Court Opinion

ID: 9363858
Source: CourtListenerOpinion
Date Created: 2023-01-17 21:00:27.522762+00
Date Added: 2024-06-11T17:15:34.564611
License: Public Domain

FOR PUBLICATION

      UNITED STATES COURT OF APPEALS
           FOR THE NINTH CIRCUIT

KEVIN JOHNSON, individually and                   No. 21-16423
on behalf of all others similarly
situated,                                           D.C. No.
                Plaintiff-Appellee,              1:20-cv-01360-
                                                    DAD-JLT
     v.

WALMART INC.,                                       OPINION
         Defendant-Appellant.

          Appeal from the United States District Court
             for the Eastern District of California
           Dale A. Drozd, District Judge, Presiding

           Argued and Submitted November 18, 2022
                   San Francisco, California

                     Filed January 10, 2023

    Before: A. Wallace Tashima and Richard A. Paez, Circuit
      Judges, and William K. Sessions III, * District Judge.

                   Opinion by Judge Sessions

*
  The Honorable William K. Sessions III, United States District Judge
for the District of Vermont, sitting by designation.
2                    JOHNSON V. WALMART, INC.

                          SUMMARY **

                           Arbitration

    The panel affirmed the district court’s denial of Walmart
Inc.’s motion to compel arbitration of the claims asserted
against it by Kevin Johnson, who brought a putative class
action alleging breach of contract and breach of the duty of
good faith and fair dealing arising out of a lifetime tire
balancing and rotation service agreement that Johnson
purchased from a Walmart Auto Care Center.
    Johnson purchased a set of tires from Walmart.com,
which included a Terms of Use with an arbitration
provision. Johnson had the tires shipped to and installed at
a Walmart Auto Center, and while waiting for the tires to be
installed, he purchased the lifetime balancing and rotation
Service Agreement. Johnson received tire services once in
2019 but was later denied service on several occasions in
2020 at multiple Walmart Auto Centers. Johnson
commenced this action in September 2020. Walmart sought
to compel individual arbitration of its dispute with Johnson
pursuant to the arbitration provisions of the Terms of
Use. The district court found that the plain meaning of the
Terms of Use precluded applicability of the arbitration
provision to in-store purchases.
    The panel agreed with the district court that Johnson
contested the existence, not the scope, of an arbitration
agreement that would encompass this dispute. As the party
seeking to compel arbitration, Walmart bore the burden of

**
  This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                   JOHNSON V. WALMART, INC.                  3

proving the existence of an agreement to arbitrate by a
preponderance of the evidence. Walmart agreed that
Johnson did not consent to an arbitration agreement at the
time he purchased the Service Agreement at the Walmart
Auto Care Center, but argued that Johnson’s in-store
purchase was subject to the same pre-existing arbitration
agreement that he accepted when he purchased tires from
Walmart.com and agreed to the Terms of Use. The panel
held that Johnson’s claim against Walmart did not arise out
of the contract containing the arbitration agreement, but
rather arose out of an entirely separate transaction at a
Walmart store.
    Because the panel concluded that the existence of an
arbitration agreement was at issue and thus the presumption
in favor of arbitrability did not apply, the panel used general
California state-law principles of contract interpretation to
decide whether a contractual obligation to arbitrate
existed. The panel held that the Terms of Use had a clear,
delineated purpose—to regulate use of Walmart’s online
resources and content. No provision of the Terms of Use
addressed any form of in-store engagement with
Walmart. Because the Terms of Use covered a defined
subset of consumer interaction with Walmart—access to and
use of Walmart Sites—the nested arbitration provision of the
Terms of Use could not apply to the controversy over the in-
store purchase of the Service Agreement.
    Walmart argued that Johnson’s two purchases were
“merely interrelated contracts in an ongoing series of
transactions” such that the arbitration agreement of the first
necessarily applied to the second. The panel held that
substantial evidence supported that the two contracts
between Johnson and Walmart were separate, independent
agreements. The two contracts—though they involved the
4                  JOHNSON V. WALMART, INC.

same parties and the same tires—were separate and not
interrelated. Therefore, the arbitration agreement in the first
did not encompass disputes arising from the second.

                         COUNSEL

Aileen M. McGrath (argued), Michael J. Stortz, and Michael
J. Weisbuch, Akin Gump Strauss Hauer & Feld LLP, San
Francisco, California; Pratik A. Shah, Akin Gump Strauss
Hauer & Feld LLP, Washington, D.C.; for Defendant-
Appellant.

