Navarro v. SmileDirectClub, Inc.

Background

Arnold Navarro filed a proposed class action alleging that SmileDirectClub, Inc., SmileDirectClub, LLC, Jeffrey Sulitzer, and Jeffrey Sulitzer, D.M.D., P.C. engaged in the unauthorized practice of dentistry under California law. His claims included negligence, breach of fiduciary duty, fraudulent inducement, violations of California’s Consumer Legal Remedies Act, and violations of California’s Unfair Competition Law.

The defendants removed the case from California state court based on diversity jurisdiction and the Class Action Fairness Act of 2005 (CAFA). Navarro moved to amend the complaint to add Jeffrey Sulitzer, D.M.D., P.C. as a defendant and moved to remand, meaning return, the case to state court. The defendants moved to compel arbitration, arguing that Navarro agreed to arbitration when he created an online account and accepted SmileDirectClub’s terms.

Amendment of the Complaint

The court granted Navarro’s motion to amend under Federal Rule of Civil Procedure 15(a)(2). It found no undue delay, prejudice, bad faith, or futility. The court concluded that the newly added professional corporation was sufficiently related to Navarro’s claims and that the claims against it appeared plausible at that stage. The First Amended Complaint was accepted as the operative pleading.

The court also granted the defendants’ unopposed motion under Local Rule 7-11 to file supplemental briefs. Because the addition of the professional corporation did not destroy federal jurisdiction under CAFA, the court analyzed the amendment under Rule 15 rather than relying solely on the post-removal joinder procedures in 28 U.S.C. § 1447(e).

Federal Jurisdiction and Remand

The court denied Navarro’s motion to remand. It held that CAFA jurisdiction existed because the proposed class included approximately 100,000 California residents, there was minimal diversity among the parties, and the amount in controversy exceeded $5 million. The defendants’ calculation—5,883 customers multiplied by $850, or $5,000,550—satisfied the amount-in-controversy requirement, and Navarro did not challenge that calculation.

The court also rejected Navarro’s reliance on CAFA’s local-controversy and home-state exceptions. It held that the newly added professional corporation could not be considered for this jurisdictional analysis because it was not named as a defendant before removal. The court further found that Navarro had not shown that SmileDirectClub, Inc. was a California citizen. The court therefore concluded that neither exception applied.

Arbitration

The court did not issue a final ruling on the defendants’ motion to compel arbitration. Under the Federal Arbitration Act, a court generally determines whether a valid arbitration agreement exists and whether it covers the dispute. The court explained that whether a contract was formed is ordinarily a question for the court rather than the arbitrator.

Navarro disputed that he assented to the arbitration agreement. The defendants presented evidence that their website used a “clickwrap” agreement, meaning an online agreement requiring the user to affirmatively check a box after being given access to linked terms. They also presented electronic records indicating that Navarro checked the box on April 23, 2020.

The court found that the defendants had not provided enough evidence to show what the clickwrap agreement looked like on April 23, 2020, when Navarro allegedly agreed to it. The court also required evidence concerning how Navarro received and allegedly accepted an addendum to the retail installment contract. The court therefore took the arbitration motion under submission and ordered the defendants to file a sworn declaration and supporting evidence by May 6, 2022. Navarro could respond with a declaration and supporting evidence by May 20, 2022. The court stated that it would rule on the arbitration motion after receiving the supplemental evidence.