Intuit Inc. v. 9,933 Individuals CA2/2 ( 2021 )

Filed 7/29/21 Intuit Inc. v. 9,933 Individuals CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
INTUIT INC. et al., B308417
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No.
v. 20STCV22761)
9,933 INDIVIDUALS,
Defendants and
Respondents.
APPEAL from an order of the Superior Court of Los
Angeles County, Terry A. Green, Judge. Affirmed.
Fenwick & West, Rodger R. Cole and Molly R. Melcher;
Wilmer Cutler Pickering Hale and Dorr, Matthew Benedetto,
Jonathan E. Paikin, Daniel S. Volchok, and Kevin M. Lamb for
Plaintiffs and Appellants.
Mayer Brown and Archis A. Parasharami for the U.S.
Chamber of Commerce as Amicus Curiae on behalf of Plaintiffs
and Appellants.
Keller Lenkner and Warren Postman; Custis Law and
Keith A. Custis for Defendants and Respondents.
******
The parties in this case have not just been forum shopping;
they have been on a veritable shopping spree. When customers
who purchased a tax preparation and e-filing program sued the
software manufacturer in federal class actions, the manufacturer
successfully moved to compel individual arbitration of their
claims. When the customers then filed demands for arbitration
and the manufacturer realized that its arbitration agreement
precluded class arbitration, the manufacturer found itself facing
40,000 individual arbitrations, each with at least a $3,200 price
tag in arbitration fees owed by the manufacturer. So the
manufacturer filed a lawsuit in state court and then moved for a
preliminary injunction to halt the arbitrations and to push each
arbitration into small claims court. While the state lawsuit was
pending, the customers filed a lawsuit in federal court seeking to
compel arbitration in light of the federal antitrust claims they
had added to their arbitration demands. The federal court
declined to intervene, leaving the matter in state court. The
state court thereafter denied the motion for a preliminary
2
injunction. The manufacturer has appealed that denial. We
conclude the denial was correct, and accordingly affirm.
FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. The Underlying Allegations1
Intuit Inc. and its subsidiary, Intuit Consumer Group LLC
(collectively, Intuit) is the maker of the online tax preparation
and e-filing software TurboTax. Fearing that the Internal
Revenue Service (IRS) would start offering similar services for
free, Intuit and others in that industry formed a consortium and
agreed to provide free online tax preparation and e-filing services
to qualifying, low-income taxpayers as long as the IRS stayed out
of the industry. Intuit then did a “bait and switch”: Intuit lured
consumers to its TurboTax website with the promise of free
software (called the “Freedom Edition”), but once consumers got
to the website, Intuit (1) made it nearly impossible to locate the
free software, (2) informed consumers that they only qualified for
its paid software (called the “Free Edition”), and then (3) sold
consumers that paid software.
B. Terms of service
Consumers who use TurboTax software may do so only
after they click that they accept Intuit’s terms of service.
The terms of service contain an arbitration agreement
mandating the arbitration of “ANY DISPUTE OR CLAIM RELATING IN
ANY WAY TO THE SERVICES OR THIS AGREEMENT.” The arbitration
agreement has three carve-outs or limitations: (1) it provides
that “you”—which the terms of service elsewhere implicitly define
as being the consumer because “we,” “our” or “us” refers to
1 We accept these allegations as true for purposes of this
opinion.
3
Intuit—“may assert claims in small claims court if your claims
qualify”;2 (2) it provides that “any party to the arbitration may at
any time seek injunctions or other forms of equitable relief from
any court of competent jurisdiction”; and (3) it provides that “WE
EACH AGREE THAT ANY AND ALL DISPUTES MUST BE BROUGHT IN
THE PARTIES’ INDIVIDUAL CAPACITY AND NOT AS A PLAINTIFF OR
CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE
PROCEEDING.” (Italics added.)
The terms of service also provide that any arbitration will
be conducted by the American Arbitration Association (AAA) and
“under the AAA’s rules.”
C. Lawsuits, arbitration demands, and maneuvers
among fora
1. Federal class actions
Consumers filed several class actions in federal court
against Intuit challenging its concealment of the free TurboTax
software and its redirection toward the paid software. After the
actions were consolidated, Intuit moved to compel individual
arbitration with the named plaintiffs pursuant to the agreement
to arbitrate set forth in the terms of service. The court
eventually granted that motion.
