Based on Delegation Provision in AAA Consumer Rules, Missouri Appellate Court Orders Putative Class-Action Privacy Case to Arbitration

A Missouri appellate court has ordered a proposed class-action lawsuit alleging Ancestry.com released customer health data to third parties without first obtaining consent to arbitration.  In Hughes v. Ancestry.com, No. WD81996, (Court of Appeals of Missouri, Western District, May 28, 2019), a number of customers purchased DNA-testing kits from Ancestry.com.  In order to obtain their DNA-testing results, the customers created a user account on the website and agreed to the Ancestry.com “Terms and Conditions.” The website “Terms and Conditions” included an agreement to arbitrate all future disputes with the company using the American Arbitration Association’s (“AAA”) Consumer Arbitration Rules subject to certain enumerated exceptions, including:

If [the customer’s] dispute is not resolved within 30 days after contacting [Ancestry], then [the customer] and Ancestry agree that we will resolve it through final and binding arbitration, with the following three exceptions:

1. [The customer] may assert [his or her] dispute, if it qualifies, in small claims court.

2. Both [the customer] and Ancestry may bring a suit in court in the state of Utah only for a claim of infringement or other misuse of intellectual property rights. In this case, we both waive any right to a jury trial.

3. If it qualifies, [the customer] may bring a claim to the attention of a relevant federal, state, or local agency that may seek relief against [Ancestry] on [the customer’s] behalf.

Under the AAA Rules, an arbitrator must determine “his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.”

After obtaining their DNA-testing results, numerus Ancestry.com customers filed a putative class-action lawsuit against the company in Jackson County, Missouri over the purported unauthorized release of their health data to third parties.  Ancestry.com responded by filing a motion to compel the dispute to arbitration based on the website “Terms and Conditions.”  The trial court found the parties’ agreement to arbitrate was illusory and lacked mutual consideration.  As a result, the Jackson County court denied the company’s motion to compel arbitration and stay the case.  After that, Ancestry.com filed an appeal with Missouri’s Western District Court of Appeals.

On appeal, the court held:

(1) A delegation provision is a separate agreement between the parties that gives the arbitrator the power to decide threshold issues of arbitrability. A delegation provision must be a “clear and unmistakable” agreement. Here, the delegation provision indicated that any arbitration would be governed by the American Arbitration Association (“AAA”) rules, which provide that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” This constitutes a clear and unmistakable intention to delegate threshold issues of arbitrability to the arbitrator.

(2) After finding the existence of a delegation provision, we must next determine its validity. A party must specifically challenge the validity of a delegation provision or it will be treated as valid and enforced. Here, Plaintiffs failed to specifically challenge the delegation provision before the trial court. Instead, the arguments made by the plaintiffs challenged the validity of the arbitration agreement as whole. As a result, the delegation provision must be deemed valid and enforced. We reverse and remand to the trial court.

In addition, Missouri’s Western District Court of Appeals ordered the parties to proceed to arbitration in order to determine issues related to the arbitrability of the customers’ claims.

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