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April 28— Claims in a would-be class suit alleging Fitbit wearables don't accurately monitor heart rate should be heard in court, and not arbitrated, because of the company's fraudulent sales practices, the plaintiffs' lawyers say.
The case also might be a good vehicle for a reconstituted U.S. Supreme Court to eventually clarify when mandatory arbitration clauses can be avoided, they say.
“We see this as a fact pattern through which the Supreme Court can further develop its views on when an agreement to arbitrate is unenforceable under state law rules of contract formation,” attorney Kevin Budner, with Lieff, Cabraser Heimann & Bernstein, LLP in San Francisco, told Bloomberg BNA recently.
That includes, the plaintiffs' attorney said, “the notion that consumers were tricked into purchasing their products without realizing that they would later have to agree to arbitrate in order to make the products work.”
The putative class suit in the U.S. District Court for the Northern District of California alleges Fitbits don't provide consistent heart rate readings during times of strenuous activity as advertised.
But the plaintiffs also allege Fitbit defrauded some consumers into waiving their class action and trial rights by not disclosing the existence of arbitration clauses to people who bought the wearables from third-party retailers.
Fitbit’s own website requires purchasers to agree to be bound by the arbitration clause and class action ban in the company's terms of service.
Third-party websites and stores, however, allegedly don't require any such agreement in advance or at the time of the purchase of a Fitbit product. They also don't give any indication that such an agreement will later be required, the April 15 amended complaint says.
The plaintiffs also contend that to enable the tracking function, and to access their own data, users have to register their devices online.
Not until buyers from third-party retailers tried to register and activate their already-bought Fitbits did these purchasers learn the devices wouldn't fully function unless they agreed to arbitration and a class action waiver, the complaint says.
The company disputes the plaintiffs' contentions—both that the products don't work as advertised, and that Fitbit committed fraud in getting purchasers to agree to arbitrate disputes.
“Fitbit believes these allegations lack merit and steadfastly disputes any assertion that it misleads its customers,” a Fitbit spokesperson told Bloomberg BNA in an e-mail. “Fitbit provides users with ample notice of its Terms of Service before the user decides to affirmatively agree to the Terms regardless of where they purchased the device.”
In a March 30 case management statement in the suit, Fitbit said nearly all the plaintiffs entered into a valid and binding agreement to arbitrate their claims against the company on an individual basis.
The company's statement also said, “Not only do Fitbit’s packaging and advertisements show images of devices syncing with a phone or computer, but any reasonable consumer today would expect that a connected product requires opening an online account.”
The fraud allegations differentiate the Fitbit suit from cases in which courts have held consumers to arbitration agreements despite arguments that the terms were unconscionable, Budner and Jonathan Selbin, another plaintiffs' attorney at Lieff, Cabraser told Bloomberg BNA.
Here, plaintiffs say there was no contract because of the fraud, the attorneys say: Without a contract, the arbitration provision can't be enforced.
That's true, the attorneys say, even though the Supreme Court has issued a number of pro-arbitration rulings in recent years including, in 2011, AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (12 CLASS 362, 5/13/11).
There, in an opinion written by late Justice Antonin Scalia, the court 5-4 nullified state law requiring the availability of classwide arbitration in some cases, saying it was inconsistent with the Federal Arbitration Act.
Since Concepcion, most arbitration clauses in contracts for consumer services and goods have been upheld and enforced.
Scalia died in February, prompting speculation about how a broad range of cases and legal issues might be affected.
Selbin noted that Justice Clarence Thomas wrote a concurring opinion in Concepcion saying that a party may still successfully challenge the formation of an arbitration agreement.
“Justice Thomas provides the fifth vote in these cases and says that long-standing common law defenses relating to a failure to have a meeting of the minds, such as fraud and mistake, still apply,” Selbin said.
Budner added that, “this is potentially an opportunity for the court to revisit its conclusions in Concepcion, given the court's changing composition.”
Budner also finds support in a recent Seventh Circuit case, Sgouros v. TransUnion Corp., 2016 BL 93113, 7th Cir., No. 15-1371, 3/25/16 (17 CLASS 342, 4/8/16).
TransUnion, Budner said, “affirms the proposition that ‘arbitration is a creature of contract' and if the contract is invalid for any reason—such as if it were induced by fraud or if there were no meeting of the minds—then the arbitration agreement is not enforceable.”
Kate McClellan and the suit's other plaintiffs also challenge the timing of, and the reasons behind, Fitbit's decision to start making its customers agree to the arbitration clauses, according to testimony at a recent hearing.
“They didn't have an arbitration clause until this line of products came out,” Selbin said at the April 11 hearing before Judge James Donato of the Northern District of California.
“[W]e think they knew the device couldn't work the way it was supposed to work before they released it, and they implemented this arbitration clause precisely to prevent people from holding them accountable,” Selbin said at the hearing.
Donato allowed the plaintiffs to take discovery on issues related to arbitration.
Fitbit denies these assertions, too. “This allegation is unfounded, and Fitbit will contest it in court,” the company told Bloomberg BNA.
Jonathan Selbin, Kevin Budner and Elizabeth Cabraser of Lieff, Cabraser Heimann & Bernstein, LLP represent the McClellan plaintiffs.
Perrotti, representing the Brickman plaintiffs, is with Dworken & Bernstein Co., L.P.A. in Painesville, Ohio.
William Stern and Julie Park of Morrison & Foerster in San Francisco and San Diego, respectively, represent Fitbit.
To contact the reporter on this story: Julie A. Steinberg in Washington at email@example.com
To contact the editor responsible for this story: Steven Patrick at firstname.lastname@example.org
Consolidated Master Class Action McLellan complaint is available at http://www.bloomberglaw.com/public/document/McLellan_et_al_v_Fitbit_Inc_Docket_No_316cv00036_ND_Cal_Jan_05_20/2.
McLellan hearing transcript is at http://src.bna.com/egW.
Joint case management statement in McClellan is at http://www.bloomberglaw.com/public/document/McLellan_et_al_v_Fitbit_Inc_Docket_No_316cv00036_ND_Cal_Jan_05_20/3.
Brickman hearing transcript is at http://www.bloomberglaw.com/public/document/Brickman_v_Fitbit_Inc_Docket_No_315cv02077_ND_Cal_May_08_2015_Cou.
Fourth Amended complaint in Brickman is at http://www.bloomberglaw.com/public/document/Brickman_v_Fitbit_Inc_Docket_No_315cv02077_ND_Cal_May_08_2015_Cou/1.
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