ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, September 3, 2019

Companies Cannot Impose Arbitration by Stealth

U.S. District Judge William Orrick (ND CA) has just held that companies must still provide online customers with adequate notice of arbitration and other provisions.  This is so in at least the Ninth Circuit after Nguyen v. Barnes & Noble(763 F.3d 1171 (Ninth Cir. Ct. of App.)).  (I proudly note that Kevin Nguyen was a student in one of my 1L Contracts classes years ago!) Unknown

As reported by Reuters, it’s become standard operating procedure for companies to require online or mobile customers to agree to mandatory arbitration by clicking their assent to terms of service. But there’s still a roaring debate about exactly howcompanies can bind their customers (and employees, for that matter) to arbitration in other contexts. Do customers assent to arbitration merely by visiting a website or downloading a mobile app that provides a link to service terms mandating arbitration? Or must consumers specifically acknowledge that they’ve surrendered their right to litigate?

Courts have had to scrutinize websites and apps to decide whether they provide consumers with enough information to allow informed assent. Judges have come to be generally skeptical of so-called browse-wrap agreements, in which companies merely post mandatory arbitration conditions and contend that customers have consented by continuing to use their services. Click-wrap agreements – in which companies present consumers with their terms of service and specifically require assent – are generally deemed to be enforceable.  In the case just resolved by J. Orrick, the arbitration provision fell into an in-between category known as a “sign-in wrap.”  Beginning in February 2018, when customers registered at the company’s website, they were required to click their assent to Juul’s terms of service, which prominently mentioned mandatory arbitration.  But to see those terms of service, consumers had to click on a separate link. Unknown-1

Juul did not prominently highlight the hyperlink to its terms of service. The link, said J. Orrick, was virtually indistinguishable from the surrounding text – no color change, underlining, capitalization or italicization signaled to consumers that they could click to read Juul’s specific terms and conditions.  One of the plaintiffs registered via a subsequent log-in iteration in which Juul underlined the hyperlink to its service terms, but J. Orrick found even that notice to be inadequate.

The case is Bradley Colgate, et al. v. Juul Labs, Inc., et al.,2019 WL 3997459.

https://lawprofessors.typepad.com/contractsprof_blog/2019/09/companies-cannot-impose-arbitration-by-stealth.html

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