Opinion
Case No. 21-cv-01495-JST
2021-06-25
LAG SHOT LLC, et al., Plaintiffs, v. FACEBOOK, INC., Defendant.
Cook ALCiati, Pro Hac Vice, Washington, DC Seth Wesley Wiener, Law Offices of Seth W. Wiener, San Ramon, CA, for Plaintiffs. Archis Ashok Parasharami, Mayer Brown LLP, San Francisco, CA, Alina Artunian, Pro Hac Vice, Lauren R. Goldman, Pro Hac Vice, Michael E. Rayfield, Pro Hac Vice, Mayer Brown LLP, New York, NY, Matthew David Provance, Pro Hac Vice, Mayer Brown LLP, Chicago, IL, for Defendant.
Cook ALCiati, Pro Hac Vice, Washington, DC Seth Wesley Wiener, Law Offices of Seth W. Wiener, San Ramon, CA, for Plaintiffs.
Archis Ashok Parasharami, Mayer Brown LLP, San Francisco, CA, Alina Artunian, Pro Hac Vice, Lauren R. Goldman, Pro Hac Vice, Michael E. Rayfield, Pro Hac Vice, Mayer Brown LLP, New York, NY, Matthew David Provance, Pro Hac Vice, Mayer Brown LLP, Chicago, IL, for Defendant.
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO COMPEL ARBITRATION; DENYING MOTION FOR PRELIMINARY INJUNCTION
Re: ECF Nos. 32, 35
JON S. TIGAR, United States District Judge Before the Court is Defendant Facebook, Inc.’s motion to compel arbitration and stay proceedings, ECF No. 35, and Plaintiffs Lag Shot Golf, Scratch Golf Academy, and GGG Marketing's motion for preliminary injunction, ECF No. 32. The Court will grant in part and deny in part Facebook's motion to compel arbitration, and will deny Plaintiffs’ motion for a preliminary injunction.
I. BACKGROUND
A. Plaintiffs’ Advertising with Facebook
Plaintiffs are three Florida limited liability companies, owned and founded by Gary Guerrero. Complaint ("Compl."), ECF No. 1 ¶¶ 19-21, 27. Lag Shot Golf and Scratch Golf Academy provide golf instruction services and golf training aids. Id. ¶ 27.
Since at least early 2019, Lag Shot Golf and Scratch Golf Academy advertised their services on Facebook, spending over $100,000 each month on Facebook ads. Id. ¶ 27. Between the second quarter of 2019 and January 2021, Facebook rejected more than a dozen of Plaintiffs’ ads. Id. ¶¶ 30, 34. Facebook's explanatory emails that followed did not include "information sufficient to identify the alleged defect[s] in the ad[s]." Id. ¶ 30. As a result, Plaintiffs’ subsequent attempts to comply with Facebook's advertising standards were rejected. Id. ¶¶ 30, 34. Plaintiffs hired a digital marketing agency with access to a Facebook account representative, but they were still unable to acquire the information necessary to fix their ads and bring them into compliance with Facebook's policies. Id. ¶¶ 31-32. Whenever they received a rejection from Facebook, Plaintiffs would appeal the decision to Facebook for reconsideration. Id. ¶ 35. Following its review, Facebook usually determined that it had "incorrectly disabled" Plaintiffs’ privileges and that such privileges would be "reactivated." Id.
On January 6, 2021, Facebook notified Plaintiffs that an ad was in violation of Facebook's policies, and, as a result, Plaintiffs would lose the ability to advertise on the platform altogether. Id. ¶ 37. Plaintiffs subsequently appealed to Facebook for reconsideration, but their appeal was rejected. Id. ¶ 38. Plaintiffs sought additional information from Facebook regarding the appeal, and, on February 5, 2021, a Facebook representative emailed Plaintiffs confirming that they were banned from advertising on the site. Id. ¶ 39. The representative, however, could not provide the "specific policy or policies" supporting Facebook's decision to strip Plaintiffs of their advertising privileges. Id.
Since that time, media reports have highlighted other businesses having "strikingly similar experiences" to Plaintiffs’ related to Facebook's advertising review process, including the rejection of ads and suspension of accounts without clear explanations. Id. ¶¶ 42-44. Coverage has indicated that this trend correlates with Facebook's adoption of algorithmic technology to review ads. Id. ¶¶ 5, 13, 42-44.
B. Applicable Contracts
Three contracts apply to business advertising customers and relevant to Plaintiffs’ causes of action: (1) Facebook's Self-Serve Ad Terms, (2) Facebook's Advertising Policies, and (3) Facebook's Commercial Terms, ECF Nos. 35-5, 35-6. Compl. ¶ 28. All fall under Facebook's Terms of Service. Id. ; ECF Nos. 35-2, 35-3, 35-4, 35-7. A user first agrees to the terms of service when they initially register for a Facebook account. ECF 35-1 at ¶ 8. As articulated in its Advertising Policies, Facebook reviews all ads for compliance with those policies. Compl. ¶ 29. The Advertising Policies state that "[i]f your ad isn't approved for not fully complying with our policies, you can edit and resubmit for review.... If your ad doesn't get approved, we'll send you an email with details that explain why." Id.
Facebook's 2018 Commercial Terms also contain an arbitration agreement which an ad purchaser agrees to at the time of each ad purchase:
If you reside in the US or your business is located in the US: You and we agree to arbitrate any claim, cause of action or dispute between you and us that arises out of or relates to any access or use of the Facebook Products for business or commercial purposes ("commercial claim").
