The 9th Circuit Court of Appeals ruled that a non-party online behavioral advertising firm could not benefit from the arbitration clause in the agreement between Verizon and its customers because it was not a party to that agreement.

In April 2015, Anthony Henson and William Cintron filed a class action lawsuit against online behavioral advertising firm Turn, Inc. in the Northern District of California on behalf of all New York Verizon Wireless subscribers.

The plaintiffs alleged that Turn dropped undeletable “zombie” cookies to Verizon subscribers’ devices to collect valuable location, web browsing, and usage data about them. “Zombie” cookies are bits of code that collect data about users and regenerate even if a user tries to delete them from his or her device. In 2016, the FCC settled with Verizon for using these same “zombie” cookies. Under the terms of the settlement, Verizon agreed to pay a fine of $1,350,000 and adopt a three-year compliance plan that, among other things, required FCC approval for engaging in any similar behavioral advertising programs.

Turn moved to compel arbitration based on the arbitration clause in Verizon’s agreement with each of its subscribers, even though Turn is not a party to that agreement. The district court granted the motion based on New York’s equitable estoppel doctrine and stayed the litigation.

In September 2017, a unanimous three judge panel of the 9th Circuit rejected the district court’s decision, ruling that Turn could not benefit from the arbitration clause in the agreement between Verizon and its subscribers because Turn was not a party that agreement and, thus, the original class action may proceed.

“Turn attempts to invoke the arbitration agreement between Henson and Verizon to compel arbitration, but Henson and Turn do not have an arbitration agreement with each other,” judges wrote.

Analyzing Turn’s equitable estoppel argument, the 9th Circuit explained that under California law, Henson will be equitably estopped from avoiding arbitration in two circumstances:

  1. when [Henson] must rely on the terms of the [Customer Agreement] in asserting its claims against [Turn] or the claims are intimately founded in and intertwined with the [Customer Agreement], and
  2. when [Henson] alleges substantially interdependent and concerted misconduct by [Turn] and [Verizon] and the allegations of interdependent misconduct are founded in or intimately connected with the obligations of the [Customer Agreement].

The 9th Circuit concluded that (1) the plaintiff’s claims were not dependent upon the Verizon-Subscriber agreement and (2) the plaintiff did not allege that Verizon colluded with Turn. “On the contrary, Henson alleges that ‘Turn conducted its practices in secret’ and acted without Verizon’s knowledge, consent, or approval,” judges explained. Therefore, the district court committed error in holding that equitable estoppel applied to compel arbitration under the Verizon-Subscriber agreement.