9th Circuit Revives Class Action Over ‘Zombie’ Smartphone Cookies

SAN FRANCISCO (CN) – Verizon customers who accused an online ad company of using "zombie cookies" to collect personal data through their smartphones will have a second chance to sue the company as a class, the Ninth Circuit ruled Tuesday.

A three-judge appeals panel granted the subscribers' petition to overturn a federal judge’s order staying their proposed class action and compelling arbitration between the lead plaintiff and Verizon over Turn Inc.'s alleged conduct, ruling that the lower court had "committed clear error."

"We are left with a definite and firm conviction that a mistake has been committed," the per curiam opinion said.

A class of Verizon customers from New York sued Turn in the Northern District of California in 2015, claiming the company used "zombie cookies" to monitor their online behavior through their mobile devices.

Advertisers use bits of data called cookies to gather web information about users that can be used in targeted advertising. A user can delete a cookie, but lead plaintiff Anthony Henson said Turn’s “zombie cookies” evaded detection and could not be deleted. When a person deleted Turn’s cookies, the company recreated them, he claimed.

Last year, U.S. District Judge Jeffery White granted Turn’s motion to stay the class action and compel arbitration, finding the claims against Turn were “inextricably intertwined” with a Verizon customer agreement that includes an arbitration clause.

The plaintiffs had argued Turn’s motion to compel arbitration should be denied because Turn was not a party to the agreement. But White found arbitration must be compelled when claims “arise directly” from a provision of a contract that requires arbitration to settle disputes.

The Ninth Circuit disagreed with White Tuesday, finding the plaintiffs' claims aren't based on the customer agreement. Instead, their complaint was "replete with allegations of wrongdoing against Turn that have nothing to do with the customer agreement," the court wrote, including that Turn collected data about Verizon users without their knowledge and bypassed their phones' privacy controls in order to transmit their information to Turn.

“None of these allegations rely on the customer agreement or attempt to seek any benefit from its terms," the panel wrote in its 16-page opinion.

Nimish Desai, a partner with Lieff Cabraser Heimann & Bernstein in San Francisco who represents the plaintiffs, said Tuesday that he and his clients were pleased with the decision.

"We are looking forward to litigating these claims on behalf of the plaintiffs and the proposed class," he said in an email.

To arrive at its conclusion, the panel relied on the third factor in Bauman v. U.S. Dist. Court, decided by the Ninth Circuit in 1977. The factor considers whether a trial court’s order is wrong as a matter of law.

The panel found that White had erred by granting Turn's motion to compel arbitration under New York's equitable estoppel doctrine. Instead, White should have applied the equitable estoppel doctrine of California – where Turn was sued – to determine whether Turn, as a nonsignatory to the customer agreement, can compel arbitration.

Under California law, Henson would have to arbitrate if his claims relied on the customer agreement, or if the claims were founded in or intertwined with the agreement, according to the Ninth Circuit's opinion.

"The district court committed clear error by applying New York’s equitable estoppel doctrine, rather than California’s, and by failing to apply California law correctly," the panel wrote.

The panel found that three of the five Bauman factors weighed in favor of granting the petition.

Michael Rubin of Wilson Sonsini Goodrich & Rosati in San Francisco represents Turn. He could not be reached for comment Tuesday.

Digital marketing tech company Amobee acquired Turn this past April, according to an announcement on Amobee's website. Representatives for Amobee and Verizon did not return requests for comment.

Circuit Judges William Fletcher and Richard Tallman and U.S. District Judge Roslyn Silver, sitting by designation from the District of Arizona, made up the Ninth Circuit panel.

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