ECF No. 35-6 ¶ 4(b). In agreeing to the arbitration provision, advertisers also waive the right to bring claims as a class action or seek remedies that would impact other parties:
By entering into this arbitration provision, we and you agree that all parties are waiving their respective rights to a trial by jury or to participate in a class or representative action. THE PARTIES AGREE THAT EACH MAY BRING COMMERCIAL CLAIMS AGAINST THE OTHER ONLY IN ITS INDIVIDUAL CAPACITY, AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS, REPRESENTATIVE OR PRIVATE ATTORNEY GENERAL PROCEEDING. You may bring a commercial claim only on your own behalf and cannot seek relief that would affect other parties.
Id. (emphasis in original). Lastly, the Commercial Terms also contain the following severance clause:
If there is a final judicial determination that any particular commercial claim (or a request for particular relief) cannot be arbitrated in accordance with this paragraph's limitations, then only that commercial claim (or only that request for relief) may be brought in court. All other commercial claims (or requests for relief) remain subject to this paragraph.
Id. Advertisers are permitted to opt out of the arbitration agreement by mailing such a request to Facebook "within 30 days of the first acceptance date of any version" of its Commercial Terms. Id. Facebook revised the Commercial Terms in 2020 but made no material changes to the waiver, severance, and opt-out clauses. See ECF No. 35-5 ¶ 5(c)(ii). Plaintiffs acknowledge that Facebook's terms include an arbitration clause, and they do not allege that they opted out from that provision. Id. ¶ 72.
C. Procedural History
Plaintiffs filed their complaint on March 3, 2021, alleging four causes of action against Facebook: (1) violation of the California Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200, et seq. ; (2) breach of contract; (3) breach of covenant of good faith and fair dealing; and (4) fraud. Compl. ¶¶ 52-106. Among other remedies, Plaintiffs seek an injunction to (i) prohibit Facebook from rejecting ads without sufficient explanation, (ii) prevent Facebook from rejecting ads or restricting advertiser privileges without "fair advance notice" and the "opportunity to make appropriate corrections," and (iii) bar Facebook from enforcing any unconscionable contract terms. Id. at 30-31.
On April 8, 2021, Plaintiffs filed a motion for a preliminary injunction seeking the same injunctive relief. ECF No. 32 at 26. Facebook has filed an opposition, ECF No. 43, to which Plaintiffs have replied, ECF No. 48. On June 3, 2021 Facebook filed a motion to compel arbitration and stay litigation, including Plaintiffs’ motion for preliminary injunction. ECF No. 35. Plaintiffs opposed the motion, ECF No. 45, and Facebook replied, ECF No. 51.
II. JURISDICTION
This Court has jurisdiction pursuant to 28 U.S.C. § 1332(a).
III. MOTION TO COMPEL ARBITRATION
A. Legal Standard
The Federal Arbitration Agreement ("FAA") applies to arbitration agreements in any contract affecting interstate commerce. See Allied-Bruce Terminix Cos., Inc. v. Dobson , 513 U.S. 265, 273-74, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). Under the FAA, arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. This provision reflects "both a liberal federal policy favoring arbitration, and the fundamental principle that arbitration is a matter of contract." AT&T Mobility LLC v. Concepcion , 563 U.S. 333, 339, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011) (quotation marks and citations omitted).
A party bound by an arbitration clause may bring a petition in the district court to compel arbitration. 9 U.S.C. § 4. The FAA "leaves no place for the exercise of discretion by a district court." Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). On a motion to compel arbitration, the court's role under the FAA is "limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue." Chiron Corp. v. Ortho Diagnostic Sys., Inc. , 207 F.3d 1126, 1130 (9th Cir. 2000). "If the answer is yes to both questions, the court must enforce the agreement." Lifescan, Inc. v. Premier Diabetic Servs., Inc. , 363 F.3d 1010, 1012 (9th Cir. 2004).
An arbitration clause may be invalidated by "generally applicable contract defenses, such as fraud, duress, or unconscionability." Rent-A-Center, W., Inc. v. Jackson , 561 U.S. 63, 68, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) (quoting Doctor's Assocs., Inc. v. Casarotto , 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) ). When deciding whether a valid arbitration agreement exists, federal courts generally should "apply ordinary state-law principles that govern the formation of contracts." First Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). "[T]he party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration." Green Tree Fin. Corp.-Ala. v. Randolph , 531 U.S. 79, 91, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).
B. Enforceability and Scope of Arbitration Clause
Plaintiffs argue that Facebook's motion should be denied because the Commercial Terms’ arbitration clause is unconscionable and therefore unenforceable. ECF No. 45 at 13.
Unconscionability is a contractual defense "refer[ing] to an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party." Sanchez v. Valencia Holding Co., LLC , 61 Cal. 4th 899, 910, 190 Cal.Rptr.3d 812, 353 P.3d 741 (2015). The defense therefore contains both procedural and substantive elements. See id. California law recognizes a "sliding scale" approach to these elements; although both substantive and procedural elements must be present, "the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa." Armendariz v. Found. Health Psychcare Servs., Inc. , 24 Cal. 4th 83, 114, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000). "The ultimate issue in every [unconscionability] case is whether the terms of the contract are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement." Sanchez , 61 Cal. 4th at 912, 190 Cal.Rptr.3d 812, 353 P.3d 741.
