Lag Shot LLC v. Facebook, Inc.
| Decision Date | 25 June 2021 |
| Docket Number | Case No. 21-cv-01495-JST |
| Parties | LAG SHOT LLC, et al., Plaintiffs, v. FACEBOOK, INC., Defendant. |
| Court | U.S. District Court — Northern District of California |
Cook ALCiati, Pro Hac Vice, Washington, DC Seth Wesley Wiener, Law Offices of Seth W. Wiener, San Ramon, CA, for Plaintiffs.
Archis Ashok Parasharami, Mayer Brown LLP, San Francisco, CA, Alina Artunian, Pro Hac Vice, Lauren R. Goldman, Pro Hac Vice, Michael E. Rayfield, Pro Hac Vice, Mayer Brown LLP, New York, NY, Matthew David Provance, Pro Hac Vice, Mayer Brown LLP, Chicago, IL, for Defendant.
JON S. TIGAR, United States District Judge Before the Court is Defendant Facebook, Inc.’s motion to compel arbitration and stay proceedings, ECF No. 35, and Plaintiffs Lag Shot Golf, Scratch Golf Academy, and GGG Marketing's motion for preliminary injunction, ECF No. 32. The Court will grant in part and deny in part Facebook's motion to compel arbitration, and will deny Plaintiffs’ motion for a preliminary injunction.
Plaintiffs are three Florida limited liability companies, owned and founded by Gary Guerrero. Complaint ("Compl."), ECF No. 1 ¶¶ 19-21, 27. Lag Shot Golf and Scratch Golf Academy provide golf instruction services and golf training aids. Id. ¶ 27.
Since at least early 2019, Lag Shot Golf and Scratch Golf Academy advertised their services on Facebook, spending over $100,000 each month on Facebook ads. Id. ¶ 27. Between the second quarter of 2019 and January 2021, Facebook rejected more than a dozen of Plaintiffs’ ads. Id. ¶¶ 30, 34. Facebook's explanatory emails that followed did not include "information sufficient to identify the alleged defect[s] in the ad[s]." Id. ¶ 30. As a result, Plaintiffs’ subsequent attempts to comply with Facebook's advertising standards were rejected. Id. ¶¶ 30, 34. Plaintiffs hired a digital marketing agency with access to a Facebook account representative, but they were still unable to acquire the information necessary to fix their ads and bring them into compliance with Facebook's policies. Id. ¶¶ 31-32. Whenever they received a rejection from Facebook, Plaintiffs would appeal the decision to Facebook for reconsideration. Id. ¶ 35. Following its review, Facebook usually determined that it had "incorrectly disabled" Plaintiffs’ privileges and that such privileges would be "reactivated." Id.
On January 6, 2021, Facebook notified Plaintiffs that an ad was in violation of Facebook's policies, and, as a result, Plaintiffs would lose the ability to advertise on the platform altogether. Id. ¶ 37. Plaintiffs subsequently appealed to Facebook for reconsideration, but their appeal was rejected. Id. ¶ 38. Plaintiffs sought additional information from Facebook regarding the appeal, and, on February 5, 2021, a Facebook representative emailed Plaintiffs confirming that they were banned from advertising on the site. Id. ¶ 39. The representative, however, could not provide the "specific policy or policies" supporting Facebook's decision to strip Plaintiffs of their advertising privileges. Id.
Since that time, media reports have highlighted other businesses having "strikingly similar experiences" to Plaintiffs’ related to Facebook's advertising review process, including the rejection of ads and suspension of accounts without clear explanations. Id. ¶¶ 42-44. Coverage has indicated that this trend correlates with Facebook's adoption of algorithmic technology to review ads. Id. ¶¶ 5, 13, 42-44.
Three contracts apply to business advertising customers and relevant to Plaintiffs’ causes of action: (1) Facebook's Self-Serve Ad Terms, (2) Facebook's Advertising Policies, and (3) Facebook's Commercial Terms, ECF Nos. 35-5, 35-6. Compl. ¶ 28. All fall under Facebook's Terms of Service.
Id. ; ECF Nos. 35-2, 35-3, 35-4, 35-7. A user first agrees to the terms of service when they initially register for a Facebook account. ECF 35-1 at ¶ 8. As articulated in its Advertising Policies, Facebook reviews all ads for compliance with those policies. Compl. ¶ 29. The Advertising Policies state that Id.
Facebook's 2018 Commercial Terms also contain an arbitration agreement which an ad purchaser agrees to at the time of each ad purchase:
If you reside in the US or your business is located in the US: You and we agree to arbitrate any claim, cause of action or dispute between you and us that arises out of or relates to any access or use of the Facebook Products for business or commercial purposes ("commercial claim").
