SAN FRANCISCO – A judge in the U.S. District Court for the Northern District of California recently found that Fitbit Inc. acted in bad faith when the company’s legal representatives delayed and impeded arbitration of a suit filed by plaintiff Kate McKlellan.
McKlellan filed suit against Fitbit in a class action suit alleging the company misled consumers about it its wristbands’ ability to monitor and track heart rates. She claimed the monitors’ heart rate tracking was often off by a wide margin, especially during intense activity.
Fitbit then filed a motion to compel arbitration, citing its terms of service which requires legal disputes with customers to be handled by the American Arbitration Association (AAA).
McKlellan’s legal team argued the arbitration agreement was “invalid and unenforceable," according to court documents.
However, Fitbit argued, “The arbitrator decides arbitrability. This is not even a close question.”
The court found in favor of Fitbit and the parties were to have the issue arbitrated. McKlellan filed a demand for arbitration and paid her fees on April 3. AAA then sent a letter to McKlellan and Fitbit on April 25 acknowledging it received her arbitration demand and advising the fitness tech company it needed to pay its fees by May 9.
Following the court’s ruling, Fitbit attempted to settle with McKlellan, issuing her a check for $2,814 with a letter stating it had elected to settle the issue and that the company “regards this matter closed.”
She had never asked for monetary damages.
McKlellan’s legal team informed Fitbit that she intended to take the issue to arbitration. However, the company declared it had no intention of arbitrating, stating it had “offered her everything and there is nothing more she could get from AAA. We’ll enclose the letters and say we regard it as concluded. We never plan on getting to scope and enforceability with the arbitrator and are not going to (be) seeking to file briefs on those matters,” according to court documents.
By May 22, the fitness tech company still hadn’t paid its arbitration fee so McKlellan notified the court which heard the issue on May 31. When the court asked about this issue, Fitbit’s attorney indicated that arbitration would be irrational, stating, “We haven’t posted our fee with AAA. Nothing in the terms of service says we have to do what no rational litigant would do.”
During the hearing, counsel for Fitbit stated, “The court ought to understand that a claim that is $162 – an individual claim – is not one that any rational litigant would litigate.”
Following the hearing, Fitbit paid the arbitration fee and sent McKlellan a letter saying it never intended to avoid arbitration.
McKlellan argued that since Fitbit breached or defaulted on the arbitration agreement it lost the right to arbitrate even using the company’s assertion that “no rational consumer would ever arbitrate a clam.”
In his July 24 ruling, U.S. District Judge James Donato disagreed with Fitbit’s behavior and declared the company’s “change of heart after the May 31 hearing was enough to avert the application of” prior case law in his decision.
Since the company paid its fees in time, AAA will hear the issue at arbitration.
However, Donato did concede that the company acted in bad faith. “It is true that Fitbit’s lawyer made comments about not briefing the arbitrability issues, but bluster is not breach, although it is relevant to bad faith,” he stated.
In his order, Donato stated Fitbit has “bolstered the perception that arbitration is where consumer lawsuits go to die ... it’s no surprise that many people, including judges, are skeptical about arbitration agreements in light of situations like this one.”
Donato ruled Fitbit will pay McKlellan’s attorneys' fees and costs caused by its misconduct. He also ordered the company to file a copy of the decision “in all cases where it seeks to compel arbitration under its terms of service with consumers.”
McKlellan has 14 days to submit a request for attorneys' fees incurred due to Fitbit's actions.
Fitbit has 14 days to respond following her request. If the company continues to delay and obstruct arbitration, the court may intervene and hear the case, forgoing arbitration.
U.S. District Court for the Northern District of California case no 3:16-cv-00036-JD