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So, remember when we talked about Just How Small the Bullseye Is for Challenging a Delegation Clause a few weeks ago?  Apparently, the target is small but not necessarily as unhittable as I suggested.

You might recall that in that earlier post we were looking at a Missouri Supreme Court decision, State Ex Rel. Newberry v. Jackson, 2019 WL 2181859 (Mo. May 21, 2019).  There, Missouri’s highest court said, “Rent-A-Center teaches that a delegation clause must be treated as a separate contract within the larger arbitration contract and must be challenged on an additional ground or basis beyond the fact that it is contained in an arbitration contract that the party also contends is invalid.”  As a result, the Court rejected arguments that a delegation clause failed for the same reasons that the arbitration clause failed.

Apparently, the Eighth Circuit didn’t read Jackson (or didn’t agree with it) before it issued its recent decision in Shockley v. PrimeLending, 2019 WL 3070502 (8th Cir., July 15, 2019).

In Shockley, an employer was trying to force an employee to arbitrate alleged violations of the Fair Labor Standards Act.  The arbitration agreement, including a delegation clause, was contained in an employment handbook addendum.  This addendum was available to the employee electronically.

The lower court concluded that the employee hadn’t accepted the addendum and thus that there was no formation of either a contract for arbitration or the delegation clause.    The Eighth Circuit noted that the record was “resoundingly clear” that the employee had challenged the formation of the delegation provision.  “Because the delegation provision is ‘simply an additional, antecedent agreement’ that operates like any other contract,” it could be disabled by any contract formation defense, including lack of mutual assent.

Relying on Missouri law, the Eighth Circuit upheld the lower court, reasoning that “acceptance is [only] present when the offeree signifies assent to the terms of an offer in a ‘positive and unambiguous’ manner.”  The “mere continuation of employment” did not manifest “the necessary assent to [the] terms of arbitration” or the delegation clause.

In some language that’s also interesting (read “what the hell!”) in light of our earlier discussions of “wrap” agreements (see here,here, and here), the Eighth Circuit says that although the employee was presented with two opportunities to review the handbook addendum through an optional hyperlink on the company’s network, at best the employer could show that the employee “acknowledged the existence of the delegation provision.” But the court went on to say that “[w]e are aware of no legal authority holding that an employee’s general knowledge or awareness of the existence of a contract constitutes the positive and unambiguous unequivocal acceptance required under Missouri law.”  Huh.

Because the employee never agreed to the delegation provision, the court, rather than an arbitrator, could decide the validity of the arbitration agreement.  And because the arbitration agreement was also contained in the handbook addendum, the court concluded that the employee never agreed to it either.

So, just to drive the key points home, the Eighth Circuit invalidated a delegation clause for the same reason that it invalided the arbitration clause, which seems directly contrary to what the Missouri Supreme Court did in Jackson. Along the way, the Eighth Circuit also, perhaps more importantly, interpreted acceptance in Missouri general contract law, at least in employment relationships, to require more than notice. That conclusion tosses all manner of “wrap” agreements into doubt.

Wrap agreements continue to present challenges.  I don’t often write about district court decisions, and particularly not unpublished ones, but a recent case out of Illinois warrants an exception.  (See earlier considerations of wrap arbitration agreements on this blog hereand here.)

Just as a quick refresher about wrap agreements, courts have refocused the notion of mutual assent on whether a reasonable person in the position of the recipient of boilerplate should have seen the terms and conditions of the proposed deal. If so, the recipient will be bound by those terms, regardless of whether she ever actually read or understood them. Constructive awareness coupled with an individual purchasing something from a commercial party amounts to assent. The trouble has been determining when an individual is made “constructively aware” of terms.

(I shouldn’t be too cavalier.  The trouble may also be that boilerplate contracting shouldn’t count as contracting at all.  In fact, the debates about the propriety of boilerplate have been raging for years. For instance, right now there’s a hot battle taking place over the proposed Restatement of Consumer Contracts.  I won’t recap all of the vociferous debates, but if you’re interested, you can find a point of entry here (discussing the objections of 23 state attorneys general to the draft Restatement).)

