Romanov v. Microsoft Corp.

• Decision Date: 09 August 2021
• Docket Number: Civil Action 21-03564 (FLW)
• Parties: EZRA ROMANOV, Plaintiff, v. MICROSOFT CORPORATION, JOHN DOE 1-10; and RICHARD ROE 1-10, Defendant
• Court: U.S. District Court — District of New Jersey

EZRA ROMANOV, Plaintiff, v. MICROSOFT CORPORATION, JOHN DOE 1-10; and RICHARD ROE 1-10, Defendant

Civil Action No. 21-03564 (FLW)

United States District Court, D. New Jersey

August 9, 2021

NOT FOR PUBLICATION

OPINION

Freda L. Wolfson U.S. Chief District Judge

Ezra Romanov (“Plaintiff”) filed this Complaint against Microsoft Corporation (“Defendant”) asserting that Defendant is liable for online and offline abuse suffered by Plaintiff while he was an active user of Defendant's Xbox Live online gaming service, by breaching the relevant terms of their service contract when Defendant failed to protect Plaintiff. Defendant removed the action to this Court pursuant to 28 U.S.C. § 1441(b), on the basis of diversity jurisdiction. Before the Court is Defendant's motion to compel Plaintiff to arbitrate his claims in accordance with the terms set forth in the Xbox Live Terms of Use (“TOU”) and the Microsoft Service Agreement (“MSA”). For the reasons set forth herein, the motion to compel arbitration is GRANTED, and this case is STAYED.^[1]

I. BACKGROUND

Plaintiff has been an active user of Defendant's Xbox Live online gaming service since 2013, and is a community leader in the “Halo” gaming community. (Compl. ¶ 3.) Plaintiff alleges that he has been harmed by “coordinated and repeated acts of cyber-stalking and severe mental and emotional harassment and abuse” from other users of Defendant's service. (Id. at ¶¶ 5-9.) Specifically, Plaintiff alleges that this cyber harassment and stalking have “transcended the ‘online forum'” on several occasions with Plaintiff receiving “hate mail” and other disturbing packages and letters to his primary residence “causing him to become so concerned for his safety that he has been forced to change his address.” (Id. ¶ 9.) Plaintiff claims that he has notified Defendant of this harassment and, despite its customer support staff repeatedly advising that it would investigate Plaintiff's grievances, no action has been taken. (Id. ¶¶ 13-14.)

According to Defendant, users of its Xbox Live service are required to acknowledge and accept a terms of service agreement (the “Agreement”).^[2] (Holbrook Decl. ¶ 3.) Since December 2011, the Agreement has included an arbitration clause that selects arbitration to resolve a broad spectrum of disputes. (Id. ¶ 4.) While the exact procedures for acknowledging the terms of the Agreement have changed multiple times since 2011, ^[3] users have always been required to accept the terms upon account creation and whenever the terms are updated. (Id. ¶ 4.) The full terms of the Agreement have always been displayed or linked, and the user is given the opportunity to review these terms before deciding whether to accept. (Id.)

Every version of the Agreement at issue, including the current version, contains an arbitration clause. The most recent version of the Agreement, the 2019 MSA, begins, in bold, capitalized text:

IF YOU LIVE IN (OR YOUR PRINCIPAL PLACE OF BUSINESS IS IN) THE UNITED STATES, PLEASE READ THE BINDING ARBITRATION CLAUSE AND CLASS ACTION WAIVER IN SECTION 15. IT AFFECTS HOW DISPUTES ARE RESOLVED.

(Holbrook Decl., Ex. H, at 2.) Section 15, as indicated, sets forth the following binding arbitration clause:

Binding Arbitration and Class Action Waiver If You Live In (or, If a Business, Your Principal Place of Business Is In) the United States. We hope we never have a dispute, but if we do, you and we agree to try for 60 days to resolve it informally. If we can't, you and we agree to binding individual arbitration before the American Arbitration Association (“AAA”) under the Federal Arbitration Act (“FAA”), and not to sue in court in front of a judge or jury. Instead, a neutral arbitrator will decide and the arbitrator's decision will be final except for a limited right of review under the FAA.

(Id. § 15.) A dispute is defined by the arbitration clause “as broad as it can be” and specifically “includes any claim or controversy . . . concerning the Services [defined to include Xbox Live] . . . under any legal theory including contract [and] tort” except intellectual property disputes. (Id.) The arbitration clause additionally instructs users on how to initiate an arbitration proceeding and it describes the arbitration process. (Id.) It further specifies that arbitration will be conducted under the AAA's Consumer Arbitration Rules for individual disputes involving personal use of a service. (Id. § 15(d).) This provision specifically indicates that, “[u]nder AAA Rules, the arbitrator rules on his or her own jurisdiction, including the arbitrability of any claim.” (Id.)

