed a motion for a preliminary injunction to enjoin the pending arbitrations. Specifically, Intuit argued that it was likely to prevail on the merits of its first two declaratory relief claims. Intuit further argued that it will suffer irreparable harm if the consumers' arbitrations are not enjoined because it faces “a stark, no-win choice” of either paying millions of dollars in arbitration fees under the threat of SB 707 penalties or “pay[ing] a massive [global] settlement” of claims it vehemently disputes.
After full briefing and a hearing, the trial court issued a 16-page order denying Intuit's motion for a preliminary injunction. As a threshold matter, the court determined that it had jurisdiction to entertain Intuit's motion because the arbitration agreement authorized either party to “seek injunctions or other forms of equitable relief from any court of competent jurisdiction.” On the merits, the court concluded that Intuit was not likely to prevail on the two claims for relief it advanced in its motion. First, the court ruled...
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