In Anand v. Heath, et al., 2019 WL 2716213 (N.D. Ill. June 28, 2019), the court jumps into the fray by considering what it described as a “hybridwrap” arbitration agreement.  According to the court, “[h]ybridwrap agreements typically prompt the user to manifest assent after ‘merely present[ing] the user with a hyperlink to the terms and conditions, rather than displaying the terms themselves.’”  This typology situates “hybridwrap” agreements somewhere between clickwrap agreements, which present users with terms and conditions and then requires them to click that they agree to be bound by these terms, and browsewrap agreements, which merely provide a link to terms and conditions of use at the bottom of a page and assume that continued use of the site constitutes assent.

The court goes on to refuse to enforce the hybridwrap arbitration agreement before it.  The rationale underlying the decision seems to be that the button manifesting assent to the terms and conditions wasn’t clearly connected to the actual terms and conditions.   The problem wasn’t just that the hyperlink to the terms and conditions was distant from the “Continue” button; it was also that there was no indication that clicking the “Continue” button was signifying agreement to the hyperlinked terms and conditions.

What’s interesting to me about the typology and rationale discussed by the Anand court is that it seems to bear at least a family resemblance to the “coupling” principle discussed in Starke v. SquareTrade, Inc., No. 17-2474, 2019 WL 149628 (2d Cir. Jan. 10, 2019).  (I wrote about Starke here.)  Basically, in Starke, the Second Circuit refused to enforce an arbitration agreement in part because the relevant hyperlink was “neither spatially nor temporally coupled with the transaction.”

I’m not sure that I would say that there’s a trend developing here, but I appreciate that the courts in both Starke and Anandare trying to render the concept conspicuousness more concrete.  The closer the temporal and spatial relationship between the mechanism signifying assent – an “I agree” button, for instance – and the terms, the more likely a court seems to be to enforce the terms.

The moral of the story: if you are writing boilerplate arbitration contracts in a wrap environment, I’d be reevaluating the degree of linkage between terms and conditions and the mechanisms for signaling assent.

At least in theory, mutual assent remains a cornerstone of contract law and thus of arbitration.  The tricky part has become understanding what counts as mutual assent in a world where overwhelming empirical evidence, not to mention our own lived experience, demonstrates that no one reads standardized terms and conditions, including arbitration provisions buried in fine print, or more commonly these days, a maze of hyperlinks.

Basically, to get around the unilateral character of adhesive contracting, U.S. courts have, over the past five decades, refocused contract formation on constructive notice.  If a reasonable person in the position of the recipient of boilerplate should have seen the terms, the recipient will be bound by those terms, regardless of whether she ever actually read or understood the them.  Constructive awareness coupled with an individual purchasing something from a commercial party amounts to assent.  See, e.g., Starke v. SquareTrade, Inc., No. 17-2474, 2019 WL 149628 (2d Cir. Jan. 10, 2019) (“Where an offeree does not have actual notice of certain contract terms, he is nevertheless bound by such terms if he is on inquiry notice of them and assents to them through conduct that a reasonable person would understand to constitute assent.”) (citations omitted).

But a great deal of confusion persists about what counts as “reasonable notice.”  Liz has written about two conflicting cases involving Uber and arbitration.  She also wrote about a recent “shinglewrap” arbitration agreement – in a putative class action brought by homeowners against a vendor of roof shingles — upheld by the 11thCircuit.

This week, we’ll look at a recent Second Circuit case that might help make things just a tiny bit more tractable.

In  Starke v. SquareTrade, Inc., the Second Circuit concluded that the a purchaser of a consumer product protection plan did not have reasonable notice of an arbitration provision contained in the terms and conditions communicated via a hyperlink in a post-sale email.

The court starts with some generic stuff about conspicuousness.  It says that in determining whether an offeree is on inquiry notice of contract terms, courts look to whether the term was obvious and whether it was called to the offeree’s attention.  This usually “turns on whether the contract terms were presented to the offeree in a clear and conspicuous way.”  In the context of “web-based contracts, [courts] look to the design and content of the relevant interface.”

