Raab v. Nu Skin Enters., Inc.

536 P.3d 695

Earnest L. RAAB, D.C., d/b/a Success To Significance LLC, a Washington LLC; Michael Ulrick ; Larry C. Wieber and Rose Wieber, d/b/a Test for Nutrition of Washington, LLC, a Washington LLC; Max and Debra Robbins; Toni Ragsdale, d/b/a Ragsdale & Company LLC, an Oklahoma LLC; Wayne Matecki, Lac and Amy L. Matecki, M.D., d/b/a Dr. Amy's Integrative Medicine, Inc., a California corporation, Respondents,

v.NU SKIN ENTERPRISES, INC., a Delaware Corporation; Pharmanex, LLC, a Delaware LLC; Weston Blatter, individually and for the marital community; Scott Bennett, individually and for the marital community; Tyler Bennett, individually and for the marital community, d/b/a Leadership Inc., a Utah Corporation, and d/b/a For Our Future, Inc., a Utah Corporation; Build Belief, LLC, a Nebraska LLC; Vladimir Kolbas, individually and for the marital community, d/b/a Build Belief, LLC ; Estee and Blake Carter, wife and husband, individually and for the marital community, d/b/a Orange Goose LLC, a Utah LLC, and d/b/a Orange Goose Central, LLC, a Utah LLC, and d/b/a Orange Goose Partners, LLC, a Utah LLC; William Jonathan Whittaker and Kathie Anne Whittaker, individually and for the marital community, d/b/a Pharmanexmd, LLC, a Florida LLC; Latisha Danielle Taylor, individually and for the marital community, d/b/a Health Measured Ventures, LLC, a California LLC; and Stephen Moore, D.C., individually and for the marital community, d/b/a Live Better Longer MD, LLC, a Florida LLC, and d/b/a MD Solution, and d/b/a Get Healthy USA, and Jane and John Does, 1-10, Petitioners.

No. 38842-5-III

Court of Appeals of Washington, Division 3.

Filed October 5, 2023

Richard Charles Eymann, Eymann Allison et al, 2208 W 2nd Ave., Spokane, WA, 99201-5417, George M. Ahrend, Luvera Law Firm, 421 W Riverside Ave. Ste. 1060, Spokane, WA, 99201-0406, William Anthony Gieri, Michael S. Bissell, Campbell & Bissell, PLLC, 820 W 7th Ave., Spokane, WA, 99204-2809, for Respondents.

Matthew A. Mensik, Matthew Zachary Crotty, Michael Bradley Love, Riverside Law Group, PLLC, 905 W Riverside Ave. Ste. 404, Spokane, WA, 99201-1099, Sawyer Robert Margett, Hawley Troxell Ennis & Hawley LLP, 422 W Riverside Ave. Ste. 1100, Spokane, WA, 99201-0300, Lauri A. Mazzuchetti, Kelley Drye & Warren LLP, One Jefferson Road, 2nd Floor, Parsippany, NJ, 07054, for Petitioners.

PUBLISHED OPINION

Siddoway, J.P.T.^*

¶1 Modern cases favor enforcing party agreements to the jurisdiction in which any future dispute will be resolved, and to a chosen state's law that will apply. Nevertheless, common law conflict of law principles will sometimes support a Washington court's refusal to enforce a forum selection agreement, and in deciding whether to enforce such an agreement, the Washington court will not necessarily be required to honor an adhesive agreement to apply another state's laws.

¶2 Discretionary review was granted in this case when the superior court refused to dismiss a lawsuit brought in Washington against Nu Skin Enterprises, Inc., and Pharmanex, LLC (collectively "Nu Skin"), Utah-based companies, despite the plaintiffs’ having earlier agreed to resolve any future "Disputes" by arbitration in Utah, applying Utah law. The appeal requires us to address the preemptive effect of the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 - 16 ; the scope of the parties’ arbitration agreement; and the common law conflict of law principles that may support refusals to enforce a forum selection clause and choice of law provision.

¶3 We reverse the superior court's determination that the scope of the parties’ arbitration agreement is too narrow to apply to the plaintiffs’ claims. We reject Nu Skin's contention that "improper venue" under CR 12(b)(3) was a basis for dismissal. We reject its FAA-based arguments that arbitrability of the parties’ disputes was not an issue before the superior court. We remand for the superior court to address anew whether to enforce the forum selection clause and, in that connection, hold that the plaintiffs’ contention that the arbitration terms provided by their contract with Nu Skin are unconscionable is potentially relevant to whether the clause should be enforced.

FACTS AND PROCEDURAL BACKGROUND

¶4 Headquartered in Provo, Utah, Nu Skin Enterprises, Inc. and its affiliates market beauty and nutritional products in the United States and throughout the world through a direct multilevel marketing approach. Nu Skin hires independent contractors who serve as Nu Skin distributors, deriving income by enlisting other distributors and selling Nu Skin merchandise.

