Sosa v. Onfido, Inc.

• Decision Date: 11 August 2021
• Docket Number: No. 21-1107,21-1107
• Citation: 8 F.4th 631
• Parties: Fredy SOSA, Plaintiff-Appellee, v. ONFIDO, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

8 F.4th 631

Fredy SOSA, Plaintiff-Appellee,

v.ONFIDO, INC., Defendant-Appellant.

No. 21-1107

United States Court of Appeals, Seventh Circuit.

Argued May 27, 2021

Decided August 11, 2021

Ryan D. Andrews, Roger Perlstadt, J. Eli Wade-Scott, Attorneys, Edelson P.C., Chicago, IL, for Plaintiff-Appellee.

Bonnie Keane DelGobbo, Attorney, Baker & Hostetler LLP, Chicago, IL, Joel Griswold, Attorney, Baker & Hostetler LLP, Orlando, FL, for Defendant-Appellant.

Before Kanne, Scudder, and Kirsch, Circuit Judges.

Kirsch, Circuit Judge.

Plaintiff Fredy Sosa, a user of the marketplace application OfferUp, registered his identity to become a verified user on the app. The verification process involved using the app's TruYou feature with technology provided by defendant Onfido, Inc. Sosa has since sued Onfido under the Illinois Biometric Information Privacy Act alleging that the TruYou feature used facial recognition technology to collect his biometric identifiers without his consent. The merits of Sosa's BIPA claim are not at issue at this early stage. This appeal instead concerns whether Sosa may continue litigating his action against Onfido in federal court. Onfido argues that this case belongs in arbitration because it is entitled to enforce an arbitration clause in the Terms of Service contract between Sosa and OfferUp. Though Onfido is not a party to the Terms of Service, it argues that it is entitled to enforce the arbitration clause under three separate nonparty contract enforcement theories: third-party beneficiary, agency, and equitable estoppel. Adding another layer to this dispute, this appeal presents a choice-of-law question. Because the Terms of Service has a Washington choice-of-law provision, Onfido argues that Washington law, rather than Illinois law, must be applied to determine its enforcement rights under the contract.

The district court rejected each of Onfido's nonparty contract enforcement theories and denied Onfido's motion to compel individual arbitration. On the choice-of-law issue, it held that Onfido failed to establish that there was an outcome-determinative difference between Illinois and Washington law, and since Onfido articulated no difference between the two, it applied Illinois law—the law of the forum state—to determine Onfido's right to enforce the arbitration clause. In so doing, the district court held that Onfido failed to establish that it was a third-party beneficiary of the Terms of Service or that it could otherwise enforce the contract's arbitration provision either as an agent of OfferUp or on equitable estoppel grounds.

We agree with the district court in all respects. In the district court proceedings, Onfido never suggested any difference between Illinois and Washington law, and the district court thus properly applied Illinois law. Further, nothing in the Terms of Service designate Onfido as a third-party beneficiary of that contract, and the record is devoid of evidence establishing that Onfido is an agent of OfferUp, or that Sosa should be equitably estopped from contesting Onfido's right to enforce the arbitration provision.

Because Onfido failed to establish any right to enforce the arbitration provision as a nonparty to the Terms of Service, we affirm the district court's denial of Onfido's motion to compel individual arbitration.

I

Onfido provides biometric identification software that is incorporated into its customers’ products and mobile apps with the purpose of verifying users’ identities. Onfido partnered with OfferUp—an online marketplace where consumers buy and sell goods—to verify users’ identities through its software. Fredy Sosa verified his identity with OfferUp using the technology provided by Onfido—the app's TruYou feature. To complete the verification process, Sosa uploaded a photograph of his driver's license and a photograph of his face. Sosa alleges that Onfido then used biometric identification technology without his consent to extract his biometric identifiers and compare the two photographs. Sosa brought class action claims against Onfido under the Illinois Biometric Information Privacy Act stemming from these allegations.

Sosa first filed his BIPA class action against Onfido in Illinois state court, but Onfido removed the case to federal court on diversity jurisdiction grounds and under the Class Action Fairness Act. Once in federal court, Onfido moved to stay the case and to compel individual arbitration based on an arbitration provision in OfferUp's Terms of Service that Onfido argues it is entitled to enforce.

