A federal appeals court has given the green light to a class action lawsuit to continue against gym access seller ClassPass over alleged improper payments drawn amid the Covid pandemic.
But a dissenting judge slammed the ruling, saying it upends previous decisions and now will leave businesses guessing about how they can satisfy legal requirements when posting their user agreement terms and conditions online, unfairly leaving them little chance of escaping potentially costly lawsuits.
A divided three-judge panel of the U.S. Ninth Circuit Court of Appeals filed its ruling Feb. 27.
In the 2-1 ruling, the court's majority rejected an attempt by ClassPass to divert the case against it from the courtroom and into arbitration.
The majority said ClassPass couldn't show their website displayed prominently enough a notice to users that the user agreement included a clause requiring users to settle all disputes before arbitrators, presumably blocking them from filing lawsuits either individually or in a class action to resolve any claims of mistreatment.
The opinion was authored by Ninth Circuit Judge Salvador Mendoza Jr. He was joined in the decision by U.S. District Judge Michael W. Fitzgerald, a Los Angeles federal judge sitting on the appeals panel by special designation.
Ninth Circuit Judge Jay Bybee dissented from the majority.
Bybee said the majority's opinion flew in the face of evidence ClassPass users encounter links to the user agreement's terms and conditions on each of three screens during the registration process.
And he said the decision further undercuts previous decisions in the Ninth Circuit addressing very similar claims. Bybee said ClassPass's registration screens complied with those decisions, so those decisions should have resulted in a ruling in ClassPass's favor.
Now, he said, the ruling will leave online merchants facing uncertainty over how to comply with what he said are the conflicting mandates and guidelines present in the various decisions concerning online user agreement terms and conditions, fueling more lawsuits.
Bybee was appointed to the court by former President George W. Bush.
Mendoza and Fitzgerald were appointed to their judicial offices by former President Barack Obama.
The decision centers on a legal action lodged in 2023 by named plaintiff Katherine Chabolla against ClassPass.
Chabolla was represented at the Ninth Circuit by attorneys Jessica L. Hunter, of the firm of Wittels McInturff Palikovic, of New York; and Daniel E. Birkhaeuser, Robert M. Branson and Alan R. Plutzik, of the firm of Bramson Plutzik Mahler & Birkhaeuser, of Walnut Creek.
In her lawsuit, Chabolla accused ClassPass of improperly charging her credit card in 2020 amid the Covid pandemic.
According to court documents, Chabolla registered for a trial ClassPass membership in early 2020. The membership offered "packaged-deal access to gyms, fitness studios, and fitness classes."
She continued with the membership through February.
However, in March 2020, amid the onset of the Covid epidemic, ClassPass paused collecting membership dues for several months, while government orders in California kept gyms closed.
However, later in 2020, when gyms and studios reopened, ClassPass resumed collecting the membership fees.
Chabolla later sued on behalf of herself and potentially thousands of other ClassPass users, claiming the resumed collections violated California consumer protection laws, including its Automatic Renewal Law and the Unfair Competition Law.
In response, ClassPass sought to pull the plug on the lawsuit, by asserting the arbitration clause in its user agreement should block Chabolla from suing and instead force her case into arbitration.
In court, however, a San Francisco federal judge ruled ClassPass should not be allowed to enforce its arbitration clause.
ClassPass appealed, but met with similar problems at the Ninth Circuit.
The majority ruled that, even though ClassPass required registrants to navigate four screens, including three that contained obvious links to its terms and conditions, the registration process was "muddled" and did not clearly enough to demonstrate the user had read the terms and conditions and had unambiguously agreed.
"... A website must 'explicitly notify' a user of the legal significance of her actions and a manifestation of assent must be 'unambiguous,'" Mendoza wrote.
In this case, the majority said, "What the deal was, and whether it included the Terms of Use, remained in obscurity. The website asked for little - just an email address, a name, and payment information. And it provided the user the opportunity to 'Continue,' 'Continue,' 'Continue,' then 'Redeem now.'
"A reasonable user could infer she 'enrolled' in something - a membership, a subscription, an agreement to purchase credits - but the contours of that enrollment are vague, and what the user manifests by enrolling is ambiguous at best," Mendoza said.
In dissent, Bybee said the ruling will have far-reaching effects, as online merchants and service providers again must adjust to the courts' shifting rules concerning what amounts to sufficient and conspicuous notice to users of their terms and conditions.
"When companies structure their websites to respond to our opinions but can't predict how we are going to react from one case to another, we destabilize law and business," Bybee wrote.
"After today's decision, a website will have to guess whether any nuance at all in its sign-in wrap will be held against it. The result is one of caveat websitus internetus (roughly translated as 'internet websites beware!') Our decision today will drive websites to the only safe harbors available to them, the clickwrap or scrollwrap agreements. As a policy matter, that may be a perfectly acceptable landing place, but it is not the landing place that we have approved in the past, and we are neither the Congress nor the California State Assembly."
ClassPass was represented in the action by attorneys Benjamin G. Shatz, Christine M. Reilly and Justin J. Rodriguez, of the firm of Manatt Phelps & Phillips, of Los Angeles.