Plaintiff acknowledged different versions of these terms numerous times on multiple accounts. Plaintiff registered an account on June 10, 2014, and clicked a notice acknowledging the TOU. (Holbrook Decl. ¶ 9.) In August 2015, Plaintiff acknowledged the MSA after it replaced the TOU. (Id. ¶¶ 3, 5, 9-10.) Plaintiff also clicked a notice on August 15, 2019, acknowledging an upcoming August 30, 2019 MSA update. (Id. ¶ 10.) Plaintiff again acknowledged the MSA when he registered a new account on June 9, 2020. (Id. ¶¶ 6-7, 10-11.) Plaintiff has continued to use Defendant's gaming service as recently as January 10, 2021.

On January 9, 2020, Plaintiff purportedly completed a “Notice of Dispute” form, signed before a Notary Public, and sent it to Defendant the following day to initiate the Agreement's dispute resolution process regarding his claims of cyber stalking and harassment. Defendant allegedly did not respond.^[4] On October 21, 2020, Plaintiff filed the instant Complaint in the New Jersey Superior Court, Ocean County, asserting three claims against Defendant for breach of contract related to the terms of the TOU and the MSA, ^[5] for intentional and negligent infliction of emotional distress, and for general negligence. (Compl. ¶¶ 19-38.) Plaintiff served Microsoft with the Complaint on January 28, 2021, and Microsoft timely removed the action on February 26, 2021. This motion to compel arbitration followed.

II.STANDARD OF REVIEW

The Federal Arbitration Agreement (“FAA”) “‘creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate.'” Harris v. Green Tree Fin. Corp., 183 F.3d 173, 179 (3d Cir. 1999) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983)). Congress designed the FAA “‘to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts.'” Beery v. Quest Diagnostics, Inc., 953 F.Supp.2d 531, 536-37 (D.N.J. 2013) (quoting Gilmer v. Interstate Johnson Lane Corp., 500 U.S. 20, 24 (1991)). As such, the FAA provides that contracts containing arbitration clauses shall be binding, allows for the stay of federal court proceedings in any matter subject to arbitration, and permits both federal and state courts to compel arbitration if one party has failed to comply with an agreement to arbitrate. See 9 U.S.C. §§ 2-4. Together, “those provisions [of the FAA] ‘manifest a liberal policy favoring [the enforcement] of arbitration agreements.'” Beery, 953 F.Supp.2d at 537 (quoting Gilmer, 500 U.S. at 24). To that end, “‘as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.'” Id. (quoting Mercury Constr. Corp., 460 U.S. at 24-25).

Although federal law presumptively favors the enforcement of arbitration agreements, a district court must affirmatively answer the following questions when presented with a motion to compel arbitration pursuant to Section 4 of the FAA: (1) whether the parties entered into a valid arbitration agreement; and (2) whether the dispute at issue falls within the scope of the arbitration agreement. Century Indem. Co. v. Certain Underwriters at Lloyd's, 584 F.3d 513, 523 (3d Cir. 2009). Federal courts apply applicable state contract law in evaluating whether a valid arbitration agreement exists. Aliments Krispy Kernels, Inc. v. Nichols Farms, 851 F.3d 283, 289 (3d Cir. 2017). When “applying the relevant state contract law, a court may also hold that an agreement to arbitrate is ‘unenforceable based on a generally applicable contractual defense, such as unconscionability.'” Parilla v. IAP Worldwide Servs., VI, Inc., 368 F.3d 269, 276 (3d Cir. 2004) (citing Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)).

III. ANALYSIS

Defendant moves to stay this action and to compel Plaintiff to arbitrate his claims, pursuant to the arbitration clause. Plaintiff opposes Defendant's motion to compel arbitration on two bases. First, Plaintiff contends the Agreement did not provide unambiguous notice that he was waiving his right to bring a civil action. (Opp., at 8.) Second, Plaintiff argues that, even if a valid agreement existed, the Agreement should not be enforced because it is unconscionable. (Id. at 9-10.)

a. The Parties Agreed to Arbitrate Disputes

Defendant argues that Plaintiff, in acknowledging the terms of the TOU and the MSA, agreed to arbitrate all disputes, and that the requisite intent to be bound to the terms of the Agreement was evident in Plaintiff's numerous indications of assent. (Moving Br., at 15.) Under the relevant procedures Defendant reasons that Plaintiff could not have used the gaming services without indicating his assent to the terms by first clicking a button near the linked terms.^[6] (Id.) Further, within the Agreement, Defendant explains that Plaintiff agreed to be bound to “individual arbitration before the American Arbitration Association (“AAA”) under the FAA, and not to sue in court in front of a judge or jury.” (Id. at 6;...