Ninth Circuit revisits standards for enforcing online arbitration provisions

From JDSupra, Mark Levin discusses a recent case in which the Ninth Circuit Court of Appeals reviews the situations in which parties can be bound by an online arbitration agreement. Mark writes:

Recently, the Ninth Circuit Court of Appeals reexamined when use of a website can bind a consumer to hyperlinked “terms and conditions” containing an arbitration provision that the consumer never saw or read.  Affirming the district court, the appeals court held that the plaintiffs in Berman v. Freedom Financial Network, LLC did not enter into a binding agreement to arbitrate because they did not “unambiguously manifest their assent to the terms and conditions when navigating through the [defendants’] websites.”

Berman involved a class action alleging that defendants violated the Telephone Consumer Protection Act.  Defendants moved to compel arbitration, arguing that by using their website, plaintiffs agreed to its terms and conditions which included an arbitration provision.  The court began its analysis by emphasizing that the party moving to compel arbitration must establish the existence of an “agreement to arbitrate” under applicable state law.  Under New York and California law (which produced the same outcome), to form a contract the parties must manifest their mutual assent to the contract terms, and may do so through conduct.  As it did in earlier rulings, the court distinguished between “clickwrap” and “browsewrap” online agreements.  “Clickwrap” agreements are generally enforceable because they present website users with explicit terms and require them to check an “I agree” box in order to proceed further.   By contrast, in “browsewrap” agreements the terms are typically disclosed through a hyperlink and assent is manifested by continued use of the website.  A contract can be based upon evidence the consumer had actual knowledge of the terms and conditions.  Even absent such evidence, a contract can be based upon “inquiry notice” if (1) the website provided “reasonably conspicuous” notice of the contract terms, and (2) the consumer took some action that unambiguously manifested assent to those terms.

The Ninth Circuit concluded that the webpages in Berman did not provide reasonably conspicuous notice of the terms and conditions, including the existence of an arbitration provision.  To be conspicuous, “a notice must be displayed in a font size and format such that the court can fairly assume that a reasonably prudent Internet user would have seen it.”  Here, the text disclosing the existence of the “Terms and Conditions which includes mandatory arbitration” was printed in tiny gray font, rather than blue font which typically signifies a hyperlink.  Moreover, the font was smaller than the font used in the surrounding website elements and “was barely legible to the naked eye.”  The surrounding text used larger font which directed the user’s attention away from the hyperlink, as did the overall design of the webpage.  Thus, it was not readily apparent that a hyperlink was present.  The court noted that these deficiencies might have been avoided by better formatting and the use of blue rather than gray font and capital letters to call attention to the hyperlink.

The court further found that the act of clicking a large green “continue” button did not unambiguously manifest plaintiffs’ assent to be bound by the terms and conditions because there was no explicit notice that clicking the button would constitute assent.  Thus, the fact that the notice referred to “mandatory arbitration” was of “no relevance.”  According to the court, this notice defect might have been cured by using more specific language such as “By clicking the Continue button, you agree to the Terms and Conditions which includes mandatory arbitration.”

Companies that offer their financial products and services online should take heed of the Ninth Circuit’s scrutiny in Berman when they design their webpages.  Care must be taken not only in drafting the substantive terms of the arbitration provision, but also in ensuring that a court asked to enforce the provision will conclude that the consumer agreed to it contractually.

Source: Ninth Circuit revisits standards for enforcing online arbitration provisions | Ballard Spahr LLP – JDSupra

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