Litigation Alert

Yet another trial court has decided the question of whether California's Automatic Renewal Law (ARL) provides a private right of action. The answer is a resounding no. So where does this leave the state of lawsuits for automatically renewing plans for goods and services in California?

The ARL, California Business and Professions Code § 17600 et seq., imposes a series of requirements on businesses that make available automatic-renewal or continuous-service programs to California customers. First, the company must present the automatic-renewal terms in a "clear and conspicuous" manner in visual or temporal proximity near a request for consent to the offer. Second, the company has to obtain affirmative consent before charging a customer's account. Third, the company must provide an acknowledgment that includes the automatic-renewal terms, cancellation policy and information regarding how to cancel the subscription in a manner that is capable of being retained by the consumer. The statute also includes requirements for providing an easy-to-use mechanism for cancellations and for giving additional "clear and conspicuous" notice if there is a material change to the automatic-renewal terms after a customer has accepted.

Below is a discussion of three notable ARL cases, followed by an analysis of what this means for businesses that offer auto-renewal programs to California customers.

Johnson v. Pluralsight

In Johnson, a class action plaintiff brought suit under the ARL, as well as California's Unfair Competition Law (UCL). The defendant, Pluralsight, offers online training videos for IT professionals and software developers. The plaintiff alleged that he subscribed to a free trial of the videos, which later became a paid subscription. He claimed that Pluralsight never sent him notice about the automatic-renewal program.

Pluralsight moved to dismiss the ARL claim, and the Eastern District of California granted the motion and dismissed the case with prejudice. In so doing, first, the court reviewed the statute and found nothing in the statute's text that permitted the plaintiff to sue directly under the ARL. Then the court looked to the legislative history and discovered, from the Senate Judiciary Committee Report, that legislators expected private plaintiffs to bring ARL-based suits under other statutes, such as the UCL.

The court concluded that there was no express or implicit evidence that the legislators intended for the ARL to provide its own private right of action. This is the same result reached in two other cases, Roz v. Nestle Waters and Mayron v. Google.

Roz and Mayron: UCL standing based on ARL violations

In addition to bringing claims under the ARL, class-action plaintiffs often bring UCL claims based entirely on the defendant's failure to give notice of automatically renewing subscriptions. A popular argument has been that plaintiffs are entitled to restitution under the UCL for money charged after a business's failure to give notice of the renewal because the ARL deems as "unconditional gifts" anything delivered after a violation.

Johnson, however, pointed out that, unlike other portions of the ARL, the "gifts" provision omits mention of services and thus applies only to goods. So plaintiffs suffered no injury-in-fact and no loss of money or property − i.e., standing requirements under the UCL − if they merely allege that they were charged for services after a business failed to give notice. Simply being charged for a service one used, as explained in Mayron, is not an injury.

Roz, in contrast, involved tangible goods: Nestle water products. (The plaintiff also brought a claim under the False Advertising Law, which requires the same two showings for standing as the UCL.) The plaintiffs argued that because Nestle failed to give notice of the automatically renewing subscription, any subsequently delivered water products were gifts. The court agreed, finding that the plaintiffs had standing and could seek restitution after being charged for these "gifts."

Despite the different result, Roz is consistent with Johnson and Mayron: The ARL's "gifts" provision may create UCL standing only if a business delivered goods after failing to give notice. It does not create standing when services are made available or used.

Reason for optimism, and for caution

In recent years, there have been increasing numbers of ARL class actions filed. Despite that, many businesses with California customers are still unaware of the law's requirements. For those businesses that provide services rather than goods, the trend of Johnson, Roz, and Mayron is certainly good news and a reason to breathe a bit easier, as it takes away one avenue for potentially debilitating loss. The UCL-standing analyses appear to offer a real reason to celebrate.

But, great as these results are, businesses must still remain cautious. Johnson and Mayron both noted that the plaintiffs there did not allege that they did not want the services, nor that they had tried to cancel the subscription. The implication is that such allegations might satisfy the UCL's standing requirements of injury-in-fact and loss of money or property. It's not hard to imagine that some plaintiffs will begin to add these allegations in future ARL-based complaints. And it remains to be seen how courts will address them.

Despite the uncertainty, businesses that offer automatically renewing subscriptions, for goods or services, to California customers can take concrete steps to make sure that they are in compliance with the ARL's requirements. They should review the language in their contracts, update their cancellation policies, and implement procedures to send out the necessary notices at each stage of customer engagement in the automatic-renewal program. Given the recent attention to this area, spawning many investigations by local California district attorney's offices, it is particularly important for companies to perform meticulous reviews of their auto-renewal programs.