Facebook's Commercial Terms specify that all disputes will be governed by California law. ECF No. 35-6 ¶ 4(b).
Under both the FAA and California law, the arbitration clause in Facebook's Commercial Terms is presumed to be enforceable unless shown otherwise. See OTO, L.L.C. v. Kho , 8 Cal. 5th 111, 125, 251 Cal.Rptr.3d 714, 447 P.3d 680 (2019). Plaintiffs fail to show that Facebook's arbitration clause meets the required showing for either procedural or substantive unconscionability. Therefore, the clause is generally enforceable.
1. Procedural Unconscionability
Procedural unconscionability focuses on aspects of "oppression" or "surprise" during contractual formation. Flores v. Transamerica HomeFirst, Inc. , 93 Cal. App. 4th 846, 113 Cal.Rptr.2d 376 (2001). "Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a ... form." Kho , 8 Cal. 5th at 126, 251 Cal.Rptr.3d 714, 447 P.3d 680 (quoting Pinnacle Museum Tower Assn. v. Pinacle Market Dev. (US), LLC , 55 Cal. 4th 223, 247 (2012)) (emphasis in original).
There is a "degree of procedural unconscionability" in a contract of adhesion. Sanchez , 61 Cal. 4th at 915, 190 Cal.Rptr.3d 812, 353 P.3d 741. Accordingly, "[t]he threshold inquiry in California's unconscionability analysis is whether the arbitration agreement is adhesive," but "an arbitration agreement is not adhesive if there is an opportunity to opt out of it." Mohamed v. Uber Techs., Inc. , 848 F.3d 1201, 1211 (9th Cir. 2016) (quotation marks and citations omitted). In Mohamed , the Ninth Circuit upheld an arbitration clause that required opting out "within 30 days either in person or by overnight delivery service." Id. Here, Facebook's Commercial Terms provide the opportunity for a party to opt out by providing notice to the specified mailing address "within 30 days of the first acceptance date of any version." ECF No. 35-6 ¶ 4(b). Because the option to send by mail within a 30-day period is less demanding than a requirement to opt out in person or via overnight delivery service, the Court concludes that the Commercial Terms’ arbitration clause provided Plaintiffs with a sufficient opportunity to opt out. The arbitration clause is neither adhesive nor oppressive.
Plaintiffs, however, claim that the determination of whether an opt-out clause is adhesive turns on whether the "opt[-]out was meaningful in the context of the relationship between the parties." ECF No. 45 at 15-16 (citing Ingle v. Cir. City Stores, Inc. , 328 F.3d 1165, 1172 (9th Cir. 2003) and Cir. City Stores, Inc. v. Ahmed , 283 F.3d 1198, 1199 (9th Cir. 2002) ). In Ahmed , the court rejected the plaintiff's assertion of unconscionability for a workplace arbitration agreement. 283 F.3d at 1200. Reflecting on that case, Ingle noted that the Ahmed arbitration clause was found to be "not procedurally unconscionable only because [the plaintiff] had a meaningful opportunity to opt out of the arbitration program." 328 F.3d at 1172 (emphasis in original). But Plaintiffs fail to distinguish the relevant attributes of the parties here from those in in Ahmed. In fact, Ahmed's central argument, which the Ninth Circuit rejected, was that "he did not have the degree of sophistication necessary to recognize the meaning of the opt-out provision or to know how to avoid it." Ahmed , 283 F.3d at 1199. The same cannot be said for Plaintiffs here, as the complaint explicitly identifies Guerrero as a "sophisticated user." Compl. ¶ 32. Therefore, even if the Ninth Circuit had held that a party lacking sophistication could not be expected to opt out, that reasoning could not apply to Plaintiffs.
Plaintiffs would also have the Court look to the California Supreme Court's decision in Gentry v. Superior Court , where "the availability of an opt[-]out was one consideration among several in deciding procedural unconscionability." ECF No. 45 at 15 (citing Gentry v. Superior Court , 42 Cal. 4th 443, 470-71, 64 Cal.Rptr.3d 773, 165 P.3d 556 (2007) ). The presence of an opt-out may not be determinative of the conscionability of an arbitration clause, but Gentry fails to bolster Plaintiffs’ case as the other elements of procedural unconscionability Plaintiff cites are unconvincing. These include misleading language and a single opportunity to opt out. ECF No. 45 at 16-20. Although these elements may possess an inherent degree of unfairness, precedent strongly indicates that they do not satisfy the demanding requirements for a showing of unconscionability.
First, Plaintiffs contend that the initial agreement for Facebook's Terms of Service misleads customers when it states that the agreement "requires the resolution of most disputes by binding arbitration." ECF No. 45 at 16; see also ECF No. 35-7. This text, however, includes hyperlinks to the Commercial Terms which contain the opt-out provision. Other courts in this district have held that "[t]he fact that the [contract was] hyperlinked and not presented on the same screen does not mean that [users] lacked adequate notice of the contract terms." Levin v. Caviar, Inc. , 146 F. Supp. 3d 1146, 1157 (N.D. Cal. 2015) (internal citations omitted). Similarly, the Ninth Circuit has upheld an arbitration clause even while acknowledging that the clause was "buried in the agreement." See Mohamed , 848 F.3d at 1211.
