Singh v. Payward, Inc.

Background

Jatinder Singh and Sandeep Singh filed a putative class action against Payward, Inc., doing business as Kraken. They alleged that Kraken violated four provisions of the Illinois Biometric Information Privacy Act by collecting, obtaining, using, storing, possessing, and disclosing biometric identifiers submitted when they created Kraken cryptocurrency-trading accounts. Kraken required users to upload a state-issued identification card and a facial photograph. It scanned the photograph and created a biometric facial template to compare with the identification card.

Kraken moved to compel arbitration under its Terms of Service. In the alternative, it moved to dismiss the BIPA claims for lack of standing or failure to state a claim. The Terms of Service stated that users agreed to arbitrate disputes arising from the Terms or use of Kraken’s services, subject to an exception for certain intellectual-property disputes. The agreement also stated that arbitration would be conducted under the JAMS rules and prohibited class actions, class arbitration, and representative proceedings.

Contract Formation

The court held that the plaintiffs agreed to the Terms of Service. The account-creation page required users to check a box stating, “By continuing I agree to the Terms of Service and Privacy Policy,” with the Terms of Service and Privacy Policy shown as hyperlinks. Users could not proceed with account creation without checking the box. The court found that this provided reasonably conspicuous notice and that checking the box unambiguously manifested assent under California contract law.

Unconscionability

The plaintiffs argued that the arbitration provision was unconscionable, meaning unfairly formed or unfairly one-sided. The court found some procedural unconscionability because the Terms of Service were an adhesion contract, but it did not find that the agreement was unduly oppressive.

The court also rejected the plaintiffs’ substantive-unconscionability challenge. The plaintiffs primarily challenged provisions in the Terms of Service as a whole rather than the delegation provision specifically. Under the governing law, that type of challenge was for the arbitrator. The plaintiffs separately challenged a provision requiring written notice of a dispute within 30 days. The court said that provision could be problematic because it shortened the time for bringing this type of claim, but Payward was not relying on it to argue that the plaintiffs’ claims were untimely. The court therefore found that the provision, together with the agreement’s moderate procedural unconscionability, did not make the entire arbitration agreement unconscionable.

Delegation of Arbitrability

“Arbitrability” is the question whether a particular dispute must be decided in arbitration. The court determined that federal law governed this question because the agreement did not clearly and unmistakably select California law for arbitrability issues.

The court held that the parties’ incorporation of the JAMS rules clearly and unmistakably delegated arbitrability to the arbitrator. Those rules authorized the arbitrator to decide jurisdictional and arbitrability disputes. The court relied on Ninth Circuit precedent concerning incorporation of the American Arbitration Association rules and concluded that incorporation of the JAMS rules had the same effect here.

The court also rejected the plaintiffs’ argument that the Terms of Service’s severability clause and its reference to San Francisco courts created ambiguity. The severability clause did not mention a judge or court, and the court read the reference to courts as covering appeals of arbitration awards and lawsuits that were not subject to arbitration, not as reserving arbitrability questions for the court.

Disposition

The court concluded that the parties entered into a valid agreement and that the agreement delegated arbitrability to an arbitrator. It GRANTS the motion to compel arbitration, STAYS the action pending arbitration, and DISMISSES the class claims. The court did not reach Payward’s alternative motion to dismiss for lack of standing or failure to state a claim. The opinion does not state whether the class-claim dismissal was with or without prejudice.