Tempest v. Safeway, Inc.

Background

Michael Tempest, LaDiamond Harvey, Sarah McGregor Horner, Brionna Brouhard, Kerry McCarty, Hillary Beam, and Christopher Lundt are Safeway rewards-program members. They allege Safeway advertised wine to members as being sold at temporary discounts from reference prices, even though the wine was allegedly always available to consumers at the lower price through Safeway’s free rewards program. The plaintiffs bring consumer-protection, breach-of-contract, unjust-enrichment, and fraud claims on behalf of a proposed nationwide class and proposed state subclasses.

Safeway moved to compel arbitration based on terms of use that took effect on May 6, 2024. Safeway said it emailed the updated terms to each plaintiff, and that the plaintiffs continued making purchases after the email was sent. The updated terms included a mandatory arbitration provision and an individual-arbitration requirement. They also provided a 30-day process for opting out after a customer’s first purchase following the update.

Safeway submitted evidence that the emails were successfully delivered and that the plaintiffs did not opt out within the stated deadlines. The plaintiffs said they did not know about the email or the changed terms before Safeway filed its motion to compel arbitration. Three plaintiffs later found the email in a promotions or junk folder, or in an email account. Three could not find the email, and one said she had not used the email address connected to her Safeway account in at least 10 years. The record did not show what terms, if any, the plaintiffs agreed to when they originally joined the rewards program.

Legal question

Under the Federal Arbitration Act, a court deciding a motion to compel arbitration must determine whether a valid arbitration agreement exists and, if so, whether it covers the dispute. Because Safeway sought to compel arbitration, it had the burden of proving that an agreement existed. The court applied the summary-judgment standard to the contract-formation issue: Safeway had to show that no genuine dispute of material fact existed about whether the parties formed an arbitration agreement.

Court’s analysis

The court found that the plaintiffs lacked actual notice—that is, actual knowledge—of Safeway’s arbitration offer before their relevant purchases. Safeway showed that the emails were delivered, but it did not show that the plaintiffs read or knew about them before purchasing products.

The court also rejected Safeway’s constructive-notice argument. Constructive notice means treating a person as having notice even without proof that the person actually knew, usually because the information was presented in a way a reasonable person would have seen. The court distinguished website agreements, where users may be charged with notice of conspicuously displayed terms, from this case, where the plaintiffs were not visiting a website and did not know about the email. The court stated that Safeway had not identified a case holding that a consumer has constructive notice of an arbitration offer based only on an email of which the consumer was unaware.

The court further concluded that the plaintiffs’ continued purchases did not show acceptance of the arbitration provision. Conduct can show agreement only when the person knows, or has reason to know, that the conduct may be understood as acceptance. Because Safeway did not establish that the plaintiffs knew about the offer, no reasonable factfinder could conclude that their later purchases manifested assent to it.

Ruling and effect

Judge Jacquelyn Corley denied Safeway’s motion to compel arbitration. The court therefore did not require the plaintiffs to arbitrate their claims on the record presented. Because the court found no agreement to arbitrate, it did not address the plaintiffs’ separate arguments that the arbitration clause was unenforceable or unfair.

The court postponed setting a hearing on Safeway’s separate motion to dismiss until Safeway decides whether to appeal the arbitration ruling. The order disposed of Docket No. 33; it did not state a ruling on the motion to dismiss.