Kenneth H. Yoon (argued) and Stephanie E. Yasuda, Yoon
Law APC, Los Angeles, California, for Plaintiff-Appellee.

Brian J. Malloy, The Brandi Law Firm, San Francisco,
California, for Amicus Curiae Consumer Attorneys of
California.
                  JOHNSON V. WALMART, INC.                  5

                         OPINION

SESSIONS, District Judge:

    Walmart, Inc. (“Walmart”) appeals the district court’s
denial of its motion to compel arbitration of the claims
asserted against it by Kevin Johnson (“Johnson”). Johnson
brought this putative class action for breach of contract and
breach of the duty of good faith and fair dealing arising out
of a lifetime tire balancing and rotation service agreement
that Johnson purchased from a Walmart Auto Care Center.
The district court denied Walmart’s motion and we affirm.
                              I.
    In July 2018, Johnson purchased a set of tires from
Walmart.com, Walmart’s online platform. By making an
online purchase, Johnson agreed to the Walmart.com Terms
of Use (“Terms of Use”). The Terms of Use to which
Johnson assented state: “Welcome to the family of websites
and applications provided by Walmart. These Terms of Use
govern your access to and use of all Walmart Sites.” Section
20 of the Terms of Use contains a mandatory arbitration
provision requiring that “. . . all disputes arising out of or
related to these Terms of Use or any aspect of the
relationship between you and Walmart . . . will be resolved
through final and binding arbitration.”
    Johnson had the tires shipped to and installed at a
Walmart Auto Care Center in Texas. While waiting for his
tires to be installed, Johnson purchased a lifetime tire
balancing and rotation service agreement (“Service
Agreement”) from a Walmart employee at a separate,
additional cost. Johnson received these tire services once in
2019 but was later denied service on several occasions in
6                  JOHNSON V. WALMART, INC.

2020 at multiple Walmart Auto Care Centers across Texas,
Arizona, and California. After Walmart declined to service
Johnson’s tires, Johnson commenced this putative class
action in September 2020.
    In December 2020, Walmart moved to compel individual
arbitration of the dispute pursuant to the arbitration provision
of the Terms of Use. The district court denied Walmart’s
motion. It found that the plain meaning of the Terms of Use
precluded applicability of the arbitration provision to in-
store purchases. Walmart appealed challenging the district
court’s ruling. We have jurisdiction pursuant to 9 U.S.C. §
16(a)(1)(C). This court reviews de novo a district court’s
denial of a motion to compel arbitration. Blair v. Rent-A-
Center, Inc., 928 F.3d 819, 824 (9th Cir. 2019).
    On appeal, Walmart maintains that because Johnson
agreed to the arbitration provision of the Terms of Use when
he purchased a set of tires from Walmart.com, those Terms
encompass this lawsuit, which concerns his in-store
purchase of a tire servicing agreement. By Walmart’s logic,
the Terms of Use trigger the existence of an independent,
broad arbitration agreement between Walmart and users of
Walmart Sites that applies to any interaction between
Walmart and the customer, regardless of whether the dispute
arises out of an online purchase or any provision of the
Terms of Use. Walmart points to the language of the
arbitration provision, which reaches disputes that “arise out
of or relate to” the Terms of Use or any aspect of the
customer’s relationship with Walmart, and argues that the
introductory provisions, which state that the Terms of Use
govern “access to and use of all Walmart Sites,” are
independent.
                   JOHNSON V. WALMART, INC.                  7

                              II.
    Written agreements to settle commercial disputes by
arbitration are subject to the Federal Arbitration Act
(“FAA”). 9 U.S.C. § 2. Congress enacted the FAA to address
“longstanding judicial hostility to arbitration agreements”
and place them “upon the same footing as other contracts.”
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25
(1991). The FAA requires:
       A written provision in . . . a contract
       evidencing a transaction involving commerce
       to settle by arbitration a controversy
       thereafter       arising    out     of     such
       contract . . . shall be valid, irrevocable, and
       enforceable, save upon such grounds as exist
       at law or in equity for the revocation of any
       contract.

