Davis v. Experian Information Solutions

Background

Darryl Davis filed a proposed class action against Experian Information Solutions, Inc. Davis alleged that Experian sold or disclosed class members’ telephone numbers to third-party lenders when the class members completed loan applications. He asserted claims for willful and negligent noncompliance with the Fair Credit Reporting Act.

Experian moved to compel arbitration and stay the action. Experian relied on the Terms of Use that Davis accepted when he enrolled in CreditWorks in July 2016. The court found that Davis had to click through webpages displaying a notice that clicking the submission button meant he accepted the Terms of Use, which were available through a prominently displayed hyperlink. Davis did not dispute those facts.

The opinion notes a dispute over whether a 2024 amended version of the Terms of Use controlled, but the court found it unnecessary to resolve that dispute because every version of the Terms of Use before the court contained an arbitration provision.

Agreement to Arbitrate

Applying California contract principles, the court held that Experian proved the existence of an agreement to arbitrate. The Terms of Use required arbitration of disputes and claims arising out of the agreement relating to the services or websites. The agreement defined references to the service provider to include its affiliates, and Experian argued that it could enforce the provision both as a party and as a third-party beneficiary.

The court concluded that the website design gave Davis clear notice of the Terms of Use and that clicking the account-creation or submission button showed his agreement to them. The court therefore found that Davis formed an agreement to arbitrate related claims with Experian.

Delegation of Arbitrability

The agreement also assigned “gateway” questions of arbitrability—such as whether a dispute is covered by the arbitration agreement and whether the agreement is enforceable—to the arbitrator. The court found clear and unmistakable evidence of that assignment in the agreement’s language giving the arbitrator authority over the scope and enforceability of the arbitration provision. The court also noted that the agreement incorporated the American Arbitration Association’s rules, which the Ninth Circuit has held can clearly assign arbitrability questions to an arbitrator.

Because Davis specifically challenged the delegation provision as unconscionable, the court considered that challenge. Under California law, unconscionability requires some degree of both procedural unfairness and unfairness in the agreement’s terms.

Procedural Unconscionability

Davis argued that the delegation provision was procedurally unconscionable because it appeared in a take-it-or-leave-it contract, involved unequal bargaining power, allegedly bound users through website access, allowed Experian to amend the agreement, used allegedly misleading language about class proceedings and mass arbitration, and broadly referred to Experian’s affiliates.

The court found some, but only a low level of, procedural unconscionability. It distinguished a Ninth Circuit decision involving terms that could be changed without notice and applied retroactively, confusing rules, and a mass-arbitration process involving binding bellwether decisions. The court found that Experian’s agreement allowed users to reject changes to the arbitration provision and did not apply changes retroactively. It also found that the mass-arbitration provision involved individual resolutions and fee consolidation rather than class proceedings or binding bellwether rulings. The adhesive nature of the contract, without more, did not establish a high degree of procedural unconscionability.

Substantive Unconscionability

Davis argued that the mass-arbitration provision, liability limitation, and notice requirements made the delegation provision substantively unconscionable. The mass-arbitration provision applied when at least 25 similar or identical demands were filed within 180 days by the same or coordinating counsel. It allowed the arbitration provider to group the demands into batches, with one set of filing and administrative fees and one arbitrator for each batch.

The court held that this provision was not substantively unconscionable. It found no bellwether provision and no language making one claimant’s decision binding on later claimants. The court understood the provision as primarily consolidating claims and reducing fees, without eliminating individual resolutions or imposing a limit on how many arbitrations could proceed at one time.

The court did not consider Davis’s liability-limit argument as a challenge to the delegation provision because the liability limitation would not apply to proceedings deciding whether a dispute was arbitrable or whether the arbitration agreement was unconscionable. The court also rejected Davis’s challenge to the notice requirement. The requirement that a party intending to seek arbitration first send a written notice of the dispute by certified mail applied mutually to either party and was not shown to be unfair.

The court concluded that Davis had not shown that the delegation provision was substantively unconscionable. Because the court upheld the delegation provision, it left the broader challenge to the arbitration agreement’s unconscionability for the arbitrator.

Discover Bank Argument

Davis alternatively argued that the mass-arbitration provision was unconscionable under the California rule associated with Discover Bank. The court declined to apply that rule because the provision primarily consolidated proceedings under a single set of fees and did not eliminate the bilateral nature of arbitration. The court distinguished mass-arbitration procedures involving binding bellwether decisions from the provision in Experian’s agreement.

Disposition

The court GRANTED Experian’s motion to compel arbitration. It STAYED proceedings with respect to Davis only. The opinion also states that Davis later amended the complaint to add Brett McNamar, whom Davis believed was not subject to an arbitration agreement with Experian. Because the court did not have a motion to stay the case as to McNamar, it did not consider a stay for him at that time.