Well, this was an interesting case.
Before the Court was Defendant Home Depot, Inc.’s Motion to Dismiss and Motion to Compel Arbitration, or, in the Alternative, to Dismiss. For the Court’s reasons, Home Depot’s Motion to Dismiss was denied as moot and Home Depot’s Motion to Compel Arbitration, or in the Alternative, to Dismiss was granted in part and denied in part. Let’s break this down.
Plaintiff Melissa Carson visited ProReferral.com seeking a professional repairman to help with a door jamb. Proferral.com is owned and operated by Red Beacon, Inc. (non-party), which is a wholly owned subsidiary of Home Depot.
On July 8, 2021, Carson submitted 3 requests on Pro Referral and she twice checked a box stating: “Get Text updates about my service request.” The same day, Pro Referral sent her a text message matching her project with a construction company, to which she responded “Stop” to unsubscribe from future text messages. Yet, the text messages did not stop. Carson alleges she received 4 more text messages and replied “Stop” to most of those messages. (We all know what to expect from here).
Prior to enrolling her project in Pro Referral, Carson had to accept Pro Referrals Terms of Service by clicking the “Submit My Request” button. The Terms of Service were available to view through a hyperlink posted above the button. Included in the Terms of Service was an arbitration provision that stated,
“You agree that Pro Referral may elect, in its sole discretion, to submit or require You to submit any dispute, complaint, or demand (“Claim”) relating to or concerning in any way the Agreement or use of the Website to binding arbitration within a reasonable time after the claim arises.”
Now, Carson files a Complaint against Home Depot alleging Home Depot failed to: (1) implement a written policy for maintaining a do-not-call list; (2) train its personnel on the existence and use of the do-not-call-list; (3) maintain a do-not-call list; and (4) honor do-not-call requests from consumers.
Home Depot moved to submit the case to arbitration pursuant to Pro Referral’s Terms of Service, or in the alternative, to dismiss it altogether for failure to state a claim.
First, Carson argues that Home Depot has no right to compel arbitration because the sole party she agreed to arbitrate with was Red Beacon (a non party), not Home Depot. Second, she argues that her cause of action does not arise from her use of the Pro Referral website and thus falls outside the scope of the arbitration clause. Find this persuasive?
As to her first argument, just because a party is not named explicitly in the arbitration clause does not mean they may not have rights to enforce it. Taken here, Home Depot is not a named party to the Terms of Service that Carson agreed to on Pro Referral. However, a doctrine entitled equitable estoppel may allow Home Depot to enforce it.
Equitable estoppel allows nonsignatories to invoke an arbitration clause against a signatory under limited circumstances. One circumstance occurs “when the signatory [i.e., the Plaintiff] to the contract containing the arbitration clause raises allegations of substantially independent and concerted misconduct by both the nonsignatory [i.e., Home Depot] and one or more of the signatories to the contract [i.e., Red Beacon].
Here, the Court found that Carson cannot avoid the arbitration clause by omitting the signatory, Red Beacon from this case and the attributed its acts and omission to a nonsignatory defendant, Home Depot. Carson alleges Pro Referral sent the text messages and as explained above, Pro Referral is owned and operated by Red Beacon, not Home Depot.
However, the Court’s analysis did not stop there. The equitable doctrine is subject to a further limitation:
“A plaintiff’s allegations of collusive behavior between the signatory and nonsignatory parties to the contract do not automatically compel a court to order arbitration of all of the plaintiff’s claims against the nonsignatory defendant; rather, such allegations support an application of estoppel only when they “establish that the claims against the nonsignatory are intimately founded in and intertwined with the obligations imposed by the contract containing the arbitration clause.”
The purpose of equitable estoppel is to prevent a plaintiff from essentially “trying to have its cake and eat it too”, as the Court put it. In other words, the doctrine is to prevent a plaintiff from relying on the contract when it works to his advantage and repudiating it when it works to his disadvantage.
The Court found that because Carson is not attempting to hold Home Depot to any part of the Terms of Service, her claim is NOT “intimately founded in” or “intertwined with” the contract. For this reason, the Court concluded that Home Depot cannot enforce the Terms of Service’s arbitration clause through equitable estoppel.
At the same time, Carson did not plausibly allege that Home Depot sent any of the text messages to her and did not assert an alternate theory of liability as to Home Depot (vicarious liability could have been one). Consequently, the Court found the Complaint did not state a viable claim for relief and should be dismissed with prejudice.
So, although Home Depot could not enforce the arbitration clause and move the case to arbitration, they were able to get the case dismissed with prejudice. And that’s a win for Home Depot!