Intuit Free-File Decision Deals Yet Another Blow to Arbitration in CA

The California Northern District Court has denied Intuit’s motion to compel arbitration. Plaintiffs Michele Arena, et al. filed a class action complaint against Intuit “alleging that Intuit fooled a class of consumers into paying for its tax preparation services when they were entitled to use its free filing option.”

Intuit countered that they are “bound by the arbitration agreement in the Intuit Terms of Service for TurboTax… which Plaintiffs ostensibly agreed to every time they signed in to use Intuit’s tax preparation software.” The court found that the “Terms were too inconspicuous to give Plaintiffs constructive notice that they were agreeing to be bound by the arbitration agreement when they signed in to TurboTax, the Court finds that Plaintiffs did not agree to the arbitration agreement.”

Intuit’s TurboTax is an online tax preparation service. Since 2002, Intuit and other services have agreed with the Internal Revenue Service (IRS) to give low-income and active military members the option to file taxes for free. However, the plaintiff filers claim that Intuit violated its agreement with the IRS because it misled qualifying taxpayers away from the free option to use its paid service, which it allegedly mislabeled and marketed as free. According to the complaint, the service would appear free until the final stage, when a taxpayer needs to submit their taxes.  At that point, they would be forced to pay or start over on the free service.

After a user signs in, the Terms of Use eventually link users to the Arbitration Agreement. The agreement stated that “any dispute or claim relating in any way to the services or this agreement will be resolved by binding arbitration, rather than in court.” The plaintiffs objected to the validity of that agreement to arbitrate. The court stated the parties must have a “mutual manifestation of assent” in order to “be bound by the terms of the contract.”

Intuit used a sign-in wrap agreement, where a user had to agree to the terms before being able to use the service. The court stated that “if Plaintiffs ‘were on inquiry notice of the arbitration provision by virtue of the hyperlink to the [Terms] on the sign-[in] page and manifested their assent to the agreement by clicking ‘sign-[in],’’ then there was a valid arbitration agreement.” However, the court found that Intuit did not to meet this requirement. The link to the agreement appeared after the sign-in and the court noted that the hyperlink was blue but not underlined.

Intuit argued that other companies have not followed this standard, so it should also be excused; The court disagreed because “both the notice and the hyperlinks therein are in the lightest font on the entire sign-in screen…a reasonable consumer would be less likely to notice text in a significantly fainter font than other text on the same page.” The court found that “less than 0.55% of users logging into TurboTax’s website between January 1 and April 30, 2019, actually clicked on the hyperlink to the Terms.”

The court concluded that “[b]ecause Plaintiffs did not receive adequate notice of Intuit’s Terms, they never agreed to the Terms, and cannot be bound by the arbitration provision contained therein.” Consequently, the court denied the motion to compel arbitration. The action was stayed pending appeal.

In a similar lawsuit, Intuit was sued for misleading taxpayers away from its free options.

Plaintiffs are represented by Girard Sharp, Gibbs Law Group, and Stueve Siegel Hanson. Intuit is represented by Fenwick & West.