The court  goes on to list, in bullet points, various features of interfaces that were too inconspicuous and interfaces that were acceptably conspicuous.  But these bullet points sort of distill to whether the court thought that the interface was cluttered or not.  At best it feels like defining obscenity — you know it when you see it.  At worst, it feels like defining beauty — it’s in the eye of the beholder.  Either way, it’s not very helpful.

(I’ll just say, as an aside, that I was at an academic conference a week ago, and one of the presentations was on an empirical study about conspicuousness — still in progress, but if you’re interested, you could reach out to the author, Yonathan Arbel.  The study looks at the effectiveness — or more precisely, ineffectiveness — of all-caps.  Basically, all-caps seems to do nothing to help make things more conspicuous and may well make things far less readable.  That discussion reminds me that courts are offering opinions about what is or isn’t conspicuous with very little empirical evidence guiding them.)

Maybe the more useful rules of thumb that the court provides have to do with the fact that the relevant hyperlink was “neither spatially nor temporally coupled with the transaction.” The relevant link was given to the purchaser in a post-sale email.  Spatially, the court noted that the hyperlink could have (and should have?) been provided on the purchase page.  In the court’s view, doing so would have more clearly indicated that the terms and conditions, including the arbitration clause, were part of the purchase transaction. Temporally, the court concedes that “providing contract terms after a transaction has taken place may be an appropriate way to contract in certain situations,” but it found “little justification” for that sort of pay-now-terms-later structure in the particular case. Instead, “it would have been virtually costless for SquareTrade to provide the governing terms and conditions to Starke before he bought the Protection Plan.”

These “coupling” rules of thumb could be useful for drafters.  It’s not clear whether the court would have enforced the arbitration clause if it had been included in a hyperlink on the purchase page, but that’s certainly the suggestion.

In an opinion that coins new terms and uses the insouciant tone of a blogger, the 11th Circuit just shut down a putative class action brought by homeowners against a vendor of roof shingles.  The Court found that the terms and conditions printed on the exterior of the shingle packaging formed an enforceable contract (with a class arbitration waiver), and when the roofing contractors opened the shingles, the roofers bound the homeowners who had hired them.  Dye v. Tamko Building Products, Inc., 2018 WL 5729085 (11th Cir. Nov. 2, 2018).

The Dye decision relies heavily on two decades of case law finding that consumers are bound to terms and conditions that accompany software or consumer products or phone apps.  Indeed, the Court suggests that consumers have been on notice that they are bound by terms on the outside of packaging, or with a product, since the 1997 decision in Hill v Gateway 2000, 105 F.3d 1147 (7th Cir. 1997).  Those types of terms are called “shrinkwrap” or “clickwrap” or “scrollwrap” agreements.  And the Court found no reason to treat this agreement, which it termed a “shinglewrap” agreement, any differently.  Therefore, the Court found that by printing its arbitration clause, with a class action waiver, on the exterior of the shingle packaging, the defendant had formed an enforceable contract.

The harder part of the opinion, in my view, is with whom did the defendant form an enforceable contract.  It was not the homeowners who opened the shingle packaging, it was their roofers.  And there are no facts suggesting that the roofers informed the homeowners of the terms on the packaging, or that there were terms at all.  But the Court found that because the roofers were the homeowners’ agents for the purpose of purchasing and installing roof shingles, and because accepting the purchase terms is the kind of thing that should have been expected of the agents, the roofers bound the homeowners to the arbitration agreement (along with the rest of the terms).

[I am aware of at least one court that came out on the opposite side of this “shinglewrap” issue.  In 2015, the Missouri Court of Appeals refused to enforce the same vendor’s arbitration agreement, finding the circumstances distinguishable from cases like Hill v. Gateway.]

Although the Court makes short work of the agency portion of this opinion, I think it merits a deeper analysis.  Usually, even in the case of contracts of adhesion, courts note that the party had some semblance of choice: either to not buy the product, or not work for that employer, etc.  Here, it is hard to see how the homeowners had a choice, since they were unaware that their roofers were considering shingles that would preclude class actions.  Should owners (commercial and residential) put clauses in all their construction contracts revoking the right of contractors and subcontractors to enter into agreements on their behalf??  Is that their only option for unwittingly entering contract terms to which they may object?  I’d love to hear your thoughts.