9 U.S.C. § 2. It “mandates . . . arbitration on issues to which
an arbitration agreement has been signed.” Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985).
    The FAA limits the role of the judiciary “to determining
(1) whether a valid agreement to arbitrate exists and, if it
does, (2) whether the agreement encompasses the dispute at
issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d
1126, 1130 (9th Cir. 2000). If the court answers both
questions in the affirmative, it must “enforce the arbitration
agreement in accordance with its terms.” Revitch v.
DIRECTTV, LLC, 977 F.3d 713, 716 (9th Cir. 2020)
(quoting Chiron Corp., 207 F.3d at 1130). And “while
doubts concerning the scope of an arbitration clause should
be resolved in favor of arbitration, the presumption does not
apply to disputes concerning whether an agreement to
8                  JOHNSON V. WALMART, INC.

arbitrate has been made.” Goldman, Sachs & Co. v. City of
Reno, 747 F.3d 733, 743 (9th Cir. 2004) (internal quotation
omitted); see also Mundi v. Union Sec. Life Ins. Co., 555
F.3d 1042, 1044–45 (9th Cir. 2009) (“The presumption in
favor of arbitration . . . does not apply if contractual
language is plain that arbitration of a particular controversy
is not within the scope of the arbitration provision.” (internal
quotation marks and citation omitted)).
     The “first principle” of a court’s arbitration decision is
that “[a]rbitration is strictly a matter of consent . . . and thus
is a way to resolve those disputes—but only those disputes—
that the parties have agreed to submit to arbitration.” Granite
Rock Co. v. Int’l Bhd of Teamsters, 561 U.S. 287, 299 (2010)
(emphasis in original) (citations and quotation marks
omitted). As “arbitration is a matter of contract[,] . . . a party
cannot be required to submit to arbitration any dispute which
he has not agreed so to submit.” AT&T Techs., Inc. v.
Commc’ns Workers of Am., 475 U.S. 643, 649 (1986)
(internal quotation marks and citations omitted). Though the
FAA “reflects an emphatic federal policy in favor of arbitral
dispute resolution,” Marmet Health Care Ctr., Inc. v. Brown,
565 U.S. 530, 533 (2012) (citations omitted), that requires
courts to “rigorously enforce agreements to arbitrate,” Byrd,
470 U.S. at 221, it “does not require parties to arbitrate when
they have not agreed to do so,” Volt Info. Scis., Inc. v. Bd. of
Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478
(1989).
    We agree with the district court that Johnson contests the
existence, not the scope, of an arbitration agreement that
would encompass this dispute. As the party seeking to
compel arbitration, Walmart bears the burden of proving the
existence of an agreement to arbitrate by a preponderance of
the evidence. See Knutson v. Sirius XM Radio Inc., 771 F.3d
                      JOHNSON V. WALMART, INC.                         9

559, 565 (9th Cir. 2014). Walmart agrees that Johnson did
not consent to an arbitration agreement at the time he
purchased the Service Agreement at the Walmart Auto Care
Center. Nonetheless, Walmart argues that Johnson’s in-store
purchase is subject to the same pre-existing arbitration
agreement that he accepted when he purchased tires from
Walmart.com and agreed to the Terms of Use. Section 2 of
the FAA requires arbitration of controversies that arise out
of a contract containing a valid, enforceable arbitration
provision. See 9 U.S.C. § 2. But Johnson’s claim against
Walmart does not arise out of the contract containing the
arbitration agreement; it arises out of an entirely separate
transaction at a Walmart store. Thus, only if the Service
Agreement itself is subject to the Terms of Use does an
agreement to arbitrate claims arise out of that in-store
purchase.
                                  III.
    Because we conclude that the existence of an arbitration
agreement is at issue and thus the presumption in favor of
arbitrability does not apply, “we use general state-law
principles of contract interpretation to decide whether a
contractual obligation to arbitrate exists.” 1 Goldman, Sachs
& Co., 747 F.3d at 743; see also Suski v. Coinbase, Inc., No.
22-15209, slip op at 8 (9th Cir. Dec. 16, 2022). In California,
“[a] contract must be so interpreted as to give effect to the
mutual intention of the parties as it existed at the time of
contracting.” Cal. Civ. Code. § 1636. “To determine the

1
  While the purchase of the tire servicing agreement took place in Texas,
the parties have agreed that California law governs the contract dispute
as Johnson is a California resident, he was denied the tire services at a
Walmart Auto Care Center in California, and the Terms of Use stipulate
that they will be construed under California law.
10                 JOHNSON V. WALMART, INC.

