Should Your Consumer Arbitration Clause Be Broader?
(Tate v. Progressive Finance Holdings, LLC, C.D. Cal. 2017)
After a Central District of California Judge dismissed a consumer’s Telephone Consumer Protection Act (TCPA) case on a Motion to Compel Arbitration, companies should consider broadening their consumer arbitration provisions. Of particular interest are the following unique circumstances: 1) the Judge dismissed rather than stayed the action pending arbitration; 2) the plaintiff had the burden to present evidence showing the alleged calls were not related to the parties’ agreement containing the arbitration clause; and 3) the arbitration provision gave the consumer the opportunity to reject the arbitration clause.
The plaintiff in Tate v. Progressive Finance Holdings, LLC, No. 2:17-cv-01589-ODW-AS (C.D. Cal.), brought consumer claims against defendant Progressive for allegedly utilizing an automatic telephone dialing system in violation of the TCPA and California’s Rosenthal Act. Progressive moved to compel arbitration based on the broad and comprehensive arbitration provision in the parties’ laptop lease agreement. Progressive argued that any claims based on telephone calls to Tate were subject to arbitration because they were related to the lease.
Where an arbitration clause is narrow, courts have held there is more latitude to determine whether a dispute falls outside the purview of the clause because it involves issues collateral to the main agreement. See Salsbery v. Verizon Wireless (VAW), LLC, No. 2:13-cv-26419, 2014 WL 3876635, at *6 (S.D. W. Va. Aug. 7, 2014) (denying a motion to compel arbitration involving claims under the TCPA where the arbitration clause was narrow). But in Tate, the arbitration clause was comprehensive, encompassing “any claim, dispute or controversy between [Tate] and [Progressive] (including any related party) that arises from or relates in any way to this Lease or the Property (including any amendment, modification or extension of this Lease) …”
The Court in Tate ruled that where an arbitration provision is broad, there is a heightened presumption in favor of arbitration. The Court then placed the burden on Tate to produce evidence, not merely speculative, showing his claims fell outside the arbitration clause. Furthermore, the Court rejected Tate’s bid to conduct discovery to determine whether the arbitration clause encompassed his claims. The FAA only permits limited pre-arbitration discovery where the opposing party claims the agreement to arbitrate is unconscionable—a claim Tate did not assert.
In compelling arbitration, the Court chose not to stay the action, but dismissed the case without oral argument. In a section titled “Should Tate Stay, or Should He Go?”, the Court explained that a District Court in the Ninth Circuit has discretion to dismiss a complaint where the court finds that the arbitration clause covers all of the plaintiff’s claims. An arbitration clause will cover a party’s claims where the factual allegations “touch matters” covered by the contract containing the arbitration clause. Tate’s failure to specifically allege or submit evidence of the subject of the alleged calls led to the Court’s decision.
Last, the arbitration clause was somewhat unique in that it gave Tate the option to reject the arbitration provision within 30 days. This ability to reject was stated in both the first paragraph on the lease, as well as in the arbitration provision itself. The Court quoted the rejection provision and stated that Tate did not reject the arbitration clause. However, the Court did not specifically rely on this ability to reject in its discussion of the merits.
This Central District of California’s ruling in Tate v. Progressive Finance Holdings, LLC suggests that the use of broader arbitration clauses with a broad scope of coverage can help avoid arguments that a particular dispute is outside the clause’s purview and could cause the case to be dismissed rather than stayed. To the extent Tate is followed by other courts, a consumer plaintiff will be required to specify the subject matter of the claim, either in allegations and/or evidence submitted, to show the claims are not encompassed by the broad arbitration provision.