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And now, a postscript on last month’s post reporting that New Jersey and Missouri refused to enforce arbitration clauses where there was a problem identifying the administrator.  Turns out, other courts have been thinking about the same issue, but resolving it differently.  In Paulozzi v. Parkview Custom Homes, 2018-Ohio-4425 (Ohio Ct. App. Nov. 1, 2018), the Ohio Court of Appeals enforced the parties’ arbitration agreement, even though it called for administration by a now-defunct ADR institution (not NAF).  The Ohio court just severed that aspect of the arbitration clause and called on the trial court to appoint a replacement arbitrator.  In Beltran v. AuPairCare, Inc., 2018 WL 5571319 (10th Cir. Oct. 30, 2018), the arbitration agreement allowed the employer to select the arbitration provider.  The court found that unconscionable, but instead of invalidating the entire arbitration agreement, it also severed that provision and noted that both the FAA and California’s arbitration statutes provide alternate methods of selecting an administrator.

Those two cases make Missouri and New Jersey look out of step.  But, Missouri may now be alone.  I understand that the New Jersey courts have “withdrawn” the decision in Flanzman, and indeed I cannot find it on Westlaw.

**Big thanks to my friends in NJ, Ohio, and NY who alerted me to these developments.

 

As we pile up the cardboard boxes that held holiday gifts for the recycling truck and select our new year’s resolutions for 2012, here are a few reflections on the last twelve months in arbitration law.  I would summarize it as another year where the U.S. Supreme Court was playing whack-a-mole, trying to tamp down all the different ways that courts around the nation are creatively using state common law or statutes to nullify arbitration agreements that they find inequitable.    And the U.S. Supreme Court simply can never keep up (I should specify that the current majority of the Court that reflexively rules in favor of arbitration cannot keep up, because there have been vigorous dissents).

This year’s biggest arbitration “whack” from the Supreme Court was the Concepcion case in April.  That case held that the Federal Arbitration Act preempts a line of California case law that found most “collective-arbitration waivers” in consumer arbitration provisions were unconscionable.   After Concepcion, circuit courts found similar lines of case law in New Jersey and Florida were preempted by the FAA.  (Just last week the Third Circuit remanded another unconscionability case for consideration in light of Concepcion.  Antkowiak v. Taxmasters, 2011 WL 6425567 (3d Cir. Dec. 22, 2011).)  I expect that this trend will continue in 2012, with parties who seek to enforce arbitration agreements arguing that any positions their opponents take based on state contract law are preempted by the FAA.

Of course, federal and state courts spent much of 2012 still trying to figure out how to deal with 2010’s big whack from the Supreme Court: Rent-A-Center.  In that case, the Supreme Court held that because the employee did not challenge the validity of the particular delegation provision within his stand-alone arbitration agreement with his employer, the Court could not address his arguments about the validity of that arbitration agreement as a whole.  The four dissenters, however, worried that the majority’s reasoning could result in a situation where a party who seeks to avoid arbitration is required to prove that the specific sentence calling for arbitration is invalid.  (For example, imagine trying to argue that this phrase is invalid: “any and all disputes arising under this agreement shall be resolved by binding arbitration.”)  In the great majority of 2011 cases that addressed this issue, however, courts interpreted Rent-A-Center as applying only when the arbitration agreement contained a delegation provision (that authorized the arbitrator to decide questions of the agreement’s validity).   I predict that courts will continue to limit Rent-A-Center‘s impact in 2012, although it may lead to some circuit splits about the proper interpretation of the case as well as more litigation to define what is and is not a delegation provision.

Keeping with the theme here, if those were the whacks, what kinds of moles popped up in 2011?  The most interesting fell into these three categories:

  • Protecting Nursing Home Residents.   This year,  West Virginia declared that arbitration agreements executed as part of standard admission packets for nursing home residents are unenforceable, and Florida refused to enforce any arbitration agreement against nursing home residents that curtails their statutory rights .  (A petition for cert has been filed in the West Virginia case, but the Supreme Court has not taken any action on it.)  If the Supreme Court does not intervene, watch for this trend to continue in other state courts, with exceptions made for particularly vulnerable categories of litigants.
  • Finding Legislative Overrides.  Another trend this year was for courts to find that that Congress intended particular federal statutes (enacted or amended after the FAA) to trump the FAA and require disputes be venued in court.  That happened at least twice this year, with the Magnuson-Moss Warranty Act and the Carmack Amendment.  The Supreme Court will either breathe additional life into that type of argument (and encourage Members of Congress who dislike the Supreme Court’s interpretations of the FAA to add similar language in new legislation) with its forthcoming decision in CompuCredit v. Greenwood or suck the life right out of those legislative preclusion arguments by setting an impossibly high standard for how clearly the statute must indicate that it is intended to nullify arbitration agreements.
  • Scope is the New Validity.  There are two broad arguments to make about an arbitration agreement — whether it is a valid agreement and whether the dispute at issue is within the scope of that agreement.  Many of the decisions from the U.S. Supreme Court in recent years have related to the validity of arbitration agreements, and since those have made it increasingly difficult to have a court address the enforceability of arbitration, litigators have begun to focus their arguments on the scope of arbitration agreements.  And some of those arguments have been successful.  For example, the Second Circuit found that the term “customer” — a person or company who can be compelled to arbitrate under FINRA rules — is not broad enough to include an entity with whom the FINRA member lacked any written or oral contract, when there were not enough other facts suggesting a business relationship.  Wachovia Bank, Nat’l Assoc. v. VCG Special Opportunities Master Fund, Ltd., 661 F.3d 164, 172-74 (2d Cir. 2011).   Furthermore, the Eleventh Circuit found that an employee’s civil sexual assault claims were outside the scope of the arbitration agreement in her employment contract.   Parties who want to evade arbitration are likely to continue making creative arguments about why their dispute is outside the scope of their arbitration agreement in the coming year.

The Arbitration Nation award for the best “mole” of 2011, though, goes to the California courts, who have found creative ways around the Concepcion decision, including finding that it does not apply to suits under California’s Private Attorney General Act, see Brown v. Ralph’s Grocery Co., 197 Cal. App. 4th 489, (Cal. Ct. App. 2011) , and have suggested that Rent-A-Center may not apply in state courts at all, see Chin v. Advanced Fresh Concepts Franchise Corp.,  194 Cal. App. 4th 704, 708-09 (Cal. Ct. App. 2011).

Honorable mention in this category goes to Herron v. Century BMW, 2011 WL 6347845 (S.C. Dec. 19, 2011).   In 2010, the Supreme Court of South Carolina held that as a matter of state public policy, any arbitration agreements prohibiting motor vehicle consumers from bringing class action suits was unenforceable (the decision found the arbitration agreement at issue, which was fairly consumer-friendly, was not unconscionable).  The U.S. Supreme Court then vacated the decision and instructed the South Carolina court to reconsider its decision in light of Concepcion.   Just this month, the Supreme Court of South Carolina refused to reconsider its decision, finding that the question of whether the FAA preempted state public policy was not raised in the trial court or appellate courts of South Carolina:

Because the matter of preemption was not raised to and ruled upon in any of the South Carolina proceedings, we find the issue of preemption is procedurally barred as [a] matter of state law and further consideration in light of AT&T Mobility, LLC v. Concepcion is unwarranted.  We reinstate our original opinion and decline to revisit it.

Id.  I am pretty confident the U.S. Supreme Court was aware that Concepcion had not been decided when Herron was briefed, and therefore no parties had raised the preemption arguments implicated by Concepcion.  I am also pretty confident that the U.S. Supreme Court, in vacating Herron, did not mean to say “reconsider this case in light of Concepcion, if and only if you like the legal result of that reconsideration and/or you can find no legal basis not to do so.”

Happy New Year!

**If you can’t get enough of arbitration case law, please “subscribe” to ArbitrationNation via that button on our blog (www.arbitrationnation.com) and follow @KramerLiz on Twitter (where I share more arbitration-related information than I cover in the blog).

It’s not at all evident to me why SCOTUS felt the need to grant review of Lamps Plus, Inc. v. Varela. But it did. And the majority decision, authored by Chief Justice Roberts, did precisely what I think that everyone who looked at the case expected: it held that courts cannot find the necessary consent to class arbitration in an ambiguous arbitration clause. (See Liz’s prediction, for instance (“In my view, the issue of class arbitration has largely been hammered out.”)