Nor does a one-time opt-out option rise to the level of unconscionability. ECF No. 45 at 17-18. On the contrary, such agreements have previously been found conscionable. Trudeau v. Google LLC , 349 F. Supp. 3d 869, 874 (N.D. Cal. 2018) (upholding opt-out clause that required opting out within "30 days of the first acceptance date of any version of these Terms"); McLellan v. Fitbit, Inc. , No. 3:16-cv-00036-JD, 2017 WL 4551484, at *2 (N.D. Cal. Oct. 11, 2017) (allowing enforcement of arbitration clause with opt-out requirement set "within 30 days of first accepting ... Terms of Service"). Viewed holistically, Plaintiffs’ allegations of procedural unconscionability fail to refute the strong presumption in favor of enforcing an arbitration agreement.
2. Substantive Unconscionability
The substantive unconscionability requirement seeks to avoid "overly harsh or one-sided results." Sonic-Calabasas A, Inc. v. Moreno , 57 Cal. 4th 1109, 1133, 163 Cal.Rptr.3d 269, 311 P.3d 184 (2013). "The standard for substantive unconscionability – the requisite degree of unfairness beyond merely a bad bargain – must be as rigorous and demanding for arbitration clauses as for any contract clause." Sanchez , 61 Cal. 4th at 912, 190 Cal.Rptr.3d 812, 353 P.3d 741.
Even if the Commercial Terms’ arbitration clause demonstrated a slight showing of procedural unconscionability, the corresponding showing of substantive unconscionability is not met. Plaintiffs contend that Facebook's fee splitting arrangement, in which it will cover arbitration expenses for claims less than $75,000, is substantively unconscionable. ECF No. 45 at 20-21. While this arrangement may create incentives for parties to value their claims below the $75,000 threshold, such a structure is not unconscionable. Facebook correctly notes that the California default rule divides arbitration fees between parties on a pro rata basis and Facebook's arrangement, therefore, "goes beyond California's policy." ECF No. 51 at 16 (citing TradeHill, Inc. v. Dwolla, Inc. , No. C-12-1082 MMC, 2012 WL 1622668, at *4 (N.D. Cal. May 9, 2012) and Cal. Civ. Proc. Code § 1284.2 ).
Plaintiffs also argue that the agreement to arbitrate in accordance with American Arbitration Association rules as modified by Facebook's Commercial Terms is substantively unconscionable. ECF No. 45 at 21-22. The Court disagrees; versions of this clause have been found enforceable in this district. See, e.g., Taylor v. Shutterfly, Inc. , No. 18-cv-00266-BLF, 2018 WL 4334770, at *3 (N.D. Cal. Sept. 11, 2018) (enforcing arbitration where procedures were to be governed by the rules of "the American Arbitration Association, as modified by this Agreement"); Silverman v. Move, Inc. , No. 18-cv-05919-BLF, 2019 WL 2579343, at * 9 (N.D. Cal. June 24, 2019).
The Court also rejects Plaintiffs’ argument that the arbitration provision is substantively unconscionable because it " ‘fails to provide for all the type of relief that would otherwise be available in court.’ i.e. , issue preclusion." ECF No. 45 at 22-23 (quoting Ingle , 328 F.3d at 1178 ). Plaintiffs read Ingle out of context. There, the court was concerned with the availability of "statutory remedies," id. at 1179, of which issue preclusion is not. While a lack of issue preclusion may make it harder to pursue a remedy, it does not eliminate any statutory remedies otherwise available to Plaintiffs. See Am. Exp. Co. v. Italian Colors Rest. , 570 U.S. 228, 229, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013) ("The fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy."). Moreover, California law treats nonnonmutual issue preclusion as the default for arbitration proceedings. See Vandenberg v. Super. Ct. , 21 Cal. 4th 815, 830, 88 Cal.Rptr.2d 366, 982 P.2d 229 (1999) ("[A] private arbitration award cannot have nonmutual collateral estoppel effect unless the arbitral parties so agree."). Once again, Plaintiffs’ suggestion of substantive unconscionability fails to refute the strong presumption in favor of enforcing an arbitration agreement.
3. Request for Limited Discovery
In the alternative, Plaintiffs ask for limited discovery concerning Facebook's response to other advertisers’ attempts to opt out of arbitration in the hope of identifying evidence to prove unconscionability. ECF No. 45 at 26-27. Facebook objects to discovery. ECF No. 51 at 18.
"The FAA provides for discovery and a full trial in connection with a motion to compel arbitration only if ‘the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue.’ " Simula, Inc. v. Autoliv, Inc. , 175 F.3d 716, 726 (9th Cir. 1999) (quoting 9 U.S.C. § 4 ). As neither party disputes the existence of the arbitration agreement, ECF No. 45 at 13; ECF No. 51 at 8, there is no additional information necessary to discover.
Moreover, it would be inconsistent with the aims of the class-action waiver to permit discovery regarding other users of Facebook's advertising platform. Plaintiffs’ desired inquiry into whether other users made successful attempts to opt out of the arbitration agreement has no bearing on their own failure to do so. See Hodsdon v. DirecTV, LLC , No. C 12-02827 JSW, 2012 WL 5464615, at *8 (N.D. Cal. Nov. 8, 2012) ("[T]he only relevant document is the actual arbitration agreement that Plaintiffs allege is unconscionable."). Nor can Plaintiffs’ single authority, Hoffman v. Citibank (South Dakota) N.A. , 546 F. 3d 1078 (9th Cir. 2008), support their request because the court there relied on reasoning from California's Discover Bank rule, which the Supreme Court subsequently rejected in Concepcion , 563 U.S. at 352, 131 S.Ct. 1740.