2. Multiplicity of arbitration demands
Bounced out of federal court, approximately 40,000
TurboTax consumers then filed individual arbitration demands
2 Verbatim, this provision reads:
“ANY DISPUTE OR CLAIM RELATING IN ANY WAY TO THE
SERVICES OR THIS AGREEMENT WILL BE RESOLVED BY
BINDING ARBITRATION, RATHER THAN IN COURT, except
that you may assert claims in small claims court if
your claims qualify.”
(Italics added.)
4
with the AAA.3 The demands were filed in three waves—in
October 2019, January 2020, and March 2020—by a single law
firm. Another 85,000 individual demands may be waiting in the
wings.
To initiate arbitration with the AAA, a consumer must pay
a nonrefundable $200 filing fee to file its demand. Per the
arbitration agreement, Intuit must pay the remaining AAA-set
fees—a nonrefundable $300 fee to file a response to the demand,
another $2,900 in fees to litigate the demand, and another $1,500
if the litigation requires a telephonic or in-person hearing. It
therefore costs Intuit either $3,200 or $4,700 to litigate each
demand, which is typically in excess of the amount sought by
each consumer. Even if all 40,000 arbitrations are conducted
without hearings, the total cost to Intuit would be $128 million.
The law firm representing the consumers has sought to
reach a global settlement with Intuit.
To avoid the staggering cost of arbitrating each individual
arbitration demand, Intuit requested that the AAA
administratively close the vast majority of the pending
arbitrations so they could be litigated in small claims court.4 In
making this request, Intuit argued that the arbitration
agreement in the terms of service incorporates the AAA’s rules,
that rule 9 of the AAA’s Consumer Arbitration Rules (consumer
rules) grants either party the right to opt out of the arbitral forum
if a claim otherwise meets the jurisdictional prerequisites for
small claims court, and that rule 9 obligates the AAA to
3 The consumers’ counsel subsequently withdrew a subset of
the demands.
4 Intuit did not make this request with regard to a handful of
the consumers’ demands.
5
administratively close any qualifying arbitrations upon request if
they have not yet been assigned to an arbitrator. The consumers
objected to Intuit’s requests. After a barrage of increasingly
blistering letters from Intuit, the AAA ruled—and thereafter
reaffirmed its ruling—that the decision whether to send each
consumer’s demand to small claims court was a question of
arbitrability to be decided by the arbitrator in each case.
3. Intuit’s state court lawsuit
In June 2020, Intuit filed a declaratory relief action in Los
Angeles Superior Court against 9,933 consumers from the first
and second waves of demands filed with the AAA seeking a
declaration that the consumers’ claims belonged in small claims
court, and not in arbitration.
4. The consumers’ federal claims and federal court
action
In July and August 2020, the consumers amended their
arbitration demands to add claims for violations of the federal
Sherman Act (15 U.S.C. § 1 et seq.).
Immediately thereafter, the consumers sued Intuit in
federal court to compel arbitration and to stay Intuit’s
declaratory relief action. The federal court dismissed the
consumers’ petition to compel arbitration: Although the court
found one of the consumers’ antitrust theories not to be frivolous
(namely, that Intuit had violated federal law by “engag[ing] in
unlawful price fixing” by “colluding with its competitors to hide
the” free services), the court nevertheless declined to exert
jurisdiction “in deference to [the] earlier-filed state suit.”
II. Procedural Background
As noted above, Intuit filed a declaratory relief action
against thousands of the consumers who filed the first and second
6
waves of arbitration demands.5 The action sought declarations
that (1) Intuit was contractually entitled to have AAA
administratively close the pending arbitrations because rule 9 of
the consumer rules granted Intuit the right to elect to proceed in
small claims court, (2) the statutes enacted as part of Senate Bill
No. 707 (SB 707) were preempted by the Federal Arbitration Act
(FAA) (9 U.S.C. § 1 et seq.) because they discourage arbitration
by mandating penalties against businesses (and employers) who
do not pay arbitration fees within 30 days of the date they are
due (Code Civ. Proc., § 1281.97 et seq.), and (3) the consumers’
newly added Sherman Act claims constitute a “de facto class
action” that is barred by the class action waiver contained in the
terms of service’s arbitration agreement.
On September 2, 2020, Intuit filed a motion for a
preliminary injunction to enjoin the pending arbitrations.
Specifically, Intuit argued that it was likely to prevail on the
merits of its first two declaratory relief claims. Intuit further
argued that it will suffer irreparable harm if the consumers’
arbitrations are not enjoined because it faces “a stark, no-win
choice” of either paying millions of dollars in arbitration fees
under the threat of SB 707 penalties or “pay[ing] a massive
[global] settlement” of claims it vehemently disputes.
After full briefing and a hearing, the trial court issued a 16-
page order denying Intuit’s motion for a preliminary injunction.
