Penhall v. Young Living Essential Oils, 2:20-cv-00617-DBB-CMR

CourtUnited States District Courts. 10th Circuit. United States District Court of Utah
Writing for the CourtCecilia M. Romero, Magistrate Judge United States District Court for the District of Utah.
PartiesPENHALL, et al., Plaintiffs, v. YOUNG LIVING ESSENTIAL OILS, Defendant.
Docket Number2:20-cv-00617-DBB-CMR
Decision Date29 August 2022

PENHALL, et al., Plaintiffs,
v.

YOUNG LIVING ESSENTIAL OILS, Defendant.

No. 2:20-cv-00617-DBB-CMR

United States District Court, D. Utah, Central Division

August 29, 2022


David Barlow, District Judge.

MEMORANDUM DECISION AND ORDER DENYING [96] MOTION TO COMPEL ARBITRATION

Cecilia M. Romero, Magistrate Judge United States District Court for the District of Utah.

This matter is referred to the undersigned in accordance with 28 U.S.C. § 636(b)(1)(A) (ECF 50; ECF 85). Before the court is Defendant Young Living Essential Oils' (Defendant) Motion to Compel Arbitration (Motion) (ECF 96) asking the court to compel Plaintiffs Lindsay Penhall (Penhall), Sarah Maldonado (Maldonado), and Tiffanie Runnel (Runnels) (collectively, Plaintiffs) to individual arbitrations and to stay this action pending these proceedings. Having carefully considered the relevant filings, the court finds that oral argument is not necessary and will decide this matter on the basis of written memoranda. See DUCivR 7-1(g). For the reasons stated below, the court hereby DENIES the Motion.

I. FACTUAL BACKGROUND[1]

Original Arbitration Agreement

Defendant sells essential oils, and Plaintiffs are former distributors of Defendant's products, referred to as “members.” During the relevant time period from August 2014 to July 2020, members were required to agree to Defendant's (1) Member Agreement (the Member

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Agreement). The 2020 P&Ps also contain a retroactive clause stating, “Amendments will not apply Agreement); (2) Policies and Procedures (the P&Ps); and (3) Compensation Plan (the Compensation Plan) (collectively, the Agreement). Defendant amended the Member Agreement and the P&Ps multiple times during this period. Notwithstanding, all versions of the P&Ps contained the following arbitration clause (the Original Arbitration Agreement):

13.2.2 ARBITRATION
If mediation is unsuccessful, any controversy or claim arising out of or relating to the Agreement, or the breach thereof, will be settled by arbitration. The parties waive all rights to trial by jury or to any court. The arbitration will be filed with, and administered by, the American Arbitration Association (“AAA”) or Judicial Arbitration and Mediation Services (“JAMS”) under their respective rules and procedures. The Commercial Arbitration Rules and Mediation Procedures of the AAA are available at the AAA's website at adr.org. The Streamlined Arbitration Rules & Procedures of JAMS are available at the JAMS website at jamsadr.com

(Def. Ex. D-F § 13.2.2). In addition, the pre-2019 versions of the Member Agreement contained a jurisdiction and choice of law clause (the Forum Selection Clause), which stated that “any legal action concerning the Agreement will be brought in the state and federal courts located in Salt Lake City, Utah” (Def. Ex. A-B at § 9).

2020 Arbitration Agreement

On December 2, 2019, Defendant published the 2019 Member Agreement, which removed the Forum Selection Clause and replaced it with the following:

The parties consent to jurisdiction and venue before any state or federal court located in Salt Lake City, Utah for any legal action not subject to arbitration, including for purposes of enforcing an award by an arbitrator, or any other matter not subject to arbitration as specified in the Policies and Procedures[.]

(Def. Ex. C.). Defendant also published the 2020 P&Ps on that date, which, like the prior versions of the P&Ps, contains an arbitration clause incorporating the JAMS rules (the 2020 Arbitration Agreement). The 2020 P&Ps also contain a retroactive clause stating, “Amendments will not apply

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retroactively to conduct that occurred prior to the effective date of the amendment unless expressly accepted by the member” (the Retroactive Clause) (Def. Ex. G at §§ 1.4, 12.2).

Distributor Enrollment Process

During the relevant time period of 2014 to 2020, members were presented with a clickwrap agreement through Defendant's online enrollment. The clickwrap agreement has remained substantially the same during this time period. Directly below the clickwrap agreement text, members were presented with distinct hyperlinks, each of which contained the then-operative versions of the Member Agreement, the P&Ps, and the Compensation Agreement. Included with the clickwrap agreement text was a checkbox requiring the prospective member to acknowledge that they read and agreed to the Agreement before completing enrollment. After enrollment, members could purchase Defendant's products from its website at wholesale prices.

