SUPERIOR COURT OF CALIFORNIA
COUNTY OF SANTA CLARA

RICK LEE MACKLIN; SARAH MORSE,

Plaintiffs,

vs.

INTUIT, INC.,

Defendant.
Case No. 2019-1-CV-347208

TENTATIVE RULING RE: MOTION TO COMPEL ARBITRATION

The above-entitled action comes on for hearing before the Honorable Thomas E. Kuhnle on November 1, 2019, at 9:00 a.m. in Department 5. The Court now issues its tentative ruling as follows:

X. INTRODUCTION

According to the Complaint, filed by Rick Lee Macklin and Sarah Morse (collectively, “Plaintiffs”) on May 1, 2019, defendant Intuit, Inc. (“Defendant”) markets and sells the TurboTax brand of tax preparation software and services to consumers and businesses. (Complaint, ¶ 2.) In 2002, the Internal Revenue Service (“IRS”) launched a program pursuant to which the majority of taxpayers in the United States would be able to e-file their federal tax returns for free. (Id. at ¶ 3.) As part of this program, the IRS partnered with private companies, including Defendant, to handle the e-filing services and processes. (Id. at ¶¶ 3-4.)

Defendant offers a free service called “TurboTax Freedom Edition,” but affirmatively hides the program from taxpayers to divert taxpayers into Defendant’s paid programs. (Id. at ¶ 4.) Defendant advertises and directs consumers to a product called “TurboTax Free Edition” or “TurboTax Free,” which is not free for most taxpayers. (Id. at ¶ 5.)

The Complaint sets forth causes of action titled: (1) Violation of the Consumers Legal Remedies Act (the “CLRA”); (2) False Advertising (Business and Professions Code section 17500, et seq.); and (3) Unlawful, Unfair, and Fraudulent Trade Practices (Business and Professions Code section 17200, et seq.). Plaintiffs seek only equitable and injunctive relief in the Complaint (in addition to attorneys’ fees and costs).

Now before the Court is Defendant’s motion to compel arbitration.

XI. DISCUSSION

“A party who claims that there is a written agreement to arbitrate may petition the superior court for an order to compel arbitration.” (Banner Entertainment, Inc. v. Superior Court (Alchemy Filmworks, Inc.) (1998) 62 Cal.App.4th 348, 356; see also Code Civ. Proc., § 1281.2) “[T]he petitioner bears the burden of establishing the existence of a valid agreement to arbitrate, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Ibid.)

Defendant argues Plaintiffs entered agreements to arbitrate governed by the Federal Arbitration Act (“FAA”) when Plaintiffs logged in to their accounts to file their taxes using TurboTax Online tax preparation services. Defendant has provided a copy of the subject terms and conditions containing the arbitration provision (the “TERMS”) for tax year 2018. (Declaration of Ergang Sun in Support of Defendant Intuit Inc.’s Motion to Compel Arbitration, Ex. 1.) The arbitration provision is in a paragraph titled “DISPUTES,” which states, in relevant part:

ANY DISPUTE OR CLAIM RELATING IN ANY WAY TO THE SERVICES OR THIS AGREEMENT WILL BE RESOLVED BY BINDING ARBITRATION, RATHER THAN IN COURT, except that you may assert claims in small claims court if your claims qualify. The Federal Arbitration Act governs the interpretation and enforcement of this provision; the arbitrator shall apply California law to all other matters. Notwithstanding anything to the contrary, any party to the arbitration may at any time seek injunctions or other forms of equitable relief from any court of competent jurisdiction. WE EACH AGREE THAT ANY AND ALL DISPUTES MUST BE BROUGHT IN THE PARTIES’ INDIVIDUAL CAPACITY AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING. BY ENTERING INTO THIS AGREEMENT AND AGREEING TO ARBITRATION, YOU AGREE THAT YOU AND INTUIT ARE EACH WAIVING THE RIGHT TO FILE A LAWSUIT AND THE RIGHT TO A TRIAL BY JURY. IN ADDITION, YOU AGREE TO WAIVE THE RIGHT TO PARTICIPATE IN A CLASS ACTION OR LITIGATE ON A CLASS-WIDE BASIS. YOU AGREE THAT YOU HAVE EXPRESSLY AND KNOWINGLY WAIVED THESE RIGHTS.