C. Scope of Arbitration Agreement
Having concluded that the parties’ arbitration clause is enforceable, the Court turns to the scope of arbitration. Plaintiffs argue that, pursuant to the California Supreme Court's holding in McGill v. Citibank, N.A. , 2 Cal. 5th 945, 216 Cal.Rptr.3d 627, 393 P.3d 85 (2017), they cannot be compelled to arbitrate their claim under the UCL seeking public injunctive relief. Based on the plain language of the Commercial Terms’ waiver and severance clauses and guided by California's McGill rule, the Court holds that the liability determination of whether Facebook violated the UCL should be made in arbitration, while the subsequent question of whether Plaintiffs are entitled to public injunctive relief is a matter for judicial determination.
1. California's Unfair Competition Law and the McGill Rule
California's Unfair Competition Law allows an individual to bring claims for "unlawful, unfair or fraudulent business act[s] or practice[s]" and "unfair, deceptive, untrue or misleading advertising." Cal. Bus. & Prof. Code § 17200. Under the UCL, "the primary form of relief available ... to protect consumers from unfair business practices is an injunction." McGill , 2 Cal. 5th at 954, 216 Cal.Rptr.3d 627, 393 P.3d 85 (quoting In re Tobacco II Cases , 46 Cal. 4th 298, 319, 93 Cal.Rptr.3d 559, 207 P.3d 20 (2009) ); see also Cal. Bus. & Prof. Code § 17203.
In McGill , the California Supreme Court ruled that under California law an "arbitration provision is invalid and unenforceable [if] it waives [a] right to seek public injunctive relief in any forum." 2 Cal. 5th at 954, 956, 216 Cal.Rptr.3d 627, 393 P.3d 85. Plaintiff Sharon McGill sought "an injunction prohibiting Citibank from continuing to engage in its allegedly illegal and deceptive practices" related to the operations and marketing of its creditor protector plan. Id. at 953, 216 Cal.Rptr.3d 627, 393 P.3d 85. However, Citibank's arbitration agreement only permitted relief to be awarded on an individual basis and required all claims to be brought in arbitration. Id. at 952, 216 Cal.Rptr.3d 627, 393 P.3d 85. Relying on California Civil Code Section 3513, the court held that the arbitration clause was unenforceable as it pertained to the pursuit of public injunctive relief. Id. at 961, 216 Cal.Rptr.3d 627, 393 P.3d 85. In other words, Citibank could not enforce terms that would waive the right to pursue a public remedy. The McGill court and the Ninth Circuit have both found this rule to be compatible with the FAA's saving clause and the Supreme Court's Concepcion decision. See id. at 961-62, 216 Cal.Rptr.3d 627, 393 P.3d 85 ; Blair v. Rent-A-Center , 928 F.3d 819, 827-28 (9th Cir. 2019).
"Any one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement." Cal. Civ. Code § 3513.
Facebook preserves its argument that the McGill rule is preempted by the FAA. ECF No. 35 at 20.
Here, Plaintiffs ask the Court to apply the McGill rule and find that their UCL claim and request for public injunctive relief must be reserved for judicial determination.
2. Public Remedy
Facebook argues that the McGill rule does not apply because the injunction sought by Plaintiffs does not constitute a public remedy, as the injunction would only benefit "a small subset of the general public: business owners who advertise on Facebook." ECF No. 35 at 18-20. A public injunction has "the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public. Relief that has the primary purpose or effect of redressing or preventing injury to an individual plaintiff – or to a group of individuals similarly situated to the plaintiff – does not constitute public injunctive relief." McGill , 2 Cal. 5th at 955, 216 Cal.Rptr.3d 627, 393 P.3d 85 (quotation marks and citations omitted). However, neither the California Supreme Court nor the Ninth Circuit have articulated a rule to determine whether the injunctive relief sought by a party constitutes a "public remedy." As a result, courts have come to divergent results. Compare id. at 956, 216 Cal.Rptr.3d 627, 393 P.3d 85 (finding request for injunctive relief against Citibank's misrepresentations of its "creditor protector" plan as public), with Sponheim v. Citibank, N.A. , No. SACV 19-264 JVS, 2019 WL 2498938, at *4 (C.D. Cal. June 10, 2019) (declining to find request for injunctive relief against Citibank's unauthorized "[f]oreign [t]ransaction [f]ee[s]" as public). Nonetheless, there are several relevant factors that aid in identifying the forms of relief to which the McGill rule should apply.