Still, the case has reverberations that may be far more significant than its simple holding.

As a reminder, the case involved an employee who had filed a class action against his employer, Lamps Plus. Lamps responded by seeking to compel arbitration on an individual rather than a classwide basis. The district court compelled arbitration but on a class basis and dismissed the employee’s case. Lamps appealed and the Ninth Circuit upheld the district court. SCOTUS reversed.

Critical to SCOTUS’s decision, the Ninth Circuit’s reasoning hinged on the fact that the employment arbitration agreement was ambiguous about the availability of class arbitration. The Ninth Circuit thus distinguished Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010), arguing that in Stolt-Nielsen the parties had stipulated to the fact that the agreement was silent about class arbitration. In contrast, in Lamps Plus, the parties had no such stipulation.

Because the agreement was ambiguous, the Ninth Circuit turned to California’s contra proferentem rule – a general rule of contract law that serves as a tie-breaker when a contract of adhesion is ambiguous, reading the adhesive contract against the drafter.

A majority of SCOTUS disagreed. The reasons why matter. Quite a lot, I think.

As the majority frames it, the real issue is “the interaction between a state contract principle for addressing ambiguity and a ‘rule[] of fundamental importance’ under the FAA, namely, that arbitration ‘is a matter of consent, not coercion.”

The state contract principle at issue, of course, was the contra proferentem rule, which again everyone admits is a generally applicable rule. In other words, it applies not just to adhesive arbitration contracts but to all adhesive contracts. Thus, it would have seemed that this generally applicable contract rule could apply to the arbitration agreement under FAA § 2’s “savings clause.” But here’s where the majority threw a curve ball.

Justice Roberts reiterated that class arbitration constitutes a radically different and more risky form of adjudication than traditional bilateral arbitration. Citing to AT&T Mobility LLC v. Concepcion and Epic Systems Corp. v. Lewis, Justice Roberts highlighted the fact that, given the differences and extra risks of class arbitration – including the due process risks to absent parties – it’s incumbent on courts to make darned sure that parties are actually consenting to class proceedings.

But the contra proferentem rule does not make any pretense of uncovering the actual intentions of the parties. Instead, it’s just a tie-breaker: “Unlike contract rules that help to interpret the meaning of a term, and thereby uncover the intent of the parties, contra proferentem is by definition triggered only after a court determines that it cannot discern the intent of the parties.” Accordingly, “contra proferentem seeks ends other than the intent of the parties.” Basically, the doctrine reads against the drafter for public policy reasons, implicitly concluding that weaker parties should be protected in close calls.

That understanding of the doctrine in place, the majority ties a bow on its reasoning: “[c]lass arbitration, to the extent it is manufactured by [state law] rather than consen[t], is inconsistent with the FAA.”

Of course, this is not the first time that SCOTUS has rejected the application of what appears to be a generally-applicable contract rule to arbitration agreements. (Most recently, the Court did so in Kindred Nursing Centers L. P. v. Clark (2017).) But the Court’s transparent elevation of the “object preemption” rule of the FAA merits attention. (By object preemption, I mean the Court’s view that state law not only cannot expressly interfere with the parties’ recourse to arbitration, but it also cannot stand as an obstacle to the fundamental attributes of arbitration.)

Finally, it’s worth mentioning Justice Ginsberg’s trenchant dissent, especially in light of my recent post on mutual assent in arbitration. Basically, Justice Ginsberg recognizes the “irony of invoking ‘the first principle’ that ‘arbitration is strictly a matter of consent’ . . . to justify imposing individual arbitration on employees who surely would not choose to proceed solo.” In short, she puts her finger on a critical and increasingly significant point: boilerplate presents a “Hobson’s choice”: accept the terms and conditions offered, whether you know about them or not, or give up on the transaction. That framework may make practical sense, but it hardly amounts to “assent” in any traditional sense.