(TERMS, § A(14).)

Defendant contends an arbitrator, not the Court, must decide threshold questions of arbitrability. Defendant argues further that Plaintiffs’ claims fall within the scope of the agreement to arbitrate and Plaintiffs cannot evade arbitration by seeking only injunctive relief.

A. Threshold Question of Arbitrability

“Although the scope of an arbitration clause is generally a question for judicial determination, the parties may, by clear and unmistakable agreement, elect to have the arbitrator, rather than the court, decide which grievances are arbitrable.” (Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1123.)

Defendant argues the parties delegated issues of arbitrability to the arbitrator by agreeing the arbitration will be conducted under the American Arbitration Association (“AAA”) rules, which delegate arbitrability questions to the arbitrator. (See TERMS, § A(14) [“Arbitration will be conducted by the American Arbitration Association (AAA) before a single AAA arbitrator under the AAA’s rules. . . .”].) Defendant cites to a number of cases holding incorporation of the AAA rules constitutes clear and unmistakable evidence the parties agreed to arbitrate arbitrability. (See, e.g., Oracle America, Inc. v. Myriad Group A.G. (9th Cir. 2013) 724 F.3d 1069, 1074 [“Virtually every circuit to have considered the issue has determined that incorporation of the American Arbitration Association’s (AAA) arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.”]; Brennan v. Opus Bank (9th Cir. 2015) 796 F.3d 1125, 1130.)
In opposition, Plaintiffs argue the reference to the AAA rules does not establish clear and unambiguous delegation of gateway issues to the arbitrator because Plaintiffs are not “sophisticated parties” and because other provisions contemplate judicial determinations.

Recently, a federal district court noted “[t]he issue of whether the sophistication of the contracting parties should be taken into account in evaluating whether a delegation to an arbitrator is clear and unmistakable is an open one in the Ninth Circuit” and “there has been a split among the district courts in the Ninth Circuit as to whether the sophistication of the parties is a relevant consideration in determining whether incorporation by reference of arbitration rules amounts to a clear and unmistakable delegation.” (Eiess v. USAA Federal Savings Bank (N.D. Cal. 2019) 2019 WL 3997463 at *7.) The court sided with those decisions that found the sophistication of the parties should be considered, explaining:

The Court agrees with the majority of district courts in the Ninth Circuit. Although incorporation by reference may fairly be deemed a clear and unmistakable delegation where there are sophisticated parties, a different result may obtain where one party is unsophisticated. For an unsophisticated plaintiff to discover she had agreed to delegate gateway questions of arbitrability, she would need to locate the arbitration rules at issue, find and read the relevant rules governing delegation, and then understand the importance of a specific rule granting the arbitrator jurisdiction over questions of validity – a question the Supreme Court itself has deemed “‘rather arcane.’”

(Ibid.) The court continued by stating:

These district court decisions that consider the parties’ sophistication are in keeping with the general presumption against delegation of gateway questions of arbitrability to the arbitrator. The delegation must be clear and unmistakable. [Citation.] If that clarity must obtain in the substantive wording of an arbitration clause, it seems logical that such clarity must obtain as a matter of form and procedure as well. It is noteworthy that, in other situations involving consumer contracts, courts have required contractual terms to be of a sufficiently conspicuous form in order to bind a consumer.

(Id. at *8.)

This Court agrees with Eiess that the parties’ sophistication should be considered. An unsophisticated party would not automatically know incorporation of the AAA rules means issues of arbitrability are delegated to the arbitrator. In other words, it is not apparent how the mere incorporation of the AAA rules would make the delegation “clear and unmistakable” to an unsophisticated party. Here, there is no evidence of Plaintiffs’ sophistication and there is no indication Plaintiffs are anything other than individual consumers. Therefore, the incorporation of the AAA rules, by itself, is insufficient to clearly and unmistakably delegate gateway issues of arbitrability to the arbitrator. This means the scope of the arbitration provision is a question for the Court.

