The Ninth Circuit and Online Contract Formation

The law of wrap contracts continues to evolve.  Last week, the Ninth Circuit issued a ruling in a case involving the Telephone Consumer Protection Act.  In Berman v. Freedom Financial Network, a three-judge panel affirmed the district court’s order denying the defendants’ motion to compel arbitration.  The informative concurring opinion, written by an International Trade Judge sitting by designation, may prove to be an important one which provides much needed guidance regarding the law of online contract formation in California.

The plaintiffs visited two different websites, each operated by the defendant Fluent, a digital marketing company that generates leads by collecting data from its website visitors.  Fluent offers visitors gift cards and free product samples in exchange for contact information and answers to survey questions.  It then uses this information in target ad campaigns for its clients. 

Hernandez visited a website that she had previously visited and was greeted with the first image (Figure 1).  I’m not sure whether you can see the phrase “I understand and agree to the Terms & Conditions which includes mandatory arbitration and Privacy Policy" from the screenshot, but it is between the “comparatively large box displaying the zip code and the large ‘green’ continue button” in “tiny gray font” rather than in blue, “the color typically used to signify the presence of a hyperlink.”

 

The other plaintiff, Russell, visited a website from a mobile phone which is the second image (Figure 2). The notice to the terms and conditions is “sandwiched between the buttons allowing Russell to select her gender and the large green ‘continue’ button” and is in “tiny gray font” which states “I understand and agree to the Terms & Conditions which includes mandatory arbitration and Privacy Policy.” 

The plaintiffs received phone calls and text messages which they claimed violated the TCPA.  The defendants moved to compel arbitration, arguing that by clicking on the “continue” buttons, the plaintiffs had agreed to the terms and conditions, including the mandatory arbitration provision.

The district court denied the motion, finding that the content and design of the website did not conspicuously indicate to users that clicking the “continue” button meant agreeing to the terms and conditions.

The Ninth Circuit agreed, noting that there was a “spectrum” of contracts formed online with “clickwrap” agreements on one end and “so-called ‘browsewrap’ agreements” on the other.  The Ninth Circuit cited a recent California case, Sellers v. Just Answer LLC, that because “online providers have complete control over the design of their websites,” the onus is on them to put users on notice.  Significantly, the Ninth Circuit stated that the inquiry notice standard “demands conspicuousness tailored to the reasonably prudent Internet user, not to the expert user” and that the “design of the hyperlinks must put such a user on notice of their existence.”  Furthermore, the manifestation of assent must be “unambiguous” and that merely clicking on a button, viewed in the abstract, does not signify assent; the user must be “explicitly advised that the act of clicking will constitute assent” to the T & Cs.

The defendants objected that the textual notice explicitly referenced mandatory arbitration but the court stated: 

“This argument is unavailing, as it fails to appreciate the key issue in this appeal.  The question before us is not whether Hernandez and Russell may have been aware of the mandatory arbitration provision in particular, but rather whether they can be deemed to have manifested assent to any of the terms and conditions in the first place.  Because the textual notice was not conspicuous and did not explicitly inform Hernandez and Russell that by clicking on the ‘continue’ button they would be bound by the terms and conditions, the presence of the words ‘which includes mandatory arbitration’ in the notice is of no relevance to the outcome of this appeal.”

While the majority declined to decide whether New York or California law governed because the law dictated the same outcome, Judge Baker found it important to decide the choice-of-law issue and concluded that California law applied.  Judge Baker, the International Trade Judge, concurring in the decision, stated that under California law ‘sign-in wrap’ agreements “tempt fate.”

Judge Baker noted that the California Supreme Court had yet to decide the issue of online contract formation, and relied upon two appellate court cases, Long v. Provide Commerce, 200 Cal. Rptr. 3d 117 (Ct. App. 2016) and Sellers v. Just Answer, 289 Cal. Rptr. 3d 1 (Ct. App. 2021). 

Judge Baker carefully analyzed these two cases and concluded that, “pending further word from the California appellate courts, browsewrap agreements are unenforceable per se:  sign-in wrap agreements are in a gray zone; and clickwrap and scrollwrap agreements are presumptively enforceable.”  In the “gray zone” of sign-in wraps, enforceability requires “conspicuous textual notice that completing a transaction or registration signifies consent to the site’s terms and conditions.” Conspicuousness depends upon several factors including “transactional context, the notice’s size relative to other text on the site, the notice’s proximity to the relevant button or box the user must click to complete the transaction or register for the service, and whether the notice’s hyperlinks are readily identifiable.  A court must consider “all these factors together.”

Judge Baker then painstakingly examined the design of the notice and concluded that it was “insufficiently conspicuous.”  Furthermore, even if notice is conspicuous, the user must manifest “unambiguous” assent” which, in this case, required that the notices “expressly advise users that clicking ‘Continue’ signifies assent” to the arbitration provisions and the other terms and conditions.  Thus, even if notice is conspicuous, the notice is not binding as a contract unless there is an “express warning” that a given action manifests assent to terms and the user takes that specified action.