As we close out 2018, it is a good time to reflect on the year in arbitration law.  Overall, I would characterize the year as another in which everyone was mildly obsessed with class actions, the U.S. Supreme Court again showed its willingness to enforce arbitration agreements of all kinds, and lower courts and groups of citizens attempted to resist the high court’s blind faith in arbitration with some success.  Here are my thoughts on the biggest stories of the year:

  • Decision With Biggest Impact: SCOTUS’s ruling in Epic Systems.  Groups of employees argued that the National Labor Relations Act gave them the right to join class actions and no arbitration agreement could overcome that statutory right.  But the Court emphatically rejected that argument, holding that employees are bound to the agreements they sign and nothing in the NLRA contradicts that result.  The outcome of this case was not unexpected, but the fallout was dramatic.  Many class actions dried up almost immediately, while others took a few months.  Yet other employees decided to give mass individual arbitration a go, filing hundreds of arbitration demands against the same employer simultaneously.
  • Circuit Split Most Likely To Go To SCOTUS: The split over who — judges or arbitrators — should decide whether the parties’ arbitration agreement allows class arbitration.   Seven federal circuits have looked at this issue.  Four have concluded that the issue of class arbitration is a big enough deal that it is presumptively for courts to decide, even when the parties have incorporated arbitration rules that authorize an arbitrator to decide jurisdictional questions.  Three circuits disagree.  Given the Supreme Court’s attraction to everything class arbitration, this seems likely to pique the Justices’ interest.  (Indeed, a cert petition has been filed in the 11th Circuit case, which is on the minority side of this circuit split, and the Justices have asked the winning party to respond.)
  • Best Evidence That Arbitration Law Is Still In Its Infancy: The conflicting cases over whether Uber’s arbitration agreement is enforceable.  Nothing says “This is a developing area of law” like having the First Circuit refuse to enforce the same arbitration agreement that the Second Circuit had just agreed to enforce.  Even better — the difference turned on the color of the hyperlink.  [Runner up in this category are the conflicting cases over whether the arbitration agreements printed on the outside of roofing shingle packages are enforceable.]
  • Most Successful Political Attack on Arbitration: The #MeToo movement successfully brought public attention to  concerns that having arbitration agreements in employment contracts may exacerbate a discriminatory workplace.  As a result, legislation declaring arbitration agreements invalid in cases of sexual assault or harassment was introduced at the federal level and many states.  To date, I am aware of it passing in only New York and Washington.  But, those state statutes are likely preempted by the Federal Arbitration Act.  More effective may be the public pronouncements by many major corporations that they will not enforce arbitration agreements in cases of sexual assault or harassment.
  • New Face of the Resistance: Kentucky.  First place had to go to Kentucky, after this decision, in which it just ignored the fact that the U.S. Supreme Court had schooled it on arbitration law last year.  But there are many runners-up in this category, frequently consisting of courts who are using the flexibility inherent in state contract law to find ways around arbitration.  For example, the courts who have recently decided that if the parties either did not choose an entity to administer the arbitration, or chose one that is no longer available, that voids the entire arbitration agreement. (See postscript on this entry.)  Or the courts who found that, despite the federal presumption in favor of arbitrability, the parties’ disagreement was outside the scope of their arbitration agreement.
  • Most Outrageous Motion To Compel: There are moments you just want to say “What were you thinking??” to counsel for the defense.  This year, this case stood out to me for outrageous conduct, as the plaintiffs did not originally have an arbitration agreement but apparently were duped into signing one a year into the class action litigation.  But, this case was a close second (where the defense argued that blind plaintiffs should be bound by the arbitration agreement, despite no evidence they were made aware of its existence).

Turning our sights forward, what can we expect in 2019?  Well, SCOTUS owes us three arbitration decisions (Henry Schein, Lamps Plus, and New Prime).  None of those are likely to have broad impact on arbitration law, as they each deal with fairly narrow issues.  So, big stories will likely come from elsewhere.  Maybe the new Democratic majority in the House will have more interest (and success) in passing federal arbitration legislation?   Maybe mass individual arbitration filings will change the cost-benefit-analysis of class action waivers for corporations?  I look forward to watching it unfold with all of you!  Happy New Year.

