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Tuesday, December 31, 2013

Ninth Circuit Denies Motion to Compel Arbitration Where There Is No Contract

9th CircuitThis case is fodder for Nancy Kim's work on wrap contracts.  

In 2008, Donovan Lee purchased an Internet background check and report from a company called Intelius.  Lee confirmed this purchase when he clicked "yes" on Itelius's webpage, where its name was the only company name to appear.  In fine print on that page, he was informed that by clicking yes and looking at the report he was seeking he was also agreeing to a seven-day free trial of a "Family Safety Report" for which he would be billed $19.95/month after the seven-day trial lapsed. Lee noticed the monthly charges, from a company called Adaptive Marketing, after the company had been charging his credit card $19.95 for about a year.   Lee and other named plaintiffs brought a state-law class action against Intelius, which impleaded Adaptive Marketing as a third-party defendant.  

Claiming that Lee had agreed to arbitrate any claims he would have against Adaptive Marketing when he clicked "agree" on Intelius's website, Adaptive Marketing moved to compel arbitration.  The District Court denied that motion, and on December 1th, the Ninth Circuit affirmed in Lee v. Intelius, Inc.  

The Court's description of the Intelius webpage's architecture is quite elaborate.  It seems that Lee was lured into his trial membership with Adaptive Marketing when he took a two-question survey in return for $10 cash back (which he claims he never received) should he try "Family Safety Report."  After taking the survey, it appears that Lee had the option of just seeing the background check that he was interested in or also getting the Family Safety Report on terms provided through another link.  The "yes" button was large and orange.  The "no" button was smaller and featured a smaller font.  Lee testified that he did not read the text of the smaller button, as his eye was drawn to the large orange button.  He also did not read Intelius's terms and conditions, which included an arbitration clause.

The District Court found that Lee had entered into a contract with Adaptive Marketing to purchase the Family Safety Report but had not entered into a arbitration agreement with that company.  The Ninth Circuit, applying Washington state law, found that Lee had entered into no contract with Adaptive Marketing, and therefore had no arbitration agreement with the company.  

The Ninth Circuit found no contract because it concluded that Intelius's webpage was "designed to deceive" Lee and others like him.  While a careful consumer would have read the entire webpage, the District Court had noted, Lee's conduct was not careful but also not unreasonable:

A less careful, but not unreasonable, consumer could conclude that providing Intelius with his email address and clicking the big [orange] “YES” button would reveal the report he had been trying to get for an undisclosed number of screens. Because the consumer never selects an additional product or service and is not asked for his account information, he could reasonably believe, based on his past experiences with internet transactions, that there would be no unpleasant surprises on his credit/debit account.

On this basis, the Ninth Circuit expressed skepticism regarding whether Lee had made an objective manifestation of consent to a contract with Adaptive Marketing.  But because that issue was uncertain, the Ninth Circuit ruled on other grounds.  Washington law requires that the "essential elements" of a contract be set forth in writing.  Identification of the parties to an agreement is one such essential element, and it was lacking in this instance, since Adaptive Marketing's name did not appear.  Even a cautious consumer would have thought she was contracting with Intelius.  

In addition, the Ninth Circuit agreed with the District Court that even if there were a contract between Lee and Adaptive Marketing, there was no agreement to arbitrate.  As the District Court put it:

Neither the text above the “YES” button nor the “Offer Details” themselves mention the “Privacy Policy” or the “Terms and Conditions.” By clicking the “YES” button, Lee objectively manifested his assent to be bound by the “Offer Details,” nothing more. The fact that there were additional hyperlinks on a webpage Lee reviewed does not establish assent to the terms embedded in those hyperlinks.

The Ninth Circuit agreed.

The Court noted as an aside that the federal government prohibited the so-called "data pass" method employed on Intelius's website in the 2010 Restore Online Shoppers' Confidence Act (ROSCA).

[JT]

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