First, courts consider whether the individuals who stand to benefit from the injunction represent a closed or open set. A closed set is one whose members can be fully identified at the time the injunction is awarded, whereas the members of an open set cannot. Members of an open set, such as prospective and future customers, stand to benefit from the injunction even if they join the set (i.e., become a customer) long after the injunction is awarded. Courts generally find open sets to constitute the requisite "public" for a public injunction. See Blair , 928 F.3d at 822, 831 n.3 (awarding public remedy to individuals who might at any point "enter[ ] into rent-to-own transactions with Rent-A-Center in California"). By contrast, courts are disinclined to consider a desired injunction to be a public remedy where it benefits a closed set. See M. Resorts, Ltd. V. New England Life Ins. Co. , No. 19-cv-1545-WQH-AGH, 2019 WL 6840396, at *5 (S.D. Cal. Dec. 16, 2019) (finding plaintiff's desired relief not "public" as it would only benefit "people who have or had variable life insurance policies with [d]efendants"); Wright v. Sirius XM Radio Inc. , No. SACV 16-01688 JVS (JCGx), 2017 WL 4676580, at *9 (C.D. Cal. June 1, 2017) (declining to award public injunctive relief on behalf of a group of customers who had previously purchased lifetime subscriptions). The open-ended nature of who will benefit in the future from an injunction ensures that the group is not too "similarly situated to the plaintiff," McGill , 2 Cal. 5th at 955, 216 Cal.Rptr.3d 627, 393 P.3d 85, and distinguishes the public remedy from the retroactive nature of a class action. A second related factor concerns the nature of the contract in dispute. Courts appear particularly willing to deem "public" injunctions those sought in disputes surrounding purchasing, financing, and other consumer-like contracts. See Blair , 928 F.3d at 822, 831 n.3 (holding, in the context of rent-to-buy contracts, that efforts "to enjoin future violations of California consumer protection statutes" seek "relief oriented to and for the benefit of the general public"); McGill , 2 Cal. 5th at 952, 216 Cal.Rptr.3d 627, 393 P.3d 85 (credit card account); Eiess , 404 F. Supp. 3d at 1245 (checking account). In contrast, courts are less likely to find as sufficiently public requests for injunctive relief in disputes surrounding employment contracts.
The Court acknowledges that at least one court has awarded public remedies to open sets of individuals even when limitations apply to who could join the set. See Eiess v. USAA Fed. Sav. Bank , 404 F. Supp. 3d 1240, 1258 (N.D. Cal. 2019) (awarding public injunctive relief to present and future clients of USAA, even though USAA requires its customers to "have served in the military or [be] related to servicemembers who qualify for USAA's services").
By contrast, in Magana v. Doordash, Inc. , the court rejected "public" classification for injunctive relief brought under California Labor Code claims. 343 F. Supp. 3d 891, 901 (N.D. Cal. 2018). The court observed that "[t]hose claims have the primary purpose and effect of redressing and preventing harm to DoorDash's employees. Indeed, plaintiff's argument makes clear that the injunctive relief he seeks would be entirely opposite of what McGill requires – any benefit to the public would be derivate of and ancillary to the benefit to DoorDash's employees. " Id. (emphasis in original); see also Colopy v. Uber Tech. Inc. , No. 19-cv-06462-EMC, 2019 WL 6841218, at *1 (N.D. Cal, Dec. 16, 2019) (rejecting as not "public" an injunction sought against Uber to stop classifying "its drivers as independent contractors" instead of employees). Implicit in these decisions is the idea that relief afforded in the employment context is more likely to benefit only the employees at issue and less likely to apply generally to the public at large.
Finally, courts look to the centrality of the sought public injunction to the plaintiff's claims in order to ensure that claims are severed from arbitration proceedings only when necessary. In Johnson v. JP Morgan Chase Bank, N.A. , the court made a factual determination that the plaintiff's "prayers for monetary relief [were] the heart" of the claims brought; therefore the inclusion of a request for public injunctive relief could "not elevate the complaint" to one that would permit the plaintiff to "circumvent arbitration." No. EDCV 17-2477 JGB, 2018 WL 4726042, at *7 (C.D. Cal. Sept. 18, 2018). Similarly, in Sponheim v. Citibank, N.A. , the court considered plaintiff's desired "public injunctive relief as a mere incidental benefit to his primary aim of gaining compensation for injury for himself and others similarly situated" and therefore not subject to the McGill rule. 2019 WL 2498938, at *5.
In contrast to the aforementioned considerations, the Court gives little weight to the number of persons benefitted by the proposed relief. Although consideration of that factor may eliminate claims intended to benefit unarguably small groups, see Kilgore v. KeyBank, Nat. Ass'n , 718 F.3d 1052, 1061 (9th Cir. 2013) (observing 120 beneficiaries do not warrant public injunctive relief), it is less helpful in assessing larger groups. "The size of a class cannot, on its own, elevate a class action seeking injunction into a matter seeking public injunctive relief," because that would convert any consumer action against a large company into "public injunctive relief." Johnson , 2018 WL 4726042, at *9.
Applying these three factors, the Court finds that Plaintiffs seek a public remedy as articulated by McGill. Plaintiffs bring their claims for injunctive relief on behalf of "all individuals and businesses to whom Facebook markets its platform for advertising, which includes both current and [prospective] direct advertisers, third-party marketing services, and marketing service clientele." ECF No. 45 at 11. This group is sufficiently open-ended for the purported relief to benefit the public at large, because any future advertiser might benefit from a requirement that Facebook change its ad review processes. Supporting this determination is the customer-nature of Facebook's advertising contracts; advertisers like Plaintiffs are Facebook's customers not its employees. Finally, the injunction sought by Plaintiffs (i.e., changes to Facebook's advertising policies and their enforcement) goes to the "heart" of their complaint, given the prominence of the alleged UCL violation, and there is no evidence to suggest that Plaintiffs included the remedy only to avoid arbitration.