ECF No. 35-6 ¶ 4(b). In agreeing to the arbitration provision, advertisers also waive the right to bring claims as a class action or seek remedies that would impact other parties:
By entering into this arbitration provision, we and you agree that all parties are waiving their respective rights to a trial by jury or to participate in a class or representative action. THE PARTIES AGREE THAT EACH MAY BRING COMMERCIAL CLAIMS AGAINST THE OTHER ONLY IN ITS INDIVIDUAL CAPACITY, AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS, REPRESENTATIVE OR PRIVATE ATTORNEY GENERAL PROCEEDING. You may bring a commercial claim only on your own behalf and cannot seek relief that would affect other parties.
Id. (emphasis in original). Lastly, the Commercial Terms also contain the following severance clause:
If there is a final judicial determination that any particular commercial claim (or a request for particular relief) cannot be arbitrated in accordance with this paragraph's limitations, then only that commercial claim (or only that request for relief) may be brought in court. All other commercial claims (or requests for relief) remain subject to this paragraph.
Id. Advertisers are permitted to opt out of the arbitration agreement by mailing such a request to Facebook "within 30 days of the first acceptance date of any version" of its Commercial Terms. Id. Facebook revised the Commercial Terms in 2020 but made no material changes to the waiver, severance, and opt-out clauses. See ECF No. 35-5 ¶ 5(c)(ii). Plaintiffs acknowledge that Facebook's terms include an arbitration clause, and they do not allege that they opted out from that provision. Id. ¶ 72.
Plaintiffs filed their complaint on March 3, 2021, alleging four causes of action against Facebook: (1) violation of the California Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200, et seq. ; (2) breach of contract; (3) breach of covenant of good faith and fair dealing; and (4) fraud. Compl. ¶¶ 52-106. Among other remedies, Plaintiffs seek an injunction to (i) prohibit Facebook from rejecting ads without sufficient explanation, (ii) prevent Facebook from rejecting ads or restricting advertiser privileges without "fair advance notice" and the "opportunity to make appropriate corrections," and (iii) bar Facebook from enforcing any unconscionable contract terms. Id. at 30-31.
On April 8, 2021, Plaintiffs filed a motion for a preliminary injunction seeking the same injunctive relief. ECF No. 32 at 26. Facebook has filed an opposition, ECF No. 43, to which Plaintiffs have replied, ECF No. 48. On June 3, 2021 Facebook filed a motion to compel arbitration and stay litigation, including Plaintiffs’ motion for preliminary injunction. ECF No. 35. Plaintiffs opposed the motion, ECF No. 45, and Facebook replied, ECF No. 51.
This Court has jurisdiction pursuant to 28 U.S.C. § 1332(a).
The Federal Arbitration Agreement ("FAA") applies to arbitration agreements in any contract affecting interstate commerce. See Allied-Bruce Terminix Cos., Inc. v. Dobson , 513 U.S. 265, 273-74, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). Under the FAA, arbitration agreements "shall be 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. This provision reflects "both a liberal federal policy favoring arbitration, and the fundamental principle that arbitration is a matter of contract." AT&T Mobility LLC v. Concepcion , 563 U.S. 333, 339, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011) (quotation marks and citations omitted).
A party bound by an arbitration clause may bring a petition in the district court to compel arbitration. 9 U.S.C. § 4. The FAA "leaves no place for the exercise of discretion by a district court." Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). On a motion to compel arbitration, the court's role under the FAA 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 is yes to both questions, the court must enforce the agreement." Lifescan, Inc. v. Premier Diabetic Servs., Inc. , 363 F.3d 1010, 1012 (9th Cir. 2004).
An arbitration clause may be invalidated by "generally applicable contract defenses, such as fraud, duress, or unconscionability." Rent-A-Center, W., Inc. v. Jackson , 561 U.S. 63, 68, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) (quoting Doctor's Assocs., Inc. v. Casarotto , 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) ). When deciding whether a valid arbitration agreement exists, federal courts generally should "apply ordinary state-law principles that govern the formation of contracts." First Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). "[T]he party resisting arbitration bears the burden of proving that the claims at issue are unsuitable...
To continue reading
Request your trial
-
Vasquez v. Cebridge Telecom CA, LLC
...F.3d at 831. "To sever in this way, however, the parties’ agreement must do so precisely." Lag Shot LLC v. Facebook, Inc. , No. 21-CV-01495-JST, 545 F.Supp.3d 770, 785 (N.D. Cal. June 25, 2021). In Blair , the court found that the reference in the contract's clause to the severance of a "cl......
-
Flora v. Prisma Labs.
... JACK FLORA, et al., Plaintiffs, v. PRISMA LABS, INC., Defendant. No. 23-cv-00680-CRB United States District Court, N.D. California August 8, 2023 ... 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 ... ...