Plaintiffs Tiffanie Runnels and Sarah Maldonado

Runnels and Maldonado became members with Defendant through online enrollment on September 4, 2014, and December 19, 2018, respectively. During that process, they were presented with the clickwrap agreement and with hyperlinks containing the then-operative Member Agreement, the P&Ps, and the Compensation Plan, including the Original Arbitration Agreement. They both checked the box in the clickwrap agreement and completed the enrollment process to become members. During their time as members, they made the required monthly purchases.

Plaintiff Lindsay Penhall

Penhall became a member through online enrollment on May 24, 2018. During that process, she was presented with the clickwrap agreement and with hyperlinks containing the Member Agreement, the P&Ps, and the Compensation Plan, including the Original Arbitration Agreement. Penhall checked the box in the clickwrap agreement and completed the enrollment

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process to become a member. During her time as a member, she made the required monthly payments to Defendant.

In November 2019, Penhall terminated her membership due to inactivity. On March 3, 2020, Penhall logged into and reactivated her member account. Penhall was presented with the clickwrap agreement and hyperlinks to the 2019 Member Agreement and the 2020 P&Ps, including the 2020 Arbitration Agreement and the Retroactive Clause. Penhall checked the box in the clickwrap agreement and completed the enrollment process to become a member. Penhall then made a purchase, and to place the order, she checked the box agreeing to the 2020 P&Ps.

II. PROCEDURAL BACKGROUND

Penhall initiated this class action suit against Defendant in the Southern District of California on December 6, 2019 (ECF 1). On August 17, 2020, the Southern District of California transferred this case to the District of Utah (ECF 36-1). On September 30, 2020, Defendant moved to dismiss and compel arbitration (ECF 68). In response, on November 2, 2020, Penhall moved for leave to amend the complaint to add Runnels and Maldonado as parties (ECF 80). The court granted Plaintiffs leave to amend (ECF 88) and on this basis denied Defendant's motion to dismiss as moot (ECF 90).

On September 27, 2021, Defendant filed the instant Motion asking the court to stay this case and compel arbitration for all Plaintiffs under the Original Arbitration Agreement, or in the alternative, compel arbitration for Penhall under the 2020 Arbitration Agreement (ECF 96). Plaintiffs oppose the Motion on the grounds that (1) the Original Arbitration Agreement is not a valid agreement to arbitrate; (2) Penhall is not bound by the 2020 Arbitration Agreement; and (3) collateral and judicial estoppel bar Defendant's arbitration arguments (ECF 101). Defendant filed a Reply contesting each of these arguments (ECF 102). Defendant also filed a motion to dismiss

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and to strike class allegations (ECF 97), which the court later denied without prejudice pending resolution of this Motion (ECF 105).

III. LEGAL STANDARDS

The Federal Arbitration Act (FAA) provides that an arbitration agreement “shall be valid, irrevocable, and enforceable,” and permits a “party aggrieved by the . . . refusal of another to arbitrate” to petition a federal district court for an order compelling arbitration in the manner provided in the agreement and staying the litigation until such arbitration has been held. 9 U.S.C. §§ 2-4. The determination of “whether to compel claims to arbitration is a two-step inquiry. First, the court must determine whether a valid agreement to arbitrate exists; and then, whether the dispute in question falls within the scope of that agreement.” Carter v. C.R. England, Inc., No. 2:21-cv-00102-DBB, 2021 WL 1820717, at *2 (D. Utah May 5, 2021) (citing Soc'y of Prof'l Eng'g Emples. in Aero., Local 2001 v. Spirit Aerosystems, Inc., 681 Fed.Appx. 717, 721 (10th Cir. 2017)).

Courts have “long recognized and enforced a ‘liberal federal policy favoring arbitration agreements'” in the FAA. Ragab v. Howard, 841 F.3d 1134, 1138 (10th Cir. 2016) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002)). However, the determination of “whether a party agreed to arbitration is a contract issue, meaning arbitration clauses are only valid if the parties intended to arbitrate.” Id. (citing United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)). Thus, “although the presence of an arbitration clause generally creates a presumption in favor of arbitration, . . . ‘this presumption disappears when the parties dispute the existence of a valid arbitration agreement.'” Bellman v. i3Carbon, LLC, 563 Fed.Appx. 608, 613 (10th Cir. 2014) (quoting Dumais v. Am. Golf Corp., 299 F.3d 1216, 1220 (10th Cir. 2002)). The FAA “does not require parties to arbitrate when they have not agreed to do so.”

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Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). Rather, the FAA “simply requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms.” Id.

The party “seeking to compel arbitration[] has the burden to show that arbitration agreements exist and apply to these...

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