3. Application of the McGill Rule
The Commercial Terms require arbitration of "any claim, cause of action or dispute[,]" while also prohibiting the pursuit of "relief that would affect other parties." ECF No. 35-6 ¶ 4(b). As a result, the clause improperly waives Plaintiffs’ ability to seek a public injunctive remedy, prohibiting both arbitral and judicial consideration of the remedy and running afoul of the McGill rule. See Dornaus v. Best Buy Co. , No. 18-cv-04085-PJH, 2019 WL 632957, at *6 (N.D. Cal. Feb. 14, 2019) ("[T]here are two terms that together create an unenforceable result. The first is that the arbitrator can grant only individual relief. The second ... eliminate[s] the right to seek a remedy in court").
D. Construction and Severability of Claims and Remedies
Finding that the McGill rule applies, the Court must determine what aspects of the complaint should be severed from arbitration. Plaintiffs argue that the entire UCL claim must be heard in court. ECF No. 45 at 6. Facebook contends that only the determination of injunctive relief can be heard by this court should an arbitrator find Facebook liable for violations of the UCL. ECF No. 51 at 11-12.
"Parties are welcome to agree to split decisionmaking between a court and an arbitrator" by "requiring the arbitrator to adjudicate liability first" and "carv[ing] out only the potential public injunctive remedy" for a court's determination separately. Blair , 928 F.3d at 831. To sever in this way, however, the parties’ agreement must do so precisely. See id. In Blair , the court found that the reference in the contract's clause to the severance of a "claim for relief" required the court to sever the entire claim, not just the remedy. Id. at 831-31. "A ‘claim for relief,’ as that term is ordinarily used, is synonymous with ‘claim’ or ‘cause of action.’ " Id. ; see also Fed. R. Civ. P. 8(a) (using "claim" and "claim for relief" synonymously, but using "demand for relief sought" to mean the form or type of requested remedy); In re Ocwen Loan Serv., LLC Mortg. Serv. Litig. , 491 F.3d 638, 646 (7th Cir. 2007) ("The eighth claim is purely remedial; it seeks injunctive relief. Of course it is not a claim, that is, a cause of action, and should not have been labeled as such ...."); Cannon v. Wells Fargo Bank N.A. , 917 F. Supp. 2d 1025, 1031 (N.D. Cal. 2013) ("[E]quitable relief is not a cause for relief but rather only a remedy.").
The language in Rent-A-Center's agreement made no mention of the severability of remedy: "If there is a final judicial determination that applicable law precludes enforcement of this Paragraph's limitations as to a particular claim for relief, then that claim (and only that claim) must be severed from the arbitration and may be brought in court." Blair , 928 F.3d at 831.
The Commercial Terms’ severance clause explicitly permits the severability of a "request for particular relief" if that remedial request cannot be submitted to arbitration. Plaintiffs argue that this severance clause is comparable to that in Blair since it references a "commercial claim" as being severable. In this reading, Plaintiffs essentially ask the Court to ignore the clause's explicit reference to "a request for particular relief" as also severable from arbitration. The fact that the parties’ agreement explicitly identifies remedies as severable satisfies the particularity requirement from Blair. 928 F.3d at 832 ; see also Ferguson v. Corinthian Colleges, Inc. , 733 F.3d 928, 937 (9th Cir. 2013) (allowing plaintiffs to "return to the district court to seek their public injunctive relief" if liability was found in arbitration); Dornaus , 2019 WL 632957, at *6 (executing an order to compel arbitration but "retain[ing] jurisdiction [of] the adjudication of plaintiff's request for public injunctive relief, should the defendant be found liable for the [related] California statutory claims" in arbitration).
The Court concludes that the Commercial Terms require the Court to sever only the remedial determination – the availability of the public injunction. All remaining claims are compelled to arbitration. The Court stays the public injunction determination pending the arbitrator's determination of liability on Plaintiff's UCL claim.
IV. MOTION FOR PRELIMINARY INJUNCTION
Despite the conclusion that this matter must be compelled to arbitration and stayed pending a liability determination, the Court must still consider whether Plaintiffs are entitled to temporary injunctive relief while their claims are being arbitrated.
"Injunctive relief and arbitration are not incompatible; indeed, sometimes the parties’ agreement to arbitrate can be vindicated only if a court issues interim relief." Rogers v. Lyft, Inc. , 452 F. Supp. 3d 904, 912 (N.D. Cal. 2020) (citing PMS Distrib. Co. v. Huber & Suhner, A.G. , 863 F.2d 639, 641 (9th Cir. 1988) ), appeal dismissed in part , No. 20-15689, 2020 WL 9257963 (9th Cir. Nov. 17, 2020). However, "the principle that authorizes a pre-arbitration preliminary injunction – preservation of the parties’ arbitral rights – also limits the court's discretion in this regard." Id. Specifically, "[a] district court may issue interim injunctive relief on arbitrable claims if interim relief is necessary to preserve the status quo and the meaningfulness of the arbitration process – provided, of course, that the requirements for granting injunctive relief are otherwise satisfied." Toyo Tire Holdings Of Americas Inc. v. Cont'l Tire N. Am., Inc. , 609 F.3d 975, 981 (9th Cir. 2010) ; see also Holyfield v. Julien Entertainment.com, Inc. , No. CV 12-9388 CAS, 2012 WL 5878380, at *3 n.2 (C.D. Cal. Nov. 21, 2012) (it is "inconsequential" whether or not the underlying agreement expressly allows the parties to pursue interim relief in a judicial forum, because "courts may issue injunctions preserving the status quo pending arbitration even when arbitration provisions do not expressly allow the parties to pursue this relief").
