Cory Cordell Smith v. Inflection Risk Solutions, LLC

Background

Cory Cordell Smith sued Inflection Risk Solutions, LLC, alleging four claims: negligent and willful violations of the federal Fair Credit Reporting Act and negligent and willful violations of California’s Consumer Credit Reporting Agencies Act. Smith alleged that Inflection prepared a background report that incorrectly identified him as “Cory James Smith” and attributed criminal records from another person to him. Inflection had provided the report to Airbnb, and Smith alleged that Airbnb locked him out of his account, causing loss, inconvenience, emotional distress, and reputational harm.

Inflection moved to compel arbitration and to stay the court proceedings. Inflection relied on website Terms of Use requiring users to check a box agreeing to the Terms of Use and Privacy Policy before accessing background reports. The Terms included an arbitration provision covering disputes relating to Inflection’s terms, website access, products, and services, including statutory claims.

Smith stated that he believed he was dealing with Airbnb rather than Inflection, did not recall seeing Inflection’s Terms of Use or arbitration clause, and did not knowingly or voluntarily agree to arbitration. He also argued that Inflection had not shown contract formation, that the Terms were not sufficiently noticeable, that the arbitration provision was unfair, and that his claims did not fall within its scope.

Contract Formation

The court applied California law to determine whether Smith and Inflection formed a contract. Under the court’s analysis, Inflection had to prove the existence of an arbitration agreement. The court applied the type of evidence review used for summary judgment, under which the court considers whether a genuine dispute of important fact exists.

The court found that Inflection met its burden through Christina Taylor’s declaration, the website screenshot, and electronic business records. The evidence showed that users had to enter identifying information, check a box stating that they agreed to Inflection’s Terms of Use and Privacy Policy, and click “yes” before accessing services. Inflection’s records indicated that Smith entered his name, email address, and date of birth and checked the “yes” button on two occasions. The records also indicated that he filed a dispute through the website.

The court acknowledged that Inflection did not provide evidence such as screenshots of Smith’s actual interactions, internet-address logs, or confirmation emails. But the court found that the evidence Inflection did provide was sufficient. It also found that Smith’s statements that he did not recall seeing the terms and believed he was dealing with Airbnb did not create a genuine factual dispute about whether he agreed to the Terms of Use. The court therefore concluded that a contract existed between Smith and Inflection.

Notice and Enforceability

The court characterized Inflection’s agreement as a “clickwrap” agreement because the user had to affirmatively check a box agreeing to the Terms of Use, with a hyperlink to those terms available. The court found that this process gave Smith constructive notice, meaning the law treated him as having notice because the website presented the terms in a way that made his assent clear.

The court found that the website required Smith to check a box next to the statement, “Yes, I agree to Inflection’s Terms of Use and Privacy Policy,” that “Terms of Use” was a hyperlink, and that Smith checked the box. The court also found that the arbitration provision was identified at the beginning of the Terms in capital letters and appeared in its own numbered section with a capitalized heading. The court ruled that Smith’s lack of actual knowledge or failure to read the arbitration provision did not prevent enforcement.

Smith argued that the arbitration provision was procedurally unconscionable because the Terms were a non-negotiable contract of adhesion and substantively unconscionable because of the class-action waiver, broad language, and limits on judicial relief. Procedural unconscionability concerns whether a party had a meaningful choice in agreeing; substantive unconscionability concerns whether the contract terms are unfairly one-sided. The court found that Smith failed to show procedural unconscionability because consumers could obtain their reports by writing or calling Inflection instead of using the website. Because the court found no procedural unconscionability, it did not reach Smith’s substantive-unconscionability arguments.

Scope of the Arbitration Agreement

The court held that the arbitration provision covered Smith’s claims. The provision applied broadly to disputes relating to Inflection’s Terms, electronic access to its products or services, and use of its websites, information, and screening services. The court reasoned that Smith’s claims arose from Inflection’s background report and website services. The court therefore found that Smith did not meet his burden of showing that his claims fell outside the agreement’s scope.

Disposition

The court GRANTED Inflection’s Motion to Compel Arbitration and STAYS the proceedings in the court pending resolution of the arbitration. The parties must provide joint status updates on the arbitration every 90 days from the date of the order. The opinion does not state that the case was dismissed.