OPINION AND ORDER Plaintiffs brought this action on August 12, 2021 against Peloton, alleging that Peloton breached its contract and violated consumer protections laws in Virginia, New York, Massachusetts, and Oregon by charging a sales tax on its subscription service, a digital good which is tax-exempt in these states. Doc. 1. Pending before the Court is Peloton’s motion to compel arbitration and to dismiss. Doc. 43. For the reasons set forth below, Peloton’s motion to compel arbitration is GRANTED and the motion to dismiss is DENIED without prejudice. I. BACKGROUND1 Peloton is a fitness and media company that sells, among other things, access to live and on-demand exercise classes. 2. Customers can subscribe to Peloton for access to the classes, and Peloton had over 6.2 million members as of September 30, 2021.
2-4. The All-Access Membership allows the subscriber “and members of [their] household at one residential address (up to 20 user profiles)…full access to Peloton’s available classes, content, and features[.]” Doc. 45-9 at 2. Subscribers are bound by Peloton’s Membership Terms as well as Peloton’s Terms of Service. 5. The Membership Terms, which are incorporated into the Terms of Service, state that subscribers “agree to pay the monthly fee specified” at purchase “plus any applicable taxes and other charges.” Id. Subscribers also provide a saved payment method, from which they agree “to pay any amounts described [in the terms] without requiring a signed receipt.” Id. The Terms also state that all disputes not required to be arbitrated are governed by New York law. 18. The Terms also included a section titled “Arbitration Clause & Class Action Waiver” (“Section 20″). Section 20(a) contained a mandatory binding arbitration clause that states that Peloton and the subscriber “each agree that any dispute, claim or controversy arising out of or relating to these Terms…will be resolved solely by binding, individual arbitration and not in a class, representative or consolidated action or proceeding.” Doc. 40-1 at 18. Section 20(e) contained a class action waiver, stating that the subscriber and Peloton agree that each of [them] may bring claims against the other only in an individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding. Further, if the parties’ dispute is resolved through arbitration, the arbitrator may not consolidate another person’s claims with your claims and may not otherwise preside over any form of a representative or class proceeding. If this specific provision is found to be unenforceable, then the entirety of this Section 20 shall be null and void. Doc. 40-1 at 19. Section 20(c) specified that arbitrations would be held through the American Arbitration Association (“AAA”) pursuant to AAA’s Consumer Arbitration Rules. 32; Doc. 40-1 at 19. Section 20(c) further stated “that the arbitrator shall have exclusive authority to decide all issues relating to the interpretation, applicability, enforceability and scope of this arbitration agreement.”2 Doc. 40-1 at 19. Section 25 of the Terms, titled “Modification,” states as follows: We may update these Terms at any time, in our sole discretion. If we do so, we’ll let you know by, at a minimum, posting the updated Terms…on the Peloton Site and/or through the Peloton Service. Modifications will be effective on the date that they are posted to the Peloton Site. It’s important that you review the Terms whenever we update them before you use the Peloton Service after we have posted updated Terms, you are agreeing to be bound by the updated Terms. If you don’t agree to be bound by the updated Terms, then…you may not use the Peloton service anymore. Doc. 40-1 at 22. In 2019, Peloton was involved in separate, unrelated arbitration proceedings brought by over 2,700 individual consumers before the AAA regarding deletion of videos from its on-demand streaming library. See Fishon v. Peloton Interactive, Inc., No. 19 Civ. 11711 (LJL), Doc. 57 at 2. However, Peloton failed to pay the required filing fees to the AAA. The AAA thus stated that, under its rules, because it was declining to administer the arbitrations, the parties could choose to submit their dispute “to the appropriate court for resolution.” Fishon, Doc. 81-2. Thus, a group of consumers filed a class action, in which Skillern is an unnamed member, against Peloton in the Southern District of New York on December 23, 2019. See generally Fishon. In that action, Peloton did not seek to enforce the arbitration provision nor the class action waiver. Id. The AAA also told Peloton in a November 14, 2019 letter that it would “decline to accept future consumer matters submitted against or by [Peloton]” and requested that it “ remove AAA from its consumer arbitration agreements so that there [would be] no confusion to Peloton’s customers.” 33; Fishon, Doc. 81-2. Peloton did not remove mention of AAA from its Terms of Service until December 27, 2019, when it modified its terms to specify that arbitration would be conducted by JAMS (formerly known as Judicial Arbitration and Mediation Services) under its rules. Doc. 45 7; Doc. 45-5 at 10. As relevant here, the other provisions of the Terms remained unchanged. Doc. 45-5 at 9-10 (arbitration requirement and class action waiver). Plaintiffs Skillern, Corken, and Michael and Kathy Litvin3 purchased subscriptions4 in January 2019, December 2019, and June 2020, respectively.