As a threshold matter, the court determined that it had
jurisdiction to entertain Intuit’s motion because the arbitration
5 Intuit later filed a first amended complaint that added as
defendants 31,054 of the consumers who had filed third-wave
arbitration demands and whose arbitrations Intuit had asked the
AAA to administratively close.
7
agreement authorized either party to “seek injunctions or other
forms of equitable relief from any court of competent
jurisdiction.” On the merits, the court concluded that Intuit was
not likely to prevail on the two claims for relief it advanced in its
motion. First, the court ruled that Intuit was unlikely to prevail
on its contract-based claim for relief because (1) the “plain” text
“of the [t]erms of [s]ervice leads to the conclusion that only the
[c]onsumers”—and not Intuit—“have the right to take a case to
small claims court,” and there was no “conflict” between that text
and consumer rule 9(b) insofar as the more specific text in the
terms of service “modified” rule 9(b), and (2) the consumers’
newly added Sherman Act claims precluded removal of their
arbitrations to small claims court because those federal law
claims were outside the jurisdiction of that court, those claims
were not to be dismissed as the fruit of improper forum shopping,
and the trial court declined to decide whether the individual
Sherman Act claims constituted a de facto class action when
considered in the aggregate. Second, the trial court ruled that
Intuit was unlikely to prevail on its preemption claim because
that claim was “certainly not ripe.” Because the thrust of Intuit’s
argument is that SB 707’s penalties for late payment discouraged
arbitration, that argument was not ripe because Intuit “has not
yet blown any of its fee deadlines” and there was no “reason to
believe that it [would] do so in the future.” Alternatively, the
court noted that Intuit also would not prevail on the merits
because the “proper remedy” flowing from SB 707’s invalidation
would be to “enjoin the sanctions” mandated by SB 707, not to
“halt the arbitration[s].” In light of its conclusion that Intuit was
unlikely to prevail on the merits, the court found no occasion to
balance the harms of granting or denying injunctive relief.
8
Intuit filed this timely appeal.
DISCUSSION
Intuit asserts that the trial court erred in denying its
motion for a preliminary injunction. To obtain such relief, the
moving party must show that (1) it “is likely to prevail on the
merits at trial,” and (2) the likely “‘interim harm’” to the moving
party “if [the] injunction is denied is greater than ‘the [likely
interim] harm [to] the [opposing party]” “if the . . . injunction is
issued.” (Integrated Dynamic Solutions, Inc. v. VitaVet Labs, Inc.
(2016) 6 Cal.App.5th 1178, 1183; O’Connell v. Superior Court
(2006) 141 Cal.App.4th 1452, 1481 [burden rests on movant]; see
Code Civ. Proc., § 527, subd. (a).) The showings operate on a
sliding scale: “[T]he more likely it is that [the moving party] will
ultimately prevail, the less severe must be the harm that [it]
allege[s] will occur if the injunction does not issue.” (King v.
Meese (1987) 43 Cal.3d 1217, 1227.) Although the denial of a
preliminary injunction is generally reviewed for an abuse of
discretion, we independently review the specific question
presented here—that is, whether Intuit has carried its burden of
showing a likelihood of prevailing on the merits when that
determination turns on the application of the law to undisputed
facts. (City of Vallejo v. NCORP4, Inc. (2017) 15 Cal.App.5th
1078, 1085.)
Because Intuit’s motion for injunctive relief is premised on
its contract and preemption claims in its complaint, our analysis
of whether the trial court erred in determining that Intuit was
unlikely to prevail on the merits of those claims boils down to
three questions: (1) Do the terms of service give Intuit the
contractual right to push the consumers’ pending arbitrations
into small claims court?; (2) Does the consumers’ addition of
9
Sherman Act claims to the arbitrations constitute a de facto class
action that warrants outright dismissal of those federal claims?;
and (3) Is Intuit’s preemption challenge to SB 707 ripe for
adjudication? As described in detail below, we conclude the
answer to all three questions is, “No.”
I. Interpretation of Arbitration Agreement
Intuit asserts that it has the contractual right, under the
terms of service, to elect to send the consumers’ individual
arbitrations to small claims court. Intuit’s assertion rests on the
following chain of logic: (1) the terms of service incorporate “the
AAA’s rules”; (2) the AAA’s consumer rules are the pertinent AAA
rules; (3) (a) rule 9(b) of the consumer rules provides that (i)
“either party may choose to take” a “claim” to “small claims court”
if that “claim is within the jurisdiction of a small claims court,”
and (ii) if that choice is made “before [an] arbitrator is formally
appointed,” the AAA must “administratively close the case”; and
(b) (i) rule 1(d) of the consumer rules provides that the AAA will
only arbitrate disputes if the governing arbitration agreement
“substantially and materially complies with” the AAA’s
Consumer Due Process Protocol (due process protocol); and (ii)
the due process protocol states that consumer arbitration
agreements “should make it clear that all parties retain the right
to seek relief in a small claims court for disputes or claims within
the scope of its jurisdiction.” (Italics added.)
