U.S. District Judge James Donato sanctioned Fitbit Inc. and its Morrison & Foerster LLP attorneys for acting in bad faith, saying they owe attorneys’ fees after getting a proposed consumer class action removed to arbitration only to reveal they had no intention of arbitrating the claims. In May, the company used an arbitration agreement to trim claims over its allegedly inaccurate heart-rate tracking device, then terminated the arbitration proceedings by claiming the named plaintiff wasn’t a “rational litigant” because she declined its settlement offer and because her damages were less than the amount it cost her to file the arbitration.
In June, attorneys for lead plaintiff Kate McLellan argued the company’s conduct revealed an effort “to prevent consumers from having their claims heard in any forum.” They asked Judge Donato to sanction the Morrison & Foerster counsel and Fitbit by voiding the arbitration agreement for all members of the proposed class of Fitbit users. Although the judge declined to void the agreement, saying the record does not support a “broad judicial exception” for all of Fitbit’s customers, he did agree that “Fitbit and its lawyers at Morrison & Foerster must be held to account for their bad-faith litigation tactics” in McLellan’s arbitration.
“[Fitbit’s conduct has] bolstered the perception that arbitration is where consumer lawsuits go to die,” Judge Donato wrote. “While the merits of that view can be debated, it’s no surprise that many people, including judges, are skeptical about arbitration agreements in light of situations like this one. Fitbit’s conduct undermines the public’s confidence in getting a fair shake when arbitration is compelled.”
McLellan filed an arbitration paying the $750 filing fee. But Fitbit, which was obligated at that point to pay its end of the filing fee, $1,700, instead sent McLellan a settlement offer in May for $2,814.75 — the cost of her watch, plus what Judge Donato described as “various additions.” Without waiting to see if McLellan agreed to the deal, the company said it considered the arbitration closed. Fitbit also did not initially pay its part of the fee, telling the AAA that its settlement offer was 17 times more than what she paid for the watch and “many times more than what she could recover” at arbitration.
After McLellan refused the deal and brought Fitbit’s failure to pay the fee to Judge Donato’s attention at the end of May, Fitbit attorneys told the judge that a rational litigant wouldn’t pay $750 to argue a claim worth $162, the cost of her watch. And the stalling-out of the arbitration had just been a misunderstanding, the company argued.
The judge said during the May hearing that he was “developing a very slow burn from an unacceptable level of gamesmanship by Fitbit,” and indicated he was considering whether skipping out on the arbitration was a form of civil contempt.
In Wednesday’s ruling, Judge Donato stopped short of a contempt finding, noting that Fitbit paid the outstanding AAA fees in full the day after his “gamesmanship” comment. The company also wrote to McLellan to say that it had never intended to avoid arbitration.
Nevertheless, he said Fitbit and its attorneys’ conduct “amounts to an abuse of the judicial process and a needless waste of the parties’ and the court’s resources.” Judge Donato added that Fitbit was “evasive and misleading in its explanations to the court,” pointing out that Fitbit argued the rationality of arbitrating a $162 claim despite the fact that his arbitration order focused on issues of arbitrability — not a refund.
“Fitbit and its lawyers could not seriously contend the arbitration was only about a refund,” he wrote. “The main issue in the order compelling arbitration was the delegation of McLellan’s objections to the enforceability of the agreement and other arbitrability questions. The dollar value of [her] device and a refund were never mentioned.”
The case is Kate McLellan et al. v. Fitbit Inc., case number 3:16-cv-00036, in the U.S. District Court for the Northern District of California.
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