Plaintiffs’ motion seeks the following relief:
[A] preliminary injunction requiring Facebook, Inc. to, within 10 days, (i) begin complying with its own terms and conditions, namely, those promising advertisers an explanation of the reasons underlying any rejection of their ads that would allow the user to create a compliant ad, and (ii) prior to any advertising account suspension, to provide reasonable advance notice and warning that accounts may be suspended or revoked if corrective action is not taken.
ECF No. 32 at 2. Such relief is not necessary to maintain the status quo or to assure the meaningfulness of the arbitration process. First, while a prohibitory injunction preserves the status quo pending litigation, a mandatory injunction goes well beyond maintaining the status quo. Stanley v. Univ. of S. Cal. , 13 F.3d 1313, 1320 (9th Cir. 1994). In general, a mandatory injunction is one that orders a party to "take action," while a prohibitory injunction is one that "restrains" a party from further action. Meghrig v. KFC W., Inc. , 516 U.S. 479, 484, 116 S.Ct. 1251, 134 L.Ed.2d 121 (1996). Plaintiffs here ask the Court to order Facebook to "begin" providing users with explanations for ad rejections and advance notice of potential account suspension. Regardless of whether Plaintiffs’ requests are required by Facebook's Commercial Terms or other policies – a determination that will be made by the arbitrator – the requested interim relief is still an order to "take action." Courts generally find that such mandatory injunctions go beyond the preservation of the status quo and are not necessary to preserve the meaningfulness of arbitration. See, e.g., Pilot Inc. v. Tyc Brother Indus. Co. , No. 20-cv-02978-ODW, 2020 WL 3833597, at *5 (C.D. Cal. July 8, 2020) (denying plaintiff's motion for a mandatory preliminary injunction after compelling arbitration, finding that the requested relief was "not designed to ‘preserve the status quo’ ").
Second, there is no reason to believe that Plaintiffs’ desired mandatory injunction would preserve the meaningfulness of arbitration. To the contrary, "a ruling on the preliminary injunction would ‘reclaim for the judiciary a matter assigned by the parties to arbitration’ by prejudging the question at the center of [Plaintiffs’] claims." Ball v. Skillz Inc. , No. 20-cv-00888-JAD, 2020 WL 6685514, at *6 (D. Nev. Nov. 12, 2020) (quoting Rogers , 452 F. Supp. 3d at 912 ); see also Meyer v. Fifth Third Bank , 842 Fed. App'x. 104, 106 (9th Cir. 2021) (requests of specific performance and an injunction to enforce the parties’ agreement "are not ‘in aid of arbitration,’ as they are not aimed at preserving the status quo until the dispute may be resolved by an arbitrator," but rather seek to remedy an alleged breach).
Lastly, the Court is not convinced that the other requirements for injunctive relief are satisfied. A plaintiff seeking a preliminary injunction "must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Am. Trucking Ass'ns, Inc. v. City of Los Angeles , 559 F.3d 1046, 1052 (9th Cir. 2009) (quoting Winter v. Nat. Res. Def. Council , 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008) ). To grant preliminary injunctive relief, a court must find that "a certain threshold showing [has been] made on each factor." Leiva-Perez v. Holder , 640 F.3d 962, 966 (9th Cir. 2011).
Here, Plaintiffs have not made a threshold showing of likely irreparable harm, nor have they shown the need for immediate relief. Plaintiffs assert that they "have each lost substantial business, prospective customers, and goodwill" and are therefore "at risk of going out of business." ECF No. 32 at 20. Plaintiffs rely on Guerrero's declaration which states that without the requested relief he is "unsure whether GGG Marketing will be able to stay in business" and that Lag Shot and Scratch Golf Academy "will likely go out of business." ECF No. 32-3 ¶¶ 25-27. Although the threat of being driven out of business may establish irreparable harm, Am. Passage Media Corp. v. Cass Commc'ns, Inc. , 750 F.2d 1470, 1474 (9th Cir. 1985), mere assertions that a plaintiff "may" go out of business are insufficient. See AboveGEM, Inc. v. Organo Gold Mgmt., Ltd. , No. 19-cv-04789-PJH, 2019 WL 3859012, at *5 (N.D. Cal. Aug. 16, 2019) ("The co-founder's statement that plaintiff ‘may’ not be able to continue is inherently speculative" and therefore does not show a likelihood of irreparable harm.). Moreover, the length of time between Plaintiffs’ introduction of the complaint and filing of the motion does not indicate that immediate relief is necessary to prevent irreparable harm. See Oakland Trib., Inc. v. Chronicle Pub. Co., Inc. , 762 F.2d 1374, 1377 (9th Cir. 1985) (A "long delay before seeking a preliminary injunction implies a lack of urgency and irreparable harm.").
Accordingly, Plaintiffs’ motion for a preliminary injunction is denied.
CONCLUSION
The Court GRANTS Facebook's motion to compel arbitration for all claims and prayers for relief, with the exception of Plaintiffs’ request for a public injunction. The Court DENIES Plaintiff's motion for a preliminary injunction. All remaining matters before this Court are hereby STAYED pending the completion of arbitration.