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Ninth Circuit Rejects Walmart’s Arbitration Contention
Assent by Online Purchaser of Goods to Arbitrate Disputes Doesn’t Carry Over to Subsequent In-Store Purchase of Lifetime Service Agreement That Lacks Arbitration Proviso, Though Relating to Same Goods, Opinion Says
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals, applying California law, yesterday rejected the argument by Walmart Inc. that a customer who bought tires through Walmart.com, which entails an assent to arbitrate any disputes, necessarily consented to arbitration in connection with the subsequent in-store purchase of a lifetime tire balancing and rotation service agreement.
Asserting that Walmart auto care centers had refused to perform under the lifetime service agreement (based on the discontinuation of the service that had been purchased), consumer Kevin Johnson on Nov. 23, 2020, brought a putative class action in the U.S. District Court for the Eastern District of California. Judge Dale A. Drozd on July 29, 2021, denied Walmart’s motion to compel arbitration.
He spelled out:
“Here, the parties are in agreement that plaintiff did not sign any other contract or document with a mandatory arbitration clause when he purchased tire services agreement at one of defendant’s Auto Care Centers. Thus, the central dispute is whether the Walmart.com Terms of Use, which the parties agree cover plaintiffs actual tire purchase, can be applied to the tire services plaintiff later purchased separately in-store.”
District Court’s Conclusion
Drozd drew this conclusion:
“[D]efendant here seeks to impose an arbitration clause from a previous contract onto a new, separate agreement from which a dispute arose. By clicking ‘Place Order’ on defendant’s website, plaintiff did not agree to arbitrate all disputes related to a separate, in-person purchase that was made well after the online purchase.”
In its appeal, Walmart pointed out that the “terms of use” to which Johnson assented in making his online purchase include the provision that “all disputes arising out of or related to these Terms of Use or any aspect of the relationship between you and Walmart...will be resolved through final and binding arbitration.” That language, it contended, is broad enough to extend to the in-store purchase of services relating to the product Johnson bought online.
Ninth Circuit’s Affirmance
The Ninth Circuit affirmed in an opinion by William K. Sessions III, a senior District Court judge of the District of Vermont, sitting by designation.
Sessions cast aside the usual presumption in favor of arbitrability, saying that it doesn’t apply where the issue is whether an agreement to arbitrate exists, not what the terms are. He relied on California’s general principles of contract law.
“By Walmart’s logic,” Sessions said, “the Terms of Use trigger the existence of an independent, broad arbitration agreement between Walmart and users of Walmart Sites that applies to any interaction between Walmart and the customer, regardless of whether the dispute arises out of an online purchase or any provision of the Terms of Use.”
Rejecting that logic, he declared that “Johnson’s claim against Walmart does not arise out of the contract containing the arbitration agreement; it arises out of an entirely separate transaction at a Walmart store.”
Three Points
Sessions elaborated:
“First, although the receipt Johnson received documenting his purchase of the Service Agreement notes the tires as ‘PREPAID’ online, Johnson’s purchase of the Service Agreement was ‘negotiated and entered into separately’ from his initial purchase of tires from Wallmart.com….Second, the two contracts involved separate consideration, as the first contract was for the purchase of goods while the second was for the performance of services….And third, while Walmart points out that Johnson references the original cost of the tires to calculate damages, the proof Johnson requires to establish his underlying claim for breach of contract involves neither a breach of his initial tire-purchase agreement nor an interpretation of the Walmart.com Terms of Use, but rather depends exclusively on the terms of the Service Agreement.”
He added:
“The two contracts—though they involve the same parties and the same tires—are separate and not interrelated. Therefore, the arbitration agreement in the first does not encompass disputes arising from the second.”
The case is Johnson v. Walmart, 21-16423.
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