Fitbit Did Finally Agree To Arbitrate, But Only After District Judge Expressed Concerns Over Its Litigation Conduct, Which Will Result In Some Amount Of Sanctions And Other Prospective Actions Ordered By District Judge.
Arbitration frequently is invoked by defendants because of the perception that it is more user friendly in many types of cases, including consumer disputes. U.S. District Judge James Donato of the Northern District of California put it this way in the case we post on next: “[The defense conduct in this case] has also bolstered the perception that arbitration is where consumer lawsuits go to die. While the merits of that view can be debated, it’s no surprise that many people, including judges, are skeptical about arbitration agreements in light of situations like this one. Fitbit’s conduct undermines the public’s confidence in getting a fair shake when arbitration is compelled.”
In McClellan v. Fitbit, Inc., Case No. 3:16-cv-00036-JD (N.D. Cal. July 24, 2018 [Doc. 153 “Order re Arbitration Proceedings,” Dkt. No. 146]), Fitbit moved to compel arbitration against a plaintiff consumer in a suit alleging that the company made misrepresentations about the accuracy of its heart rate monitoring devices. District Judge Donato granted the request, but Fitbit failed to pay AAA arbitration fees and told plaintiff it had no intention of arbitrating her claims or the arbitrability issues delegated to the arbitration for determination, ostensibly because the AAA fees were way more than her actual claim was worth. One of plaintiff’s attorneys’ paralegal took notes of a phone call with Fitbit’s counsel Morrison & Foerster where this intention was announced, which spurred a conference with the district court and drew some concerns “in plain terms” at a hearing so as to cause Fitbit to pay its fees before the AAA suspended the case and then proceed with the arbitration.
However, the story did not end there. District Judge Donato, although denying more draconian relief requested by Ms. McClellan, did find that Fitbit and its attorneys were going to have to pay sanctions for bad-faith litigation conduct as well as do filings in prospective actions and do 90-day update filings in the case before him.
Ms. McClellan first argued that by failing to pay the arbitration fee, Fitbit had lost the right to arbitrate. The district court rejected that argument, because Fitbit had changed course and paid the arbitration fee before AAA suspended the case. She then suggested that the district court should find the arbitration agreement unenforceable for all of Fitbit’s customers as a punishment for its conduct in her case. District Judge Donato also rejected this suggestion, reasoning that the tactics in this one case did not necessarily undermine arbitration in future cases or inherently waive a consumer’s right to pursue statutory remedies under Fitbit’s terms of service with the arbitration provision.
But, the district judge found that Fitbit and its attorneys would have to pay some amount of yet-to-be-determined sanctions for bad-faith litigation conduct under Chambers v. NASCO, Inc., 501 U.S. 32, 43, 45-46 (1991), which allows courts to assess fees against counsel where a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. Beyond that, he ordered that Fitbit was ordered to file a copy of his decision in all cases where it sought to compel arbitration with consumers for a period of one year from the order’s date and directed that the parties file joint status statements every 90 days until the arbitration proceedings were completed.
The moral of the story is that if you elect to compel arbitration, you better stick with it or risk sanctions.
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