B. Arbitrability of Injunctive Relief under the TERMS

Defendant argues Plaintiffs agreed to arbitrate the claims in this case and they cannot avoid arbitration by seeking injunctive relief. The parties’ dispute regarding injunctive relief arises out of language in the arbitration provision stating: “Notwithstanding anything to the contrary, any party to the arbitration may at any time seek injunctions or other forms of equitable relief from any court of competent jurisdiction.” (TERMS, § A(14).) Plaintiffs contend this language is unambiguous and means they can pursue their claims in this Court.

Plaintiffs seek only equitable and injunctive relief in the Complaint (in addition to attorneys’ fees and costs). Therefore, whether the parties must go to arbitration hinges on whether equitable and injunctive relief is carved out of the arbitration provision as an exception to arbitration.

Defendant points out that the language in the arbitration provision provides “any party to the arbitration” may seek injunctions or other forms of equitable relief and this implies that a claimant who is not first “a party to the arbitration” has no such rights. Defendant contends the arbitration provision provides only a select few exceptions, including small claims court, and AAA rule 37(d), which provides:

A party to an arbitration agreement under these Rules may instead file in state or federal court for interim relief. Applying to the court for this type of relief, including temporary restraining orders, is consistent with the agreement to arbitrate and will not be considered a waiver of the right to arbitrate.

Defendant states a narrow reading of the injunction language in the arbitration provision is reasonable because it comports with the deference courts give to the policy in favor of arbitration.
Plaintiffs argue that considering the plain language of the injunction clause in the arbitration agreement, together with AAA rule 37(d) and the exception for small claims actions, the phrase “any party to the arbitration” means “any party to the arbitration agreement.” However, there is nothing inconsistent about the inclusion of several exceptions in the arbitration clause. Further, Plaintiffs’ argument would require the Court to add an additional word to the arbitration provision to clarify its meaning. This Court cannot rewrite the parties’ agreement. (See Archer and White Sales, Incorporated v. Henry Schein, Incorporated (5th Cir. 2019) 935 F.3d 274, 283.) Moreover, if an additional word is needed to make the provision clear, the provision is ambiguous. Ambiguities in an arbitration clause are resolved in favor of arbitration. (Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University (1989) 489 U.S. 468, 476.)
Regardless, the Court does not find the arbitration provision is ambiguous. Rather, it clearly states a “party to the arbitration” may at any time seek injunctions or other forms of equitable relief. There can be no “party to the arbitration” without an existing arbitration. The language “at any time” in that sentence lends further support to this interpretation because such language necessarily concerns the timing of pursuing injunctive and/or equitable relief during the arbitration; it would be superfluous if there were no arbitration in the first place.

Plaintiffs cite to cases in which courts have concluded there are valid exceptions permitting plaintiffs to seek injunctive relief in court. (See, e.g., Archer and White Sales, Incorporated v. Henry Schein, Incorporated, supra, 935 F.3d 274; Frydman v. Diamond (S.D.N.Y. 2015) 2015 WL 5294790 *1.) In each of the cases cited by Plaintiffs, however, the language of the exception was different than that before the Court here. None of these cases included the “party to the arbitration” language central to Defendant’s motion. Therefore, these cases are inapposite.

In sum, the Court finds the parties must go to arbitration pursuant to the arbitration provision. The Court offers no opinion on whether after an arbitration is commenced the AAA rules allow a party to return immediately to a court of competent jurisdiction to seek interim or permanent injunctive relief.

Defendant’s motion to compel arbitration is GRANTED. This case is stayed. (Code Civ. Proc., § 1281.4.)

The Court will prepare the order if this tentative ruling is not contested.

NOTICE: The Court does not provide court reporters for proceedings in the complex civil litigation departments. Parties may arrange for a private court reporter to provide services, but those arrangements must be consistent with the local rules and policies posted on the Court’s website.