reach of a particular agreement, we must look to its express
terms.” Walsh v. Arizona Logistics, Inc., 998 F.3d 393, 396
(9th Cir. 2021). California courts interpret contracts
containing arbitration provisions by application of the plain
meaning rule—words of a contract are given their usual and
ordinary meaning. Valencia v. Smyth, 185 Cal. App. 4th 153,
176 (2010). And under California law, a contract must be
“interpreted as a whole.” Int'l Bhd. of Teamsters v. NASA
Servs., Inc., 957 F.3d 1038, 1042 (9th Cir. 2020) (reversing
the district court’s order compelling arbitration where the
court failed to interpret an arbitration clause in the context of
the contract as a whole). We must, therefore, interpret the
meaning of individual arbitration clauses “in connection
with the rest of the agreement” and “not detached portions
thereof.” Id. at 1042 (internal quotation omitted).
    The Terms of Use have a clear, delineated purpose—to
regulate use of Walmart’s online resources and content. The
introductory text of the Terms of Use provides: “These
Terms of Use govern your access to and use of all Walmart
Sites.” The agreement’s provisions, therefore, apply only to
a consumer’s use of and access to Walmart Sites. The Terms
of Use define “Walmart Sites” to mean:
        www.walmart.com, and the Walmart mobile
        site https://mobile.walmart.com, the Walmart
        Apps, and all related functionality, services,
        and Content offered by or for Walmart on or
        through www.walmart.com and the Walmart
        Apps or the systems, servers, and networks
        used to make the Walmart Sites available.

A Walmart Auto Care Center is not a “Walmart Site” under
this definition. Moreover, the Terms of Use cover subject
matter such as online user accounts, the content of Walmart
                   JOHNSON V. WALMART, INC.                 11

Sites and their use, monitoring of user activity on Walmart
Sites, the placing of online transactions, and the shipping and
delivery of online orders. No provision of the Terms of Use
addresses any form of in-store engagement with Walmart.
    Walmart asks the court to treat a customer’s use of a
Walmart Site as an acceptance of a separate arbitration
agreement that touches more than the Terms of Use
themselves. But viewing the contract as a whole, the
introductory clause bounds the subject matter to which the
agreement applies: “access to and use of all Walmart Sites.”
By the plain meaning of the introductory language, no
provision of the Terms of Use can govern Johnson’s in-store
purchase because that purchase did not involve his access to
or use of any Walmart Site. The language and subject matter
of the contract make clear that by agreeing to the Terms of
Use, Johnson did not assent to arbitrate claims that might
arise out of a separate, in-store purchase. As the Terms of
Use cover a defined subset of consumer interaction with
Walmart—access to and use of Walmart Sites—the nested
arbitration provision of the Terms of Use cannot apply to the
controversy over the in-store purchase of the Service
Agreement.
    Walmart argues that Johnson’s two purchases are
“merely interrelated contracts in an ongoing series of
transactions” such that the arbitration agreement of the first
necessarily applies to the second. Where two contracts are
“separate,” “the lack of an arbitration clause means disputes
over the agreement are not subject to arbitration.” Int’l
Ambassador Programs, Inc. v. Archexpo, 68 F.3d 337, 340
(9th Cir. 1995). But where two contracts “are merely
interrelated contracts in an ongoing series of transactions,”
an arbitration provision in one contract could apply to
subsequent contracts. Id.
12                 JOHNSON V. WALMART, INC.

    Substantial evidence supports that the two contracts
between Johnson and Walmart are separate, independent
agreements. The arbitration agreement consented to when
Johnson purchased a set of tires from Walmart.com “does
not control the separate agreement of the parties.” Id. First,
although the receipt Johnson received documenting his
purchase of the Service Agreement notes the tires as
“PREPAID” online, Johnson’s purchase of the Service
Agreement was “negotiated and entered into separately”
from his initial purchase of tires from Walmart.com.
Humetrix, Inc. v. Gemplus, S.C.A., 129 F.3d 125, *2 (9th Cir.
1997) (unpublished table decision). Second, the two
contracts involved separate consideration, as the first
contract was for the purchase of goods while the second was
for the performance of services. See id. (two contracts that
“differ[ed] substantially” in their terms and services were not
interrelated). And third, while Walmart points out that
Johnson references the original cost of the tires to calculate
damages, the proof Johnson requires to establish his
underlying claim for breach of contract involves neither a
breach of his initial tire-purchase agreement nor an
interpretation of the Walmart.com Terms of Use, but rather
depends exclusively on the terms of the Service Agreement.
See Archexpo, 63 F.3d at 340. Johnson would rely on the
original value of his tires before he was denied the rotation
and balancing services regardless of whether he purchased
the tires from Walmart or another retailer.
   The two contracts—though they involve the same parties
and the same tires—are separate and not interrelated.
Therefore, the arbitration agreement in the first does not
encompass disputes arising from the second.
     AFFIRMED.