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 company argued that a hyperlink on the website, appearing s “Terms of Use,” bound Nguyen to arbitrate and banned class claims.  the full text of the Terms of Use stated that, be merely visiting the website or by making a purchase from it, a consumer is deemed to have accepted the terms set forth.  And Section XVIII of those Terms provided that any claim against the company would be resolved by binding arbitration in which no personal appearance is required, and in which class claims are barred.  The company argued that Mr. Nguyen’s mere access to the website but him on “constructive notice” of Section XVIII, and that “constructive notice” was the legal equivalent of agreement.

The Ninth Circuit affirmed the trial court’s denial of the company’s motion to compel arbitration.  It distinguished “clickwrap” agreements (in which a user is presented with terms and conditions of use and is required to click her agreement before making any purchase) from “browsewrap” agreements (in which terms and conditions are available for a user’s review but the user is able to purchase items without manifesting consent to them).  While observing that some “browsewrap” notices can form enforceable agreements, actual notice of the contract terms [I blush to use the word “contract” in this context] must be demonstrated, as well as continued use of the website subsequent to such notice.  One such set-up found enforceable was a site in which the user could not “Sign Up” without clicking a button that recited that the user had “read and agree[d] to the Terms of Service.”  Including, presumably, Section XVIII.  Reviewing case law, the court summarized that “the conspicuousness of the placement of the “Terms of Use” hyperlink, other notices given to users of the terms of use, and the website’s general design all contribute to whether a reasonably prudent user would have inquiry notice of a browsewrap agreement.”

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.

 

F. Peter Phillips is an arbitrator and mediator practicing through Business Conflict Management in Montclair, New Jersey. He is also the Director of the Alternative Dispute Resolution Skills Program at New York Law School where, as Adjunct Professor, he teaches Alternative Dispute Resolution, Negotiation, and International Commercial Dispute Resolution.