Kroskey v. Elevate Labs, LLC

Background

Jonathan Kroskey sued Elevate Labs, LLC and MindSnacks, Inc. on behalf of himself and a proposed class. He alleged that the defendants disclosed users’ personally identifying information to a third party without authorization, in violation of federal and California privacy laws. The defendants jointly operate the Balance mobile meditation and sleep application, according to the opinion.

Kroskey purchased a subscription in July 2023. During account creation, the application displayed a notice stating: “By creating your account, you agree to Balance’s Terms & Conditions and Privacy Policy.” The linked Terms of Service contained an arbitration provision. It stated that, unless a user opted out within 30 days, claims could be pursued only individually and not as part of a class or representative proceeding. The provision allowed either side to elect binding arbitration before JAMS and incorporated JAMS rules providing that the arbitrator would decide disputes about the arbitration agreement’s formation, validity, interpretation, or scope.

The Terms of Service identified Elevate Labs as the contracting party and did not name MindSnacks.

Validity of the Arbitration Agreement

Applying California contract law, the court treated the online agreement as a modified sign-in-wrap agreement. Such an agreement can be enforceable when the website gives reasonably noticeable information about the terms and the user takes an action that clearly shows assent.

The court found the notice reasonably conspicuous. It emphasized that the account-creation page was simple and uncluttered, had substantial white space around the notice, and placed the only text in that area in a location that was not confusing. Although the hyperlinks were gray rather than blue or underlined, the court found that they were bold, had capitalized first letters, and stood out sufficiently against the white background.

The court also found that Kroskey clearly assented because the notice expressly stated that creating an account meant agreeing to the Terms and Conditions, and Kroskey proceeded to create an account. The court therefore found a valid and enforceable agreement to arbitrate.

MindSnacks’s Enforcement of the Agreement

The court considered whether MindSnacks, which did not sign the Terms of Service, could enforce the arbitration agreement. It explained that a nonsignatory may be bound under ordinary contract and agency principles, including when it is an affiliate of the signatory and the allegations against both entities are not substantially different.

The opinion stated that Kroskey alleged Elevate Labs and MindSnacks were affiliates that jointly operated the Balance App. Kroskey referred to the companies together as the defendants and did not make allegations unique to either company. Because the claims against both companies arose from identical conduct, the court held that MindSnacks could enforce the arbitration agreement as Elevate Labs’s affiliate. The court did not reach the defendants’ remaining equitable-estoppel arguments.

Arbitrability and Disposition

The parties disputed whether Kroskey’s claims were arbitrable. The court held that the arbitration provision clearly assigned questions about arbitrability to the arbitrator through its incorporation of the JAMS rules. The court therefore deferred those questions to the arbitrator and ended its own inquiry.

Judge Edward J. Davila granted the defendants’ motion to compel arbitration. The court stayed the case pending arbitration rather than dismissing it and ordered the parties to notify the court within 10 days after reaching a final resolution in the arbitration.