Following up on a prior post, two recent cases have tested the enforceability of “agreements” that one party unilaterally propounded and the other party had no idea existed. Though the Ninth Circuit found both to be non-binding, the logic in both cases implies that knowing consent — an element of contract law that is emphasized in law school as fundamental — seems no longer to be a requirement in “agreeing” to arbitrate future disputes.
In Nguyen v. Barnes & Noble, (CTA 9 August 18, 2014), Kevin Nguyen purchased two Touchpads on Barnes & Noble’s website. The order was cancelled “due to unexpectedly high demand” and Nguyen filed a suit in California state court on behalf of himself and others similarly situated, alleging that the company had engaged in deceptive business practices and false advertising. The company removed the action to federal court and moved to compel arbitration.
The second opinion, Knutson v. Sirius XM Radio, (CTA 9 November 10, 2014), involved the purchaser of a Toyota vehicle that included a 90-day subscription to Sirius XM satellite radio. Upon purchasing the vehicle, Knutson began getting telephone calls from Sirius and an unsolicited mailing that included a purported “Customer Agreement.” He brought a class action suit alleging violations by Sirius of the Telephone Consumer Protection Act. The district court granted a motion to compel arbitration, based on a provision in the “Customer Agreement” that Sirius had unilaterally drafted and unilaterally sent to Knutson. The “Agreement” provided, among other things, that Knutson would be bound thereby unless he took action to the contrary, and that Sirius could modify the terms of the Agreement by “unilateral amendment.”
Sirius’ Agreement contained a provision requiring Knutson to waive the right to go to court, waive the right to assert claims on a class basis, and submit to binding arbitration. Knutson ignored the Agreement because he did not think he had entered into any legal relationship with Sirius when he purchased his Toyota. The Ninth Circuit agreed, and reversed the district court’s order compelling arbitration.
“Applying well-settled principles of contract law,” the court determined that Knutson had never assented to Sirius’ Customer Agreement. In particular, the court held that Knutson had evidenced no “outward manifestations of consent” that would lead to the conclusion that, as offeree, he had consented to Sirius’ offered terms. Knutson reasonably thought he had entered into a contract only with Toyota and was under no obligation to open, read, or act upon notices provided to him by Sirius. “There was no evidence that Knutson purchased anything from Sirius XM, or ever knew that he was entering into a contractual relationship with [it].”
The legal basis of the court’s conclusion is one that most first year law students would recognize: “A party to a contract cannot be held to the contract’s arbitration provision where the plaintiff does not know a contract exists.”
So far so good. But are we really saying that, if Barnes & Noble repositions its “Terms and Conditions” button, a “clickthrough” purchaser of a book knows that she’s entered into an agreement to arbitrate? Or, if Sirius adjusts its marketing a bit, that the purchaser of a car could be obligated to the radio signal supplier? Has the law of Section 2 of the FAA so devolved that not only is no written consent required, but “clicking” a button or turning on a radio constitutes consent? Is buying a Toyota, or buying a watchband, or visiting a website, an agreement to waive class action rights?
Two questions present themselves: What is sufficient to evidence contractual consent, and how does one determine whether a party knows what she is consenting to? The second question may be framed: “Say you present a purchaser of a gallon of milk with a piece of paper that says that, if she leaves the store with the milk, she must arbitrate any claim against the seller. Does she know what ‘yes’ means?”
That question will be discussed in distressing terms in a subsequent post.