Spotify Loses Bid To Compel Arbitration in Auto-Renewal Class Action

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Spotify has lost a bid to compel arbitration for a proposed class action that alleges the music streaming company violated state laws by automatically renewing users’ subscription services without their permission.

U.S. District Judge William Alsup denied Spotify’s motion to force arbitration, ruling that many of the “substantively unconscionable provisions” that form part of the arbitration provision could not be severed from the agreement, rendering it unenforceable.

“[I]t is the pervasiveness of unconscionability, not any one source of it, that is fatal to Spotify’s motion [to compel arbitration],” Judge Alsup stated in the court order.

Plaintiffs Gregory Ingalls and Tony Hong launched the class action lawsuit on behalf of all others similarly situated in June, alleging that Spotify made automatic withdrawals or charges for the monthly service from consumers’ credit/debit card after their free trial ended, but did so without informing consumers that they needed to cancel their subscription to avoid being charged an automatic renewal rate of $9.99 per month.

In August, Spotify petitioned to compel arbitration and to stay the case, arguing that Ingalls and Hong “clearly and unmistakably” agreed to Spotify’s enforceable arbitration and class action waiver provisions when they registered for the premium music streaming service, according to court filings

Specifically, Spotify argued in its motion to compel arbitration that when Ingalls and Hong registered for an account and clicked the “Accept” button on the application form, they agreed to be bound by Spotify’s terms and conditions of use.

According to Spotify, the arbitration clause in the Terms & Conditions included regulations set forth by the American Arbitration Association, which require Hong and Ingalls to arbitrate their claims on an individual basis, the motion states.

The plaintiffs countered Spotify’s motion to force arbitration, stating that the arbitration clause was unenforceable and “procedurally and substantively unconscionable” since the Terms and Conditions were not provided clearly prior to the completion of a customer’s order but were presented in an oppressive manner because they were offered on a “take-it-or-leave-it basis.”

The response brief also contended that Spotify failed to provide the plaintiffs with the text of the American Arbitration Association procedures that would apply in any arbitration. This failure to provide the AAA procedures establishes “procedural unconscionability.”

On Monday, Judge Alsup agreed with the plaintiff’s argument that Spotify’s arbitration clause was “procedurally and substantively unconscionable,” stating that while the agreement was not oppressive, expectations that a reasonable consumer could have known the importance of AAA rules were questionable.

“Nevertheless, this order turns to plaintiffs’ substantive unconscionability arguments, which this order finds strong enough to render the arbitration agreement unenforceable in the light of the degree of procedural unfairness already shown,” Judge Alsup stated.

Ingalls and Hong are represented by Gillian L. Wade and Marc A. Castaneda of Milstein Adelman Jackson Fairchild & Wade LLP and John Killacky and Derek J. Meyer of LeonardMeyer LLP.

The Spotify Monthly Service Renewal Class Action Lawsuit is Gregory Ingalls, et al. v. Spotify USA Inc., Case No. 3:16-cv-03533, in the U.S. District Court for the Northern District of California.