¶5 The nine plaintiffs who brought the action below ("Plaintiffs") are lower-level distributors for Nu Skin. According to the Plaintiffs, the only agreement they ever signed with Nu Skin was a three-page "Distributor Agreement." Nu Skin agrees and has produced as signed evidence of the parties’ agreements only copies of the Distributor Agreements signed by individual Plaintiffs between 2011 and 2018.

¶6 A representative 2017 version of the Distributor Agreement¹ defines "Contract" as meaning

the agreement between Nu Skin and me composed of the Distributor Agreement (Section B),^{[2 ]} the International Sponsor Agreement (Section C), the Mandatory and Binding Arbitration Agreement (Section D), Miscellaneous Provisions (Section E), the Policies and Procedures, the Sales Compensation Plan, and materials pertaining to optional programs.

Clerk's Papers (CP) at 136. "Policies and Procedures" is defined to mean

[T]he policies, in addition to the Distributor Agreement, that govern how I, as a Distributor, am to conduct my business and defines the rights and relationships of the parties.

Id. An acknowledgment above the agreement's signature line for the distributor states:

I have previously reviewed the Contract, or agree, before conducting any Distributorship activity, to do so online at www.policiesandprocedures.us. If I refuse to follow any provision of the Contract, I agree to notify NSEUS^{[3 ]} in writing, and cancel my Distributorship.

CP at 137.

¶7 As explained by a declaration of Nu Skin's compliance officer, its 2010 and later policies and procedures (hereafter "Policies") reserved Nu Skin's right to modify the Contract, providing that it could do so on 30 days’ notice, stating:

"[Distributors] agree that 30 days after such notice, any modification becomes effective and is automatically incorporated into the Contract between [Distributor] and the Company as an effective and binding provision. By continuing to act as a Distributor, engaging in any Business Activity, or accepting any Bonus after the modifications have become effective, [Distributor] acknowledge[s] acceptance of the new Contract terms."

CP at 89 (alterations in original) (quoting chapter 8 of the 2010 Policies). Nu Skin contends that based on this provision, its most recently modified 2018 Policies are binding on all of the Plaintiffs. Our references to the Policies hereafter are to the 2018 Policies.

The Spokane County action and motion to dismiss

¶8 The action below was brought in November 2021. In a complaint filed in Spokane County, the Plaintiffs alleged that Nu Skin and 10 of its higher-level distributors misrepresented the financial potential of distributorships and the legitimacy of the Nu Skin business enterprises. They also alleged that the defendants conducted business in ways that advantaged higher-level distributors to the disadvantage of lower-level distributors.

¶9 Four Plaintiffs are Washington residents and two are residents of Spokane County. The remaining Plaintiffs are a married couple from Utah, a married couple from California, and a resident of Oklahoma. In support of personal jurisdiction and proper venue, the Plaintiffs allege in the complaint that each of the defendants engaged in conduct in violation of chapters 19.86 and 19.275 RCW, and that "the events that gave rise to claims occurred in substantial part in Spokane County and Defendants transact business in Spokane County." CP at 31-32.

¶10 In a section of the complaint preceding its "Causes of Action" section—a section V, titled "Non-Arbitrability"—the Plaintiffs assert that their Contract with Nu Skin contains mandatory arbitration terms that were unilaterally imposed in what was a "classic contract of adhesion." CP at 53-55 (boldface omitted). They allege that arbitration in Utah as provided by the Contract was not agreed to by them, that it was unsupported by consideration, and that the arbitration terms are unenforceable. Their prayer for relief seeks a court order that Nu Skin's "Mandatory and Binding Arbitration Agreement" is unlawful or otherwise not binding on them and that the claims pleaded by their complaint are not required to be arbitrated. CP at 62.

¶11 The complaint asserts claims for relief for violations of Washington's Consumer Protection Act (CPA), chapter 19.86 RCW; for violations of Washington's Antipyramid Promotional Scheme Act, chapter 19.275 RCW; for violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. ; for tortious interference with business expectancy; and for negligence and negligent misrepresentation. It seeks injunctive relief, actual damages for lost income, treble damages under the CPA, expectation damages for promised income, and attorney fees and costs.

¶12 Nu Skin's first response to the Plaintiffs’ complaint was to petition the United States District Court for the District of Utah to compel arbitration. Several weeks later, it filed a motion in the action below to dismiss the complaint "for improper venue pursuant to Washington Superior Court Civil Rule 12(b)(3), or, in the alternative, to dismiss or stay this action because the [FAA] requires that the United States District Court for the District of Utah decide [Nu Skin's] Petition to Compel Arbitration." CP at 199. Nu Skin alleged that "Plaintiffs agreed to resolve all disputes with the Nu Skin Defendants and Nu Skin distributor defendants through...