Because arbitration is a matter of contractual consent
between the parties (Douglass v. Serenivision, Inc. (2018) 20
Cal.App.5th 376, 386 (Douglass)), and because the arbitration
agreement specifies the use of California law, we apply
California’s general contract principles to interpret the terms of
service (Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233,
10
243-244, overruled on other grounds by Lamps Plus, Inc. v.
Varela (2019) 139 S. Ct. 1407, 1417-1419 (Lamps Plus); see
Lamps Plus, at p. 1415). We independently interpret the terms of
service, and are not bound by the trial court’s interpretation.
(Gribaldo v. Agrippina Versicherunges A.G. (1970) 3 Cal.3d 434,
445-446; Alvarez v. Altamed Health Services Corp. (2021) 60
Cal.App.5th 572, 581; Valencia v. Smyth (2010) 185 Cal.App.4th
153, 161-162.)
A. Analysis
The plain text of the arbitration agreement in the terms of
service is ambiguous on the question of who may elect to push an
arbitration into small claims court. That is because the text is
subject to two reasonable constructions. (Powerline Oil. Co., Inc.
v. Superior Court (2005) 37 Cal.4th 377, 390 [a contract “‘“will be
considered ambiguous when it is capable of two or more
[reasonable] constructions”’”].)
On the one hand, the text provides that “you may assert
claims in small claims court if your claims qualify.” (Italics
added.) Applying plain English, the use of the word “you” refers
solely to the consumer—not to Intuit. (Thompson v. Ford of
Augusta, Inc. (D.Kan., Feb. 15, 2019, No. 18-2512-JAR-KGG)
2019 U.S. Dist. Lexis 24659, *2-*3, *14-*15 (Thompson)
[arbitration agreement saying “you may bring in small claims”
refers solely to consumer, not to the business]; see generally, AIU
Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 822 (AIU Ins.
Co.) [contracts are to be interpreted according to their terms’
“‘ordinary’” and “‘clear and explicit meaning”]; Greenspan v.
LADT, LLC (2010) 185 Cal.App.4th 1413, 1437 (Greenspan)
[same]; Civ. Code, §§ 1639 [ascertain parties’ intention from
writing of contract], 1644 [“words of a contract are to be
11
understood in their ordinary and popular sense”].) The plain
meaning of this provision is only reinforced when it is contrasted
with other provisions of the terms of service that use the phrases
“any party,” “we,” and “you and Intuit” when seeking to convey
that the provision applies to both the consumer and Intuit.
(Alameda County Flood Control & Water Conservation Dist. v.
Department of Water Resources (2013) 213 Cal.App.4th 1163,
1186 [where a contract uses different words in different places,
those different words connote different meanings]; Shell Oil Co.
v. Winterthur Swiss Ins. Co. (1993) 12 Cal.App.4th 715, 753
[same].)
On the other hand, the terms of service’s text incorporates
the AAA rules, and the consumer rules—both in rule 9(b) and
through compliance with the due process protocol—specify “either
party may take the claim to” “small claims court.” (Italics added.)
Connecting the dots in this fashion ostensibly leads to the
conclusion that either the consumer or Intuit may move
qualifying claims into small claims court.
These two contrary readings of the text create an
“inconsisten[cy]”—and hence an ambiguity—“on the issue of
which party may initiate a small claims court action.”
(Thompson, supra, 2019 U.S. Dist. LEXIS 24659, at p. *17.)
We conclude that this ambiguity must be resolved in favor
of reading the terms of service to permit only the consumer to
transfer a claim to small claims court, and we reach this
conclusion for two reasons.
First, this is the result dictated by the well-settled maxim
that “ambiguities about the scope of an arbitration agreement
must be resolved in favor of arbitration.” (Lamps Plus, supra,
139 S.Ct. at p. 1418; Mastrobuono v. Shearson Lehman Hutton
12
(1995) 514 U.S. 52, 62 (Mastrobuono); accord, Greenspan, supra,
185 Cal.App.4th at p. 1437; Kennedy, Cabot & Co. v. National
Assn. of Securities Dealers, Inc. (1996) 41 Cal.App.4th 1167,
1175.) Here, construing the text to empower only one party—
rather than both—to move cases out of arbitration is the
construction that keeps more cases in arbitration and hence the
construction that “favor[s] . . . arbitration.”
