Skillern v. Peloton Interactive, Inc.

Background

Brannon Skillern, Ryan Corken, Michael Litvin, and Kathy Litvin sued Peloton Interactive, Inc. They alleged that Peloton breached its contract and violated consumer-protection laws in Virginia, New York, Massachusetts, and Oregon by charging sales tax on its subscription service. The opinion states that Peloton did not dispute that the subscription services were tax-exempt in those states. The plaintiffs sought to proceed individually and on behalf of proposed state subclasses.

Peloton’s membership terms required subscribers to pay the monthly fee plus applicable taxes and included a provision requiring disputes related to the terms to be resolved through individual binding arbitration rather than a class action. The terms initially selected the American Arbitration Association, but Peloton changed the designated arbitration provider to JAMS on December 27, 2019. The terms also said that continued use of the service after updated terms were posted constituted agreement to the updated terms.

Skillern and the Litvins accepted the updated terms after the change. Corken paid for his wife’s subscription but did not personally accept the terms or use the subscription. The opinion states that Skillern and the Litvins were charged monthly sales taxes, and that Corken alleged that the charges violated the Massachusetts consumer-protection law. The plaintiffs’ claims included breach of contract, the Virginia Consumer Protection Act, New York General Business Law § 349, the Massachusetts Consumer Protection Law, and the Oregon Unlawful Trade Practices Act.

Arguments about arbitration

Peloton moved to compel arbitration and, alternatively, to dismiss for lack of subject-matter jurisdiction and failure to state a claim. The plaintiffs argued that Peloton had waived arbitration by failing to pay fees in earlier American Arbitration Association proceedings concerning different claims about deleted streaming videos. The court rejected that argument because the earlier proceedings involved different claims and parties, and the present arbitration had not failed or left the plaintiffs without a forum. The court also found that changing the provider from the American Arbitration Association to JAMS did not leave the plaintiffs in procedural uncertainty.

The plaintiffs argued that the updated arbitration agreement was invalid because Peloton’s terms allowed it to change the agreement unilaterally. The court treated that argument as a challenge to the validity of the contract as a whole, rather than specifically to the arbitration clause, and stated that an arbitrator would decide that issue first.

The court found that Skillern and the Litvins had actual or constructive knowledge of the terms when they accepted them. As to Corken, the court rejected Peloton’s argument that merely having the option to use his wife’s membership was enough to bind him as a non-signatory. But the court concluded that Corken relied on the terms in bringing his consumer-protection claim, so he was treated as invoking a direct benefit under the agreement and could not avoid arbitration.

Ruling and effect

The court held that the arbitration provision covered the plaintiffs’ disputes related to the Peloton terms. It granted Peloton’s motion to compel arbitration and directed the plaintiffs to submit their claims to individual arbitration through JAMS. Because all claims were being sent to arbitration, the court stayed—not dismissed—the lawsuit. It denied Peloton’s motion to dismiss without prejudice to renewal after the arbitration’s outcome.

Judge Edgardo Ramos ordered the parties to notify the court within 48 hours after arbitration concluded. The opinion did not decide whether Peloton’s sales-tax charges violated the contract or the state consumer-protection laws.