Wednesday, September 6, 2017
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Ninth Circuit Says:
Consumers Won’t Have to Arbitrate Action Over ‘Zombie Cookies’
Judges Say Agreement Between Verizon and Users Cannot Be Invoked by ‘Middle Man’ That Injects Ads on Cellphones When the Internet Is Viewed; Find ‘Clear Error’ by District Court
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday granted a writ ordering a district to scrap its order requiring plaintiffs to arbitrate their action against a company that used ‘zombie cookies’ to cause unwanted ads to show up on Verizon cellphones when users connect to the Internet.
The court acted in a per curium opinion signed by Ninth Circuit Judges William A. Fletcher and Richard C. Tallman, joined by District Court Judge Roslyn O. Silver of the District of Arizona, sitting by designation.
Plaintiffs Anthony Henson and William Cintron—whom the judges refer to collectively as “Henson”—seek to maintain a class action against Turn, Inc., described in the opinion as a “ ‘middle man’ for Internet-based advertisements.” In exchange for access to cellphones of Verizon cellphones, it gives Verizon a portion of the fees it receives from advertisers.
According to the 2015 complaint, the “zombie cookies” or “supercookies”—which enable the tracking of websites visited and allow targeted advertising to be generated—are virtually undetectable. If such a cookie were to be identified and removed, it would be replaced by another cookie with the same information, stored in Turn’s database, the pleading says.
The issue before the court was whether Turn, a company in Redwood City, could rely on an arbitration provision of the agreement between Verizon and its users.
District Court’s Ruling
District Court Judge Jeffrey S. White of the Northern District of California last year ordered resolved the issue in favor of Turn. He found “concern substantially interdependent and concerted conduct” between Turn and Verizon.
In countermanding him, the Ninth Circuit found that considerations in favor of writ relief, set forth in its 1977 decision in Bauman v. U.S. District Court, “weigh heavily in favor of granting the writ.” These include lack of appealability or ineffectiveness of an appeal.
The opinion says:
“Here, the Customer Agreement does not allow Henson to arbitrate his dispute in a representative capacity or on behalf of a class. If Henson is forced to arbitrate, he ‘has no other adequate means’ of ensuring that he can continue as the class representative, and this would prejudice him ‘in a way not collectable on appeal.’…If Henson wins the arbitration, then his individual claims in this action would be rendered moot because they would fully be satisfied—and Henson would lose his status as class representative because he would no longer have a concrete stake in the controversy….It is doubtful that Henson would be able to avoid mootness by moving to vacate the arbitration award solely because he wanted to continue as the class representative.”
Looks at Scenarios
If the district confirmed an award in his favor, it would be “doubtful” he could maintain an appeal, the opinion says, thus rendering the arbitration order unreviewable except by a writ petition.
The opinion adds:
“If Henson loses the arbitration, it is also doubtful that he would successfully bring an appeal to this court. If he brings suit in the district court to vacate the arbitration award and to seek a damage award from the district court. Turn could make an offer of settlement that would be very hard to refuse. Until the arbitration award is actually vacated by order of the district court. Henson could represent only himself and would thus have no legal or ethical obligation to refuse the offer.”
Estoppel Argument Fails
Turn insisted that White correctly found the arbitration agreement applicable based on New York’s view of equitable estoppel. He chose that state’s law based on a choice-of-law provision in the Verizon customer agreement.
But, the opinion notes, the agreement was not between Henson and Turn. Applying California law, Henson would be equitably estopped from denying the applicability of the agreement with Verizon if, in his action against Turn, he were relying on provisions of that agreement.
But, the judges pointed out, he isn’t. Their opinion says:
“…Henson’s claims against Turn are not based on the Customer Agreement. Henson’s complaint is replete with allegations of wrongdoing against Turn that have nothing to do with the Customer Agreement. Among other allegations, Henson claims that Turn violated Verizon users’ ‘reasonable expectations of privacy by creating zombie cookies that users could neither detect nor delete, and which monitored user behavior well beyond web browsing’; that Turn acted ‘to disable the standard privacy controls employed by individuals (such as deleting or blocking cookies)’; that Turn ‘used Class members’ personal, private, and confidential data for commercial gain without their knowledge or consent’; and that Turn consistently altered users’ mobile devices by ‘circumventing privacy controls in said devices and causing said devices to transmit information to Turn to which Turn was not entitled.’ None of these allegations rely on the Customer Agreement or attempt to seek any benefit from its terms.”
Nor did he allege that Verizon and Turn acted collusively. They said:
“On The contrary, Henson alleges that ‘Turn conducted its practices in secret’ and acted without Verizon’s knowledge, consent, or approval. Indeed, Henson claims that Verizon publicly rebuked Turn’s alleged practices upon discovering them.”
The opinion declares that White “clear error”—a requirement, under Bauman, for a writ to issue—in holding that equitable estoppel applies.
“[W]e are left with a definite and firm conviction that a mistake has been committed,” the judges said.
They found that two other Bauman factors—that the district court made an “oft-repeated error” or that the order “raises new and important problems, or legal issues of first impression”—were not present but were inessential.
The Federal Trade Commission in April approved a final settlement with Turn over charges that it continued to track users online and through their cellphones even after they opted out of being tracked. An initial settlement was reach in December.
In May, the FTC settled with Turn over charges of invasion of privacy.
Copyright 2017, Metropolitan News Company