Sosa agreed to OfferUp's Terms of Service when he registered with the app and each time he logged in. The Terms of Service designate that the contract is between Sosa and OfferUp. In bold, the first paragraph of the agreement states that it includes "a mandatory arbitration provision and class action waiver provision, which affect your [Sosa's] rights about how to resolve any dispute with OfferUp, Inc." R. 23 at 13 (caps omitted). The mandatory arbitration provision states that the provision extends to "any and all disputes" between Sosa and OfferUp related to the Terms of Service, id. at 35 (caps omitted), and that both Sosa and OfferUp agreed to have any disputes between them resolved through arbitration instead of court:

[Y]ou and OfferUp agree (1) to waive your and OfferUp's respective rights to have any and all Disputes arising from or related to these Terms, the OfferUp Service or the Materials, resolved in a court, and (2) to waive your and OfferUp's respective rights to a jury trial. Instead, you and OfferUp agree to arbitrate Disputes through binding arbitration (which is the referral of a Dispute to one or more persons charged with reviewing the Dispute and making a final and binding determination to resolve it instead of having the Dispute decided by a judge or jury in court).

Id. at 35–36.¹

Onfido is not named in the Terms of Service, but the agreement does identify Onfido's software—the TruYou feature—in section 4. That section provides in relevant part:

If you [Sosa] choose to use the TruYou feature, you represent and warrant to us [OfferUp] that (a) any personal identification document that you provide to us is an unaltered and accurate image of your government-issued personal identification document that is without error, and (b) that you have all necessary permissions to provide such personal identification documents to us and your provision of such personal identification documents to us will not violate any law or regulation or cause us to be subject to any investigation, prosecution or legal action. DO NOT USE THIS FEATURE IF THE FOREGOING IS NOT TRUE.

Id. at 18.

Beyond section 4's limitations on Sosa's use of the TruYou feature, the contract also generally prohibits users from using the OfferUp service to "post, upload to, transmit, distribute ... disclose, or otherwise, publish" any content that "may expose OfferUp, Users or others to harm or liability." Id. at 25. Meanwhile, the agreement authorizes OfferUp to "disclose [users’] photo identification document[s] or certain personal information [they] provide to [OfferUp's] third-party service providers." Id. at 18–19. The agreement additionally limits any liability of "OfferUp" and "OfferUp providers" arising out of or connected with the OfferUp service's use. Id. at 33 (caps omitted). OfferUp providers are defined to include "affiliates [and] licensors." Id. at 31 (caps omitted).

OfferUp's control over third-party content is expressly disclaimed by the Terms of Service:

In using the OfferUp Service, you may view content, utilize services, or otherwise interact with content and services provided by third parties, including, but not limited to, the OfferUp Payment Solution provided by a third-party payment processor, links and/or connections to websites, applications or services of such parties ("Third-Party Content"). OfferUp does not control, endorse or adopt any Third-Party Content ....

Id. at 26–27. In addition, the agreement provides that its "Terms do not create any private right of action on the part of any third party." Id. at 25. A Washington choice-of-law provision is also included.

In its motion to compel individual arbitration, Onfido argued that it was entitled to enforce the Terms of Service as a nonparty under three separate theories: (1) as a third-party beneficiary of the Terms of Service, (2) through its alleged agency relationship with OfferUp, and (3) on equitable estoppel grounds. Although it identified the Terms of Service's choice-of-law provision and cited to both Washington and Illinois law in its district court briefing, Onfido argued only that it prevailed under both states’ laws without articulating any difference in their application.

The district court denied Onfido's motion to stay and compel individual arbitration and applied Illinois law to decide Onfido's enforcement rights under the Terms of Service. In choosing Illinois law over Washington law, the district court explained that "the parties agree that there are no outcome-determinative differences between Illinois law and Washington law." The district court then rejected each of Onfido's three nonparty enforcement theories. First, the district court held that Onfido failed to establish that it was a third-party beneficiary of the Terms of Service because the agreement did not specifically name Onfido as an intended beneficiary of the contract nor indirectly identified it as such by describing a class to which it belongs. Onfido also did not show that it was an "affiliate" of OfferUp to qualify as an OfferUp provider under the Terms of Service. The district court additionally held that Onfido could not enforce the Terms of Service as an agent of OfferUp because no evidence supported that OfferUp controlled Onfido's activities or that it authorized Onfido to conduct legal transactions in OfferUp's name. In rejecting Onfido's equitable estoppel theory, the district court found that Onfido failed to...