Last Thursday, the Second Circuit found that the arbitration agreement in Uber’s Terms of Service was conspicuous enough to be binding and enforceable.  As a result, the claims of a putative class of consumers will be dismissed unless they can show that Uber waived its right to arbitrate their claims.  Meyer v. Uber Technologies, Inc., 2017 WL 3526682 (2d Cir. Aug. 17, 2017).  [This proves my point from last week, that formation is one of the big issues this year in arbitration law.]

For those of you who still take yellow taxis, Uber is a “ride-hailing service,” where customers use an “app” on their smart phones to alert a nearby Uber driver that the customer wants a ride to a specific location. Critically to this case, when customers open an account with Uber, they see black text at the bottom of the registration screen advising that “by creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.”  The phrase “terms of service” is in blue font and hyperlinked to a page where the customer can read those terms.  The terms include an arbitration agreement that waives the right to any class or consolidated action.

A potential class of Uber customers started a lawsuit in New York alleging that Uber allows illegal price fixing.  In response, Uber first moved to dismiss for failure to state a claim.  Upon losing that motion, Uber moved to compel arbitration and the federal district court denied that motion also, finding that the parties never formed an arbitration agreement because the consumers did not meaningfully consent.

On appeal, the Second Circuit vacated and remanded.  It applied California contract law in its de novo review, and applied California’s rule that a customer who lacks actual notice of the terms of an agreement can be bound if a “reasonably prudent user would be on inquiry notice of the terms.”  In its analysis, the court noted that Uber did not use a “clickwrap” agreement, which involves consumers having to click “I agree” after being presented with a list of terms and conditions, and which is “routinely uph[e]ld” by courts.  Even so, the court concluded that the design of the registration screens were clear enough to put the plaintiff on inquiry notice of the arbitration provision.  What were those design features?

  • Hyperlinked text to terms and conditions appears right below the registration button;
  • The entire screen is visible at once (no scrolling required);
  • The screen is “uncluttered”; and
  • Although font is “small,” dark print contrasts with white background.

Therefore, the Second Circuit concluded that the named plaintiff “agreed to arbitrate his claims with Uber.”  However, the Court threw the class a bone by remanding on the question of whether Uber waived its right to arbitrate by bringing the motion to dismiss on the merits.

What’s fascinating about this opinion is not just that Uber is a famous company that is facing intriguing antitrust allegation.  No, what’s fascinating from the arbitration angle is that the Second Circuit came out on the opposite side of this same issue almost exactly one year ago in Nicosia v. Amazon.com, Inc., 2016 WL 4473225 (Aug. 25, 2016).  The same judge wrote both opinions.

In Nicosia, the named class representative had placed an order on Amazon in 2012.  Instead of a true “clickwrap” agreement, there was simply language on the Order Page stating that “by placing your order, you agree to Amazon.com’s privacy notice and conditions of use.” The conditions of use were hyperlinked to the relevant terms.  Sounds pretty much the same as Uber’s setup, right?  Well, applying Washington law, the Second Circuit found that reasonable minds could differ about whether that notice was sufficiently conspicuous to be binding.  It complained that the critical sentence was in a “smaller font,” that there were too many other distracting things taking place on the order page (summary of purchase and delivery information, suggestions to try Amazon Locker, opportunity to enter gift cards and have a free trial of Amazon Prime, for example.)  There were other links on the page, in different colors and fonts.  Critically, it found “[n]othing about the’Place your order’ button alone suggests that additional terms apply, and the presentation of terms is not directly adjacent to the ‘Place your Order” button…”  Therefore, the Second Circuit reversed the district court’s dismissal based on the arbitration provision.

As the fundamental context of on-line purchases has not changed in the last year, and the Second Circuit’s recitation of California and Washington law appears pretty similar, one has to conclude that the difference between these two cases is the graphic design of the key pages.  In particular, the level of “clutter” on Amazon’s page is the primary difference-maker between these two cases.  I imagine many internet retailers will reconsider the number of fonts, colors, and promotions on their final “order” pages this next week…

 

In the past week, the Third Circuit has issued two important decisions on the formation of arbitration agreements.  (Sing it Beyoncé! “Okay ladies, now let’s get in formation.”)  In one, a class action was allowed to proceed in court because the defendant did not obtain explicit enough agreement to the arbitration, and in another an arbitration award was initially vacated due to questions about whether there