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Schmidt v. Samsung Electronics America, Inc.

United States District Court, W.D. Washington, Seattle

May 25, 2017

GEORGE SCHMIDT, et al., Plaintiffs,
v.
SAMSUNG ELECTRONICS AMERICA, INC., et al., Defendants.

          ORDER

          HONORABLE JOHN C. COUGHENOUR JUDGE

         This matter comes before the Court on Defendants' motions to compel arbitration, dismiss class claims, and stay proceedings (Dkt. Nos. 40, 43, 46). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby GRANTS the motion to compel arbitration in part, GRANTS the motion to dismiss class claims, and DENIES the motion to stay proceedings for the reasons explained herein.

         I. BACKGROUND

         Plaintiffs are all purchasers of Samsung Note7 smartphones. (Dkt. No. 37 at ¶¶ 26-32.) Plaintiff Schmidt, a Washington resident, purchased two Note7 phones on the Verizon network in Washington. (Id. at ¶¶ 15, 26-29, 32, 42-43.) Plaintiffs King and Richardson, California residents, purchased their Note7 phones on the Sprint network in California. (Id. at ¶¶ 16, 32.) After a partial, and then full, recall of all Note7 phones due to a fire risk, Plaintiffs grew frustrated with the recall process and refund compensation. (Id. at ¶¶ 53-61.) Plaintiffs filed a class action against Defendants for various alleged merchantability and products liability violations. (Id. at ¶¶ 64, 73-147.) Defendants Samsung Electronics America, Inc. (SEA), Samsung SDI America, Inc. (SDIA), and Samsung Electronics Co., LTD. (SEC), all separately moved to arbitrate pursuant to SEA's arbitration agreement contained within a brochure packaged inside Note7 boxes. (Dkt. Nos. 40, 43, 46.) Plaintiffs argue that the arbitration agreement is invalid on two grounds.

         First, Plaintiffs argue that they did not receive notice of the arbitration agreement, nor of the ability to opt out. (Dkt. No. 59 at 10.) Note7 boxes from both Verizon and Sprint network stores state that the “[d]evice purchase [is] subject to additional Samsung terms and conditions, ” and that customers should “visit Samsung.com for more information on your device.” (Dkt. No. 43 at 8-9.) Verizon boxes list contents, including a “Product Safety & Warranty Brochure.” (Id. at 9.) Verizon box contents are weighed before shipping to ensure that all contents are included. (Id.) Inside Verizon boxes is a brochure titled “Product Safety and Warranty Information” (25 pages) and inside Sprint boxes is a brochure titled “Important Information” (37 pages). (Id.) Each brochure is “roughly 5.25 inches by 2.5 inches.” (Id.) Within the first two pages, each brochure states in bold: “[T]his document contains important terms and conditions with respect to your device. By using this device, you accept those terms and conditions.” (Id. at 9-10.) Brochures also state in roughly the same location, in bold capitalized letters: “READ THIS INFORMATION BEFORE USING YOUR MOBILE DEVICE.” (Id. at 10.) The brochure proceeds to explain on the same page, in partial bold and capitalization (as indicated):

Samsung Limited Warranty - This product is covered under the applicable Samsung Limited Warranty INCLUDING ITS DISPUTE RESOLUTION PROCEDURE and your right to opt out of arbitration within 30 calendar days of the first consumer purchase. You may opt out by either sending an email to optout@sea.samsung.com with the subject line “Arbitration Opt-Out” or by calling 1-800-SAMSUNG (726-7864). For more detailed procedures, please refer to the “Dispute Resolution Procedures and Arbitration and Opt-Out” section of the Limited Warranty.

(Id.) On page 21 of the Verizon brochure and page 33 of the Sprint brochure, the arbitration agreement is stated in capitalized font. (Id.) The agreement contains an opt-out provision at the end in bold and partial underlined type. (Id. at 11.)

         Second, Plaintiffs argue that the terms of the arbitration agreement contained in both Sprint and Verizon boxes are unconscionable. (Dkt. No. 59 at 11.) The agreement states:

ALL DISPUTES WITH SAMSUNG ARISING IN ANY WAY FROM THIS LIMITED WARRANTY OR THE SALE, CONDITION OR PERFORMANCE OF THE PRODUCTS SHALL BE RESOLVED EXCLUSIVELY THROUGH FINAL AND BINDING ARBITRATION, AND NOT BY A COURT OR JURY. . . . ANY SUCH DISPUTE SHALL NOT BE COMBINED OR CONSOLIDATED WITH A DISPUTE INVOLVING ANY OTHER PERSON'S OR ENTITY'S PRODUCT OR CLAIM, AND SPECIFICALLY, WITHOUT LIMITATION OF THE FOREGOING, SHALL NOT UNDER ANY CIRCUMSTANCES PROCEED AS PART OF A CLASS ACTION. . . . [A]rbitration shall be conducted according to the American Arbitration Association (AAA) Commercial Arbitration Rules applicable to consumer disputes, . . . [and] [t]he arbitrator shall decide all issues of interpretation and application of this arbitration provision and the Limited Warranty.

(Dkt. No. 43 at 9-11.) The agreement states that “Texas law will govern the interpretation of Samsung's limited warranty and disputes subject to arbitration.” (Id. at 11.) The agreement provides an arbitration opt-out provision:

You may opt out of this dispute resolution procedure by providing notice to SAMSUNG no later than 30 calendar days from the date of the first consumer purchaser's purchase of the Product. . . . Opting out of this dispute resolution procedure will not affect the coverage of the Limited Warranty in any way, and you will continue to enjoy the benefits of the Limited Warranty.

(Id.) This Court must first decide whether the arbitration agreement is valid, and if so, whether it is the Court's role to interpret it.

         II. DISCUSSION

         A. Legal Standard

         In a motion to compel arbitration, the Court determines “(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 Systems, Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). The party seeking to compel arbitration “bears ‘the burden of proving the existence of an agreement to arbitrate by a preponderance of the evidence.'” Norcia v. Samsung Telecomm. Am., 845 F.3d 1279, 1283 (9th Cir. 2017).

         B. Arbitration Agreement Enforceability

         A valid agreement to arbitrate exists. For the reasons explained below, Defendants' motions to compel arbitration are GRANTED IN PART, to the extent that the ...


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