Second, this is also the result counseled by the maxim that
an “irreconcilable conflict” between a more general policy (here,
the more general AAA consumer rules) and a more specific “slip”
or “rider” (here, the more specific terms of service) is to be
resolved in favor of the more specific provision. (Burch v.
Hartford Fire Ins. Co. (1927) 85 Cal.App. 542, 551.)
Because the terms of service only empower a consumer to
elect whether to move an arbitration to small claims court, the
trial court did not err in concluding that Intuit was unlikely to
succeed in asserting a contrary construction of the terms of
service.
B. Intuit’s further arguments
Intuit offers what boils down to five arguments challenging
our interpretation of the terms of service.
First, Intuit argues that AAA consumer rule 9(b) is
incorporated into the terms of service’s arbitration agreement “as
though recited verbatim” (King v. Larsen Realty, Inc. (1981) 121
Cal.App.3d 349, 357; Republic Bank v. Marine Nat. Bank (1996)
45 Cal.App.4th 919, 923; Shaw v. Regents of Univ. of Cal. (1997)
58 Cal.App.4th 44, 54 (Shaw)), and must be “give[n] effect” (Civ.
Code, § 1641). This is correct, but ultimately unhelpful. It is rule
9(b)’s incorporation into the agreement that renders the
agreement inconsistent with its other provisions and hence
13
ambiguous—but the fact of rule 9(b)’s incorporation does not
resolve that ambiguity. Instead, the maxims set forth above do.
Second, Intuit argues there is no inconsistency between
rule 9(b)’s grant of a bilateral right to move to small claims court
and the language in the terms of service granting the consumers
a unilateral right to do so. That is because, according to Intuit,
Intuit was required by the AAA’s due process protocol to include
the language in the terms of service stating “you may assert
claims in small claims court” in order to provide consumers notice
of their right to do so, such that the language operates solely as a
notice provision and not to define the parties’ rights and
obligations under the terms of service. To be sure, the due
process protocol recommends giving “notice of the option to make
use of applicable small claims court procedures,” and provides a
sample arbitration agreement with language similar to the
language used here because the sample reads, “You . . . GIVE UP
YOUR RIGHT TO GO TO COURT to assert or defend your rights under
this contract (EXCEPT for matters that may be taken to SMALL
CLAIMS COURT).” (Italics added.)
We nevertheless reject Intuit’s argument. To begin, a
central premise of Intuit’s argument—namely, that Intuit was
required by the due process protocol to include the “you may
assert” language—is false. (Winslow v. D.R. Horton America’s
Builder (Tex.App., May 29, 2013, No. 04-12-00376-CV) 2013
Tex.App. Lexis 6488, at *2 (Winslow) [merely “self-regulated and
not mandatory”]; Dalton v. Santander Consumer United States,
Inc. (N.M. 2016) 2016-NMSC-035 [385 P.3d 619, 625] [merely
“guiding . . . principles”]; accord, Pack v. Damon Corp. (E.D.Mich.
2004) 320 F.Supp.2d 545, 557 [rejecting argument that failure to
comply with suggested notice provisions rendered arbitration
14
agreement unenforceable], revd. in part on another ground (6th
Cir. 2006) 434 F.3d 810; McNamara v. Samsung
Telecommunications America, LLC (N.D.Ill., Nov. 3, 2014, No. 14
C 1676) 2014 U.S. Dist. Lexis 155520, at *8 [same].) Further,
and more to the point, we may “give effect to every part” of a
contract—and, thus, may treat the “you may assert” language as
solely a notice provision—only if it is “reasonably practicable” to
do so. (Civ. Code, § 1641; People v. Doolin (2009) 45 Cal.4th 390,
413, fn. 17 [same].) Here, it is not. We must read contracts from
an objective “layperson[’s]” point of view (Waller v. Truck Ins.
Exchange, Inc. (1995) 11 Cal.4th 1, 18; accord, AIU Ins. Co.,
supra, 51 Cal.3d at p. 822), and it is implausible that an objective
consumer reading the terms of service would travel down the long
and winding road offered by Intuit in order to read the “you may
assert” language as merely a notice provision—that is, (1) that
the terms of service incorporate the AAA’s rules; (2) that the
applicable AAA rules are the consumer rules; (3) that the
consumer rules incorporate the due process protocol; (4) that the
due process protocol recommends giving consumers notice of their
right to move a case to small claims court; and (5) that the
language therefore does not mean what it actually says (namely,
that only a consumer may move to small claims court) because
the language is meant solely to give notice.
