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Friday, May 30, 2014

SDNY Enforces Hyperlinked Arbitration Clause and Class Action Waiver

BambooLast month, the District Court for the Southern District of New York granted a motion to dismiss brought by defendant Gilt Groupe, Inc. (Gilt) in Starke v. Gilt Groupe, Inc.  Adam Starke (Starke) sought to bring a class action claim against Gilt for allegedly misrepresenting on its website that its textiles were made from bamboo fibers when they are in fact made from bamboo derivatives (rayon).  

Gilt is an online shopping website that specializes in "flash sales" of short duration.  In order to purchase items on the website, one must become a Gilt member.  One does so by clicking on a "sign-up" box that states that the consumer agrees to be bound by Gilt's Terms of Membership.  Once click on the mouse brings the consumer to Gilt's "Terms and Conditions," which are governed by Gilt's Terms of Use.  A second click brings one to those terms which include, in paragraph 16, an arbitration agreement and a class action waiver.  

Starke claimed both that he never effectively agreed to the arbitration agreement and class action waiver and that they are unconscionable.  Relying on a 2012 case invovling similar challenges to Facebooks click-through terms and conditions, the District Court quickly concluded: 

Regardless of whether he actually read the contract's terms, Starke was directed exactly where to click in order to review those terms, and his decision to click the "Shop Now" button represents his assent to  them.

Yes, this is indeed how mass-market boilerplate rights-deletion scheme works.  Clicking twice, and carefully reading  both documents would have increased the time involved in Starke's transaction substantially.  Neither Starke nor Gilt, which specializes in "flash sales," wants that.   The terms are not intended to be read.  Nor do we know that Starke could have understood the significance of the arbitration clause and class action waiver had he read them.  In addition, what is Starke's alternative?  The District Court blithely directs Starke to Amazon.com.  What do you know?  Amazon also has an arbitration clause and a class-action waiver!  [In fairness, I've always found Amazon's customer service to be excellent -- they take returns and cover shipping on returns, so Starke probably would have been better off with them -- Amazon also accurately described the product at issue in Starke's case.]  SDNY, you're part of the problem.

Starke did not seem to raise any serious grounds for finding the arbitration agreement unconscionable.  

[This post has been edited to fix errors that a reader called to the author's attention.]

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Comments

> Nor do we know that Starke could have understood the significance
> of the arbitration clause and class action waiver had he read them.

That's not a problem unique to on-line transactions.

It would be a boon if some trusted organization with a recognizable brand could come up with a set of decent on-line terms of service and start a grass-roots campaign to urge companies to adopt it. Unfortunately I'm hard-pressed to think of what that organization might be. I doubt it's the American Bar Association; I doubt the various factions could agree on a proposal (I remember UCITA), and I doubt the public would warm to the idea if it were promoted by "the lawyers."

Posted by: D. C. Toedt | May 30, 2014 2:43:32 PM

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