A recent federal district court opinion highlights the class action risks companies selling consumer goods and services in California face from California’s Automatic Renewal Law, California Business & Professions Code §17600 (“ARL”). The ARL, which was enacted in 2010, requires companies selling goods and services in California through continuous service programs, or automatically-renewing consumer contracts, or when offering free trials, to clearly and conspicuously disclose the terms, obtain the consumer’s affirmative consent before imposing a charge, and provide an acknowledgment that contains the terms, the cancellation policy, and an easy-to-use method to cancel the service. Given the increasing popularity of subscription services for everything from streaming music to beauty products, numerous class action lawsuits have been filed against goods and service providers alleging violations of the ARL. In an order dated July 17, 2017 by U.S. District Judge William Alsup in the Northern District of California in Gregory Ingalls, et al., v. Spotify USA, Inc. (Case No. 3:16-CV-03533 WHA), the District Court granted in part and denied in part Spotify’s motion for summary judgment on a plaintiff’s claims brought under the ARL and California’s Unfair Competition Law, California Business & Professions Code §17200 (“UCL”). The District Court granted summary adjudication and dismissed plaintiff’s claim brought under the ARL but denied summary judgment on plaintiff’s UCL claim. (At the time of this publication, plaintiff’s motion for class certification was pending before the District Court.)

The District Court’s order dismissing plaintiff’s claim based on the ARL itself is in line with other recent orders from the Eastern and Central Districts of California that have found that the ARL does not provide a private right of action. See Johnson v. Pluralsight, LLC, — F. Supp. 3d —, 2017 WL 661953 (E.D. Cal. Feb. 17, 2017) (Judge Morrison England, Jr.); Roz v. Nestle Waters N. Am.,Inc., No. 2:16-cv-04418-SVM-JEM, 2017 WL 132853 (C.D. Cal. Jan. 11, 2017) (Judge Stephen Wilson). However, because a UCL claim can be based upon the violation of a statute, the District Court found that the alleged violation of the ARL could be the predicate unlawful act upon which a UCL claim (and class action) could be based.

The District Court also rejected Spotify’s claim that the plaintiff lacked Article III standing to bring the unfair competition claim. The District found that plaintiff’s expenditure of $9.99 a month for 3 months for an online music streaming service, considered in light of his testimony that he did not expect to be charged for the service, no longer wanted it, and did not use it after the first 2 weeks of his 3-day free trial, was sufficient to establish injury-in-fact.

In examining each of the three grounds upon which the plaintiff based his claim that Spotify violated the ARL, the District Court determined that the plaintiff raised a genuine issue of material fact as to “but for” causation, which precluded summary judgment for Spotify. First, the plaintiff’s testimony – to the effect that, if the terms had been properly presented to him, he would have read them and cancelled his subscription prior to the end of the free trial – was sufficient to support his claim that Spotify’s failure to disclose its automatic-renewal terms in a clear and conspicuous manner caused him harm. The District Court rejected Spotify’s argument that, because the plaintiff admitted he did not read Spotify’s automatic renewal disclosure, his injury was not traceable to Spotify’s conduct. Plaintiff’s allegations were not related to the actual content of the disclosure, according to the District Court, but were instead “predicated on a prophylactic law requiring businesses to present disclosures in a conspicuous manner.”

Second, the District Court found that the plaintiff sufficiently established causation as to his claim that Spotify failed to obtain his affirmative consent to the automatic renewal program: “Had Spotify presented [plaintiff] with an opportunity to affirmatively consent, he may have read whatever he was consenting to.”

Finally, in assessing plaintiff’s third claim that Spotify failed to provide an appropriate acknowledgment of the automatic renewal disclosure, the District Court noted that the receipt plaintiff received after signing up contained only a link to the online terms and not a copy of the actual terms. Because Spotify failed to address the adequacy of this type of disclosure in its motion, the District Court also denied summary judgment as to this claim.

Practice Tip: While many other states have enacted similar laws, California’s Automatic Renewal Law is considered to be among the most stringent in the United States. California is currently a hot spot for the filing of automatic-renewal disclosure class action cases. To avoid being targeted, companies offering subscription service programs, automatic renewals, and free trials should carefully review their compliance with California law and make any necessary changes to their sign-up process to provide clear and conspicuous disclosure, obtain affirmative consent, and provide an appropriate acknowledgement to the consumer.