Third, Intuit argues that if there is any inconsistency
between the terms of service and rule 9(b), that inconsistency
must be resolved in favor of rule 9(b) because rule 9(b)’s rule
allowing both parties to move cases to small claims court is
mandated by the due process protocol. We reject this argument.
To begin, the central premise of this argument is also that
compliance with the due process protocol is mandatory; as noted
15
above, this premise is incorrect. Even if the due process protocol
were mandatory, using it as a tiebreaker to expand the rights of
businesses and employers is at odds with its fundamental
function of “benefit[ting]” and “protect[ing]” consumers. (Jenkins
v. First American Cash Advance of Georgia, LLC (11th Cir. 2005)
400 F.3d 868, 879.) Lastly, the AAA has thus far implicitly
determined that rule 9(b) is not controlling to the arbitrations at
issue in this case and that the consumers’ arbitrations
nonetheless still comply with the due process protocol because it
has accepted the cases for arbitration (which it cannot do without
determining that arbitration pursuant to the agreement
“substantially and materially complies” with the protocol
(Winslow, supra, 2013 Tex.App. Lexis 6488, at *2)) and because it
has refused to administratively close the arbitrations.
Fourth, Intuit argues that the trial court was wrong to
conclude that the language set forth in the terms of service
modified rule 9(b) of the consumer rules because any
modifications of the AAA’s rules incorporated into the agreement
must be done more explicitly, preferably through language like,
“Notwithstanding the AAA rules . . .” For support, Intuit cites
RLI Ins. Co. v. Kansa Reinsurance Co. (S.D.N.Y., Nov. 14, 1991,
No. 91 Civ. 4319 (MBM)) 1991 U.S. Dist. Lexis 16388 (RLI). We
reject Intuit’s argument for several reasons. To begin, the trial
court’s modification-based rationale is irrelevant because it does
not underlie our analysis; as noted above, our analysis turns on
the inconsistency between rule 9(b) and the express language of
the terms of service and resolves that inconsistency using
longstanding maxims of contract construction. (E.g., People v.
Zapien (1993) 4 Cal.4th 929, 976 [noting “firmly established” rule
that appellate courts review the trial court’s ruling, not its
16
rationale].) Further, even if the modification rationale were
relevant, and even if we assume for the sake of argument that a
modification must be explicit, the modification here is explicit:
The unilateral language “you may assert claims in small claims
court” set forth in the terms of service explicitly modifies rule
9(b)’s bilateral language “either party may choose to take” a
“claim” to “small claims court.” (Mastrobuono, supra, 514 U.S. at
p. 57 [“parties are generally free to structure their arbitration
agreements as they set fit”]; accord, Lamps Plus, supra, 139 S.
Ct. at p. 1415 [courts must “‘enforce arbitration agreements
according to their terms’”].) The absence of the “Notwithstanding
the AAA rules” language Intuit prefers does not make the
otherwise clear modification any less clear. Contrary to what
Intuit asserts, RLI does not erect a higher standard for
modification. RLI held that the parties’ arbitration agreement
did not alter the AAA rules they had incorporated into it, but that
was because the agreement was wholly “silent” as to the
provision allegedly modified; RLI noted that the parties could
have modified the incorporated AAA rules either by “explicitly
repudiat[ing]” the rules or by “explicitly alter[ing] [those rules] by
the inclusion of their own terms in the” agreement. (RLI, at *2-
*3, *7.) Here, the parties took the latter route.
Lastly, Intuit argues that interpreting the terms of service
in a manner that denies Intuit a right to move cases to small
claims court leads to absurd results and must therefore be
avoided. Although interpretations leading to absurd results are
generally to be avoided (Civ. Code, § 1638; Eith v. Ketelhut (2018)
31 Cal.App.5th 1, 19; Segal v. Silberstein (2007) 156 Cal.App.4th
627, 634-635), this maxim is not implicated here. Intuit begins
by contending that it makes no sense for it to forego the right to
17
litigate in small claims court when the damages consumers
typically seek (given the relatively low cost of TurboTax) will
typically be far less than the $3,200 or more Intuit would have to
pay for arbitration. However, this imbalance between a
consumer’s typical recovery and Intuit’s typical cost exists only
because Intuit has also insisted upon individual arbitration
rather than class arbitration; were class arbitration possible, the
amount at issue would be vastly larger and the relative cost of
arbitration a bargain. An unwise outcome is not an absurd
result, as courts are not in the business of rewriting contracts to
relieve parties like Intuit from bad deals they drafted for
themselves. (Series AGI West Linn of Appian Group Investors
DE, LLC v. Eves (2013) 217 Cal.App.4th 156, 164; Walnut Creek
Pipe Distributors, Inc. v. Gates Rubber Co. Sales Div. (1964) 228
Cal.App.2d 810, 815.) Intuit also contends that it makes no sense
for it to forego the right to litigate in small claims court because,
according to a law review article, consumers win more often in
small claims court than they do in arbitration. Aside from the
fact that law review articles are not competent evidence (see, e.g.,
People v. Wilcox (2013) 217 Cal.App.4th 618, 626), we do not see
how it is absurd for Intuit to give up the right to move to a venue
where it is more likely to lose.
II. De Facto Class Action
Intuit next asserts that the trial court’s alternate rationale
for concluding that Intuit was unlikely to succeed on the merits of
its contract-based claim—namely, that the consumers’ newly
added Sherman Act claims preclude transfer of the arbitration
demands to small claims court because those federal claims fall
outside the jurisdiction of small claims court—is also incorrect.
Specifically, Intuit asserts that (1) the 9,933 consumers’
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simultaneous assertion of Sherman Act claims all seeking the
same injunctive relief amount to a single, “de facto” class action,6
and (2) the arbitration agreement in the terms of service
explicitly require “ALL DISPUTES” to be “BROUGHT IN THE PARTIES’
INDIVIDUAL CAPACITY AND NOT AS A PLAINTIFF OR CLASS MEMBER
IN ANY PURPORTED CLASS OR REPRESENTATIVE ACTION.” For
support, Intuit cites several cases holding that individual
consumers’ identical federal antitrust claims under the Clayton
Act (15 U.S.C. § 12 et seq.) to enjoin the merger between AT&T
and T-Mobile amounted to a class action barred by an arbitration
agreement. (AT&T Mobility LLC v. Bernardi (N.D.Cal., Oct. 26,
2011, Nos. C 11-03992 CRB, C 11-04412 CRB) 2011 U.S. Dist.
Lexis 124084, at *17-*23; AT&T Mobility LLC v. Fisher (D.Md.,
Oct. 28, 2011, No. DKC 11-2245) 2011 U.S. Dist. Lexis 124839, at
*11-*13; AT&T Mobility LLC v. Smith (E.D.Pa., Oct. 6, 2011, No.
11-cv-5157) 2011 U.S. Dist. LEXIS 125367, at *3-*4 (Smith).)
This assertion is unpersuasive for four reasons.
First, Intuit’s challenge to the trial court’s alternate
rationale has no effect on the affirmative analysis in this opinion.
Second, the trial court specifically declined to rule on
Intuit’s argument that the Sherman Act claims constituted an
impermissible de facto class action after Intuit represented that
it was not seeking preliminary injunctive relief on that basis.
6 Intuit also makes passing references to the consumers’
addition of California unfair competition law claims for injunctive
relief (Bus. & Prof. Code, § 17200 et seq.), for which California’s
small claims courts also lack jurisdiction (Code Civ. Proc.,
§§ 116.220, 116.221 [delineating jurisdiction]). But whether
these claims too are barred by the class action waiver was not the
focus of Intuit’s argument in the trial court and is not the focus
on appeal either.
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This leaves us nothing to review, and also takes the issue outside
the scope of Intuit’s own motion.
Third, the addition of the Sherman Act claims in this case
does not constitute a de facto class action. Unlike the plaintiffs in
the AT&T/T-Mobile merger cases, the consumers in this case
have asserted federal antitrust claims along with their own state
law-based claims seeking individual relief; thus, they are not
seeking identical relief and cannot be viewed as a de facto class.
(Cf. Smith, supra, 2011 U.S. Dist. Lexis 125367, at *16 [plaintiffs
sought only “non-individualized relief”].)
Fourth, even if we were to assume that the consumers’
state law-based claims seeking individual relief are severable
from their Sherman Act claims, that the consumers’ state law-
based claims are properly moved to small claims court, and that
the only claims the consumers have left in arbitration are the
Sherman Act claims, Intuit is still not entitled to the relief it
seeks—namely, the outright dismissal of the Sherman Act
claims. Sherman Act claims may only be litigated in two fora—
federal court or arbitration (United States Golf Assn. v. Arroyo
Software Corp. (1999) 69 Cal.App.4th 607, 623-624 [exclusive
federal court jurisdiction]); the terms of service requires claims to
be arbitrated but Intuit is now seeking to push the claims out of
arbitration and into oblivion. This is not allowed, because the
FAA prohibits arbitration agreements that effectively eliminate a
party’s substantive statutory rights. (Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth (1985) 473 U.S. 614, 637, fn. 19; McGill
v. Citibank, N.A. (2017) 2 Cal.5th 945, 963.) Although Intuit
insists on appeal that it is not trying to deny the consumers a
forum, Intuit was more forthcoming with the trial court, going so
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far as to argue that “the Sherman Act claims are not allowed to
go forward.”
III. SB 707 Preemption
Intuit finally asserts that SB 707 is preempted by the FAA
because the heavy penalties SB 707 mandates when an employer
or business does not pay its arbitration fees in a timely fashion
discourages arbitration, thereby thwarting the FAA’s goal of
encouraging arbitration.7 Preemption and the precursor issue of
ripeness are both issues of law, and hence issues we
independently review. (Farm Raised Salmon Cases (2008) 42
Cal.4th 1077, 1089, fn. 10 [preemption]; Metropolitan Water Dist.
of Southern California v. Winograd (2018) 24 Cal.App.5th 881,
892 [ripeness].) Intuit’s SB 707-based claim is unlikely to
succeed for two reasons.
First, the preemption issue Intuit presents is not ripe for
adjudication. To be ripe, a claim must be “‘definite and
concrete,’” and it must seek “‘specific relief’” rather than “‘an
opinion advising what the law would be upon a hypothetical set
of facts.’” (Pacific Legal Foundation v. California Coastal Com.
(1982) 33 Cal.3d 158, 171, quoting Aetna Life Ins. Co. v. Haworth
(1937) 300 U.S. 227, 240-241.) That standard is not met here.
Intuit’s primary argument that its preemption claim is ripe is
that SB 707 puts it in a nearly impossible situation—either
comply with SB 707 by timely paying arbitration fees even when
there is a good chance no fees are owed because the arbitration
should be taking place in small claims court or do not comply
with SB 707 and face its statutory penalties. In light of our
resolution of Intuit’s contract-based and “de facto” class action
7 The U.S. Chamber of Commerce filed an amicus curiae
brief in support of Intuit on this issue.
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claims, however, Intuit is not in this situation because it will
have to pay arbitration fees no matter what: Either all of the
consumers’ claims remain in arbitration or, at a minimum, the
consumers’ Sherman Act claims remain in arbitration. Intuit is
on the hook for the full amount of the arbitration fees either way.
Intuit tries to side-step this outcome by suggesting that the
consumers’ Sherman Act claims are somehow invalid because
they were first asserted after Intuit requested that the
arbitrations be administratively closed, but Intuit offers no
argument, no law, and no facts to show why this timing matters.
Intuit never asserts that the consumers could not have filed
entirely new demands for arbitration based on the Sherman Act
even if Intuit’s request for closure had been granted, such that
arbitration fees would still be due. Because Intuit is responsible
for the arbitration fees no matter what, the only concrete harm
that might arise from SB 707’s penalties is if they were unfairly
imposed under the circumstances of a particular arbitration. But
that has yet to happen, as Intuit has timely paid all of the initial
arbitration fees that have come due. Unless and until the facts
have “‘sufficiently congealed’” for a court to make an “‘an
intelligent and useful decision’” about whether SB 707’s
application on specific facts discourages arbitration, we would be
issuing a “‘purely advisory opinion[].’” (Vandermost v. Bowen
(2012) 53 Cal.4th 421, 452.)
Second, even if we ignored the ripeness concerns, and even
if we accepted Intuit’s argument that SB 707 is preempted by the
FAA, Intuit is still unlikely to succeed with its claim to halt the
ongoing arbitrations. That is because the invalidity of SB 707
would, at most, justify an injunction prohibiting the imposition of
SB 707’s statutory penalties in the event arbitration fees were
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paid late; it would not justify an injunction halting the
arbitrations altogether.
* * *
In light of our analysis, we have no occasion to consider
whether the balance of the harms warrants interim relief for
Intuit. Moreover, because we affirm the trial court’s order
denying Intuit’s motion for a preliminary injunction, we
necessarily reject Intuit’s request on appeal that this court issue
an injunction halting all of the consumers’ arbitrations.
DISPOSITION
The order is affirmed. The consumers are entitled to their
costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
______________________, J.
HOFFSTADT
We concur:
_________________________, P. J.
LUI
_________________________, J.
CHAVEZ
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