As Wiretap Act Claims Abound, ‘Submarine’ Counterattack Launched

The proliferation of class action lawsuit and arbitration claim filings under the Federal Wiretap Act and various state wiretap statutes has recently grown beyond California, as other states are now beginning to see more significant numbers of these claims. These mass filings that began in California under the California Invasion of Privacy Act (“CIPA”) have spread to several other states with wiretap statutes, including Pennsylvania, Washington and Massachusetts. This article will focus on California law, given that this remains the most prevalent jurisdiction for the filing of such claims. The allegations in these lawsuits primarily focus on an “interception” of the claimant’s communications with the website, through Meta Pixel or other third-party data tracking programs. CIPA claims are motivated in large part by the statutory penalty of $5,000 per violation, regardless of whether the claimant has suffered any actual damages. See Cal. Penal Code § 630 et seq. CIPA also imposes liability on any party that aids and abets another party in violating the statute. Id.

California state and federal courts have yet to fully develop jurisprudence as to the specific conduct necessary to constitute a violation of CIPA. Trial courts have issued inconsistent decisions on motions to dismiss CIPA claims, particularly with respect to the application of the party exception and the aiding and abetting prong of CIPA. See e.g. Byars v. Goodyear Tire & Rubber Co., Case No. 5:22-cv-01358-SSS-kk (C.D. Cal. Feb. 3, 2023) (denying motion to dismiss CIPA claims based on third-party interception of communications with defendant’s website); compare Byars v. Hot Topic, Inc., Case No. 22-cv-01652-JGB (C.D. Cal. Feb. 14, 2023)(dismissing claim for aiding and abetting violation of CIPA)[1]; Licea v. Vitacost.com, Inc., Case No. 22-cv-1854-RSH-WVG (S.D. Cal. July 24, 2023) (dismissing claims and finding that third-party vendor cannot create aiding and abetting liability). Until clear jurisprudence is developed by the Ninth Circuit and/or the California state appellate courts, website operators can expect the number of CIPA violation lawsuits and arbitration claims to continue to increase.

How to Avoid Such Wiretap Class Action Lawsuits

One mechanism to avoid expensive class action litigation is to utilize arbitration. Many website operators now incorporate binding arbitration provisions and class action waivers into their terms of use or service, in part to avoid class action litigation for alleged violations of privacy and wiretapping laws. While this language can be critical to avoid potential large-scale class action liability that could be devasting for the business of many website operators, there are additional concerns to be mindful of when drafting arbitration provisions, including the arbitration venue and applicable rules. Arbitration venues such as AAA and JAMS have different sets of arbitration rules for which the division of fees between the parties can vary significantly. For example, under the AAA Commercial Rules, a claimant is responsible for paying approximately half of the arbitration fees, while under AAA’s Consumer Rules, the business is generally responsible for all the arbitration fees.[2]

At least one business has taken a more aggressive approach to defending wiretap claims and enforcing its rights under its Terms of Service’s Arbitration Provision. On June 26, 2023, Jersey Mike’s filed a lawsuit against the AAA and two claimants who had filed arbitration claims against Jersey Mike’s with AAA alleging violations of the Federal Wiretap Act and CIPA.[3]  Jersey Mike’s alleged that AAA erroneously applied the consumer rules to the arbitration claims despite Jersey Mike’s Terms of Use specifying that AAA’s Commercial Rules apply to any dispute. Id. Jersey Mike’s further alleged that the claimants, through their counsel, had engaged in a long history of filing frivolous cases under CIPA and the Federal Wiretap Act. Id. The claimants’ allegations were based on Jersey Mike’s utilization of Meta Pixel tool on its website to track user information in violation of CIPA’s “aiding and abetting” prong.

Conclusion

The litigation between Jersey Mike’s and AAA remains ongoing with pending motions to dismiss awaiting rulings from the Court. Website operators that employ Terms of Service that require disputes to be arbitrated with AAA should watch the outcome of the litigation closely, and closely review the language of their arbitration provision to ensure that along with having a clear and conspicuous binding bilateral arbitration provision with a class action waiver, that this arbitration provision also utilizes the arbitration rules best suited to avoid becoming the target of  incurring excessive arbitration fees and becoming the target of mass-filed claims.

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[1] The two Byars cases involved the same plaintiff bringing nearly identical claims against different website operators, with inconsistent rulings on motions to dismiss.  This exemplifies the undeveloped jurisprudence interpreting CIPA and the mass filings from certain claimants and law firms.

[2] See https://www.adr.org/Rules for a summary of AAA’s sets of Rules and corresponding arbitration fees.

[3] See Jersey Mike’s Franchise Systems, Inc. v. American Arbitration Association, et. al., Case No. 3:23-cv-03444-GC-TJB (D.N.J. 2023).