While Enforcing Arbitration Provision, U.S. District Court in California Sanctions Defendant

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Plaintiff Kate McLellan sued Fitbit for alleged misrepresentations about the accuracy of heart rate monitoring in its devices. Fitbit told the Court that the Terms of Service McLellan had agreed to required arbitration of her claims at the American Arbitration Association (AAA). Fitbit also said that McLellan’s objections to the scope and enforceability of the agreement were delegated to the arbitrator for resolution. Fitbit succeeded on these arguments, but when the time to arbitrate came, it failed to pay its fees in a timely manner and told McLellan it had no intention of arbitrating her claims or the arbitrability issues. Fitbit reversed course and got the arbitration back on track after McLellan raised the matter with the Court at a hearing on another issue in the case.

While the Court felt compelled to enforce the arbitration provision – despite defense counsel’s acknowledgement that no rational litigant would bring an individual claim for $162 – held that defense counsel should be sanctioned for its unethical conduct:

“While case law does not support termination of the arbitration, Fitbit and its lawyers at Morrison & Foerster must be held to account for their bad-faith litigation tactics. The conduct that necessitated this order amounts to an abuse of the judicial process and a needless waste of the parties’ and the Court’s resources. To make matters worse, Fitbit has been evasive and misleading in its explanations to the Court. For example, Fitbit says it properly declined to arbitrate because only the $162 price of the device was at stake. That assertion is completely untenable in light of the October 2017 arbitration order…. Fitbit also says that it held up arbitration to wait for ‘guidance’ from AAA or the Court on next steps. The record, however, is devoid of any evidence that Fitbit ever asked AAA for instructions or guidance. It certainly never sought guidance from the Court. And Fitbit’s contention that it can exempt itself from arbitration whenever it ‘rationally’ prefers to settle is entirely unfounded. Interpreting Fitbit’s Terms of Service to give it sole discretion over when it will arbitrate a claim would make it unconscionable and unenforceable.

“This conduct cannot go unsanctioned…. Bad faith that justifies an assessment of fees includes a broad range of willful improper conduct, such as delaying or disrupting the litigation or hampering enforcement of a court order. Fitbit’s conduct need not violate the law to fall well within the domain of the sanctionable. As the record has shown, Fitbit delayed and impeded the arbitration on frivolous grounds, and was evasive and misleading after the matter was brought to the Court’s attention. This is an ‘exceptional’ case where for dominating reasons of justice a compensatory award of attorney’s fees is appropriate.”

 

McLellan v. Fitbit, No.16-0036 [Rec. Doc. 153], 2018 WL 3549042 (N.D.Cal. July 24, 2018).

 

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