Wilson v. Huuuge, Inc.

• Decision Date: 20 December 2019
• Docket Number: No. 18-36017,18-36017
• Citation: 944 F.3d 1212
• Parties: Sean WILSON, Individually and on Behalf of All Others Similarly Situated, Plaintiff-Appellee, v. HUUUGE, INC., a Delaware corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

944 F.3d 1212

Sean WILSON, Individually and on Behalf of All Others Similarly Situated, Plaintiff-Appellee,

v.HUUUGE, INC., a Delaware corporation, Defendant-Appellant.

No. 18-36017

United States Court of Appeals, Ninth Circuit.

Argued and Submitted August 29, 2019 Seattle, Washington

Filed December 20, 2019

Jaime Drozd Allen (argued), Stuart R. Dunwoody, Cyrus E. Ansari, and Benjamin J. Robbins, Davis Wright Tremaine LLP, Seattle, Washington, for Defendant-Appellant.

Ryan D. Andrews, Roger Perlstadt (argued), and Alexander G. Tievsky, Edelson PC, Chicago, Illinois, for Plaintiff-Appellee.

Before: M. Margaret McKeown and Jay S. Bybee, Circuit Judges, and Fernando J. Gaitan, Jr.,^* District Judge.

McKEOWN, Circuit Judge:

Smartphone applications have a ubiquitous presence in our everyday lives. The question of first impression for our court is under what circumstances does the download or use of a mobile application ("app") by a smartphone user establish constructive notice of the app's terms and conditions?

HUUUGE Inc. ("Huuuge") appeals the district court's denial of its motion to compel arbitration against Sean Wilson, a smartphone app user. Because Huuuge did not provide reasonable notice of its Terms of Use ("Terms"), Wilson did not unambiguously manifest assent to the terms and conditions or the imbedded arbitration provision. We affirm the district court's denial of Huuuge's motion to compel arbitration and to stay proceedings.

BACKGROUND

Huuuge is the owner and operator of the smartphone app Huuuge Casino, which allows smartphone users to gamble with chips to play casino games. Users can gamble either with a limited number of free chips or with chips purchased through the app. Wilson downloaded the app from Apple's App Store in early 2017 and played Huuuge Casino for over a year.

In April 2018, Wilson filed this class action lawsuit, alleging Huuuge violated Washington gambling and consumer protection laws by charging users for chips in its app. Huuuge moved to compel arbitration under the Federal Arbitration Act ("FAA"), alleging that Wilson was on inquiry notice of its Terms, which include a binding arbitration provision that prohibits class actions.

Huuuge does not require users to affirmatively acknowledge or agree to the Terms before downloading or while using the app. Users can access Huuuge's Terms in two ways: 1) reading the Terms before downloading the app, although the user is not required to do so; or 2) viewing the Terms during game play, which is similarly not necessary to play the game. Either way, the user would need Sherlock Holmes's instincts to discover the Terms.

Typically, a user would first search for the app in a smartphone app store. One option is to download the app directly from the search results, in which case the user does not view anything that alerts him to the existence of the Terms. Alternatively, instead of a direct download, the user would need to click through to Huuuge Casino's landing page. Next, the user must click on the small blue text stating "more" in the app's description (Figure A ), which reveals the app's full profile (Figure B ). The user would then need to scroll through several screen-lengths of text to encounter a paragraph that starts with "Read our Terms of Use," and includes the text of a link to the Terms (Figure C ). The link, however, doesn't magically conjure the Terms. Instead, the user must copy and paste or manually enter the URL into a web browser to access the Terms.

Figure A

Figure B

Figure C

Once a user has downloaded the app, the user can play games immediately. During gameplay, a user can view the Terms by accessing the settings menu. The settings menu can be accessed by clicking on a three dot "kebob" menu button in the upper right-hand corner of the home page (Figure D ).

Figure D

If a user clicks on the button, a pop-up menu of seven options appears (Figure E ). The fifth option is titled "Terms & Policy" and reveals the Terms, including the arbitration agreement.

Figure E

It is not necessary for a user to open the settings menu while playing the app. Nor is there a requirement to acknowledge or agree to the Terms when opening the app, creating an account, playing the game, or at any other point.

When a user accesses the Terms, the following arbitration provision appears:

EXCEPT AS SPECIFICALLY STATED HEREIN, ANY DISPUTE OR CLAIM BETWEEN YOU AND HUUUGE ARISING OUT OF, OR RELATING IN ANY WAY TO, THE TERMS, THE SERVICE OR YOUR USE OF THE SERVICE, OR ANY PRODUCTS OR SERVICES OFFERED OR DISTRIBUTED THROUGH THE SERVICE ("DISPUTES") SHALL BE RESOLVED EXCLUSIVELY BY FINAL, BINDING ARBITRATION....

YOU AGREE THAT YOU MAY BRING CLAIMS AGAINST HUUUGE

ONLY IN YOUR INDIVIDUAL CAPACITY AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING. IN ADDITION, YOU AGREE THAT DISPUTES SHALL BE ARBITRATED ONLY ON AN INDIVIDUAL BASIS AND NOT IN A CLASS, CONSOLIDATED OR REPRESENTATIVE ACTION. THE ARBITRATOR DOES NOT HAVE THE POWER TO VARY THESE PROVISIONS.

Huuuge claims Wilson is bound by the arbitration provision because Wilson had constructive notice both when he downloaded the app and during its use. Wilson, however, argues the app's Terms were not conspicuous when he downloaded the app or during gameplay. The district court agreed with Wilson and denied Huuuge's motion to compel arbitration. The district court further found that "actual knowledge [was] not an issue" because Huuuge did not "present any evidence of Wilson's actual knowledge."

ANALYSIS

The FAA requires district courts to stay judicial proceedings and compel arbitration of claims covered by a written and enforceable arbitration agreement. 9 U.S.C. § 3. The limited role of the district court under the FAA is to determine "(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). This dispute falls squarely within the first prong of the inquiry. We review de novo both the denial of the motion to compel arbitration, Cox v. Ocean View Hotel Corp. , 533 F.3d 1114, 1119 (9th Cir. 2008), and "[t]he interpretation and meaning of contract provisions," Milenbach v. Comm'r , 318 F.3d 924, 930 (9th Cir. 2003).

Huuuge, as the party seeking to compel arbitration, must prove the existence of a valid agreement by a preponderance of the evidence. Norcia v. Samsung Telecomms. Am., LLC , 845 F.3d 1279, 1283 (9th Cir. 2017). To determine whether such an agreement exists, "federal courts ‘apply ordinary state-law principles that govern the formation of contracts.’ " Nguyen v. Barnes & Noble Inc ., 763 F.3d 1171, 1175 (9th Cir. 2014) (quoting First Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ).

The parties agree that Washington state law governs the validity of the arbitration agreement since there is no choice of law provision in the agreement and the district court has diversity jurisdiction. See First Options of Chi., Inc. , 514 U.S. at 944, 115 S.Ct. 1920.

As we have acknowledged many times, although online commerce has presented courts with new challenges, traditional principles of contract still apply. See, e.g. , In re Holl , 925 F.3d 1076, 1084 (9th Cir. 2019) ; Nguyen , 763 F.3d at 1175. A contract is formed when mutual assent exists, which generally consists of offer and acceptance. Weiss v. Lonnquist , 153 Wash.App. 502, 224 P.3d 787, 792 (2009). Like many states, Washington does not allow parties to shirk contract obligations if they had actual or constructive notice of the provisions. See W. Consultants, Inc. v. Davis , 177 Wash.App. 33, 310 P.3d 824, 827-28 (Ct. App. 2013) ; see also Nguyen , 763 F.3d at 1177 (applying similar California law). In the context of online agreements, the existence of mutual assent turns on whether the consumer had reasonable notice of the terms of service agreement. Nguyen , 763 F.3d at 1177 ; Wilson v. Playtika, Ltd. , 349 F. Supp. 3d 1028, 1037 (W.D. Wash. 2018).

We first consider the issue of actual notice. The district court determined actual notice was not at issue when it denied Huuuge's motion to compel. According to the district court, at best Huuuge suggested in its reply brief that "Wilson was ‘likely’ to have viewed the Terms at some point because he played the game many times." We agree with the district court's conclusion that "Huuuge does not present any evidence of Wilson's actual knowledge." Now Huuuge contends it was entitled to additional discovery with respect to actual notice. That request was first raised in a footnote in Huuuge's reply brief on its motion to compel arbitration; Huuuge stated if the district court planned on ruling against Huuuge, it should first be allowed to engage in limited discovery.

Although the district court did not expressly deny Huuuge's discovery request, it implicitly did so in its reasoning rejecting Huuuge's argument. Whether we review this issue de novo or for abuse of discretion, the result is the same. See Stevens v. Corelogic, Inc. , 899 F.3d 666, 677 (9th Cir. 2018) (reviewing denial of discovery de novo where the district court denies a motion to compel additional discovery as moot without considering its merits).

The district court did not err in not permitting discovery on actual notice before denying the motion to compel arbitration. Huuuge wanted it both ways—if it won the motion to compel, great; if it didn't win, only then did it want discovery. Although Huuuge had the burden to present evidence of actual notice, it rolled the dice and chose not to pursue additional discovery at the outset, instead moving to stay discovery pending the motion to compel arbitration. Huuuge, as operator of the app, undoubtedly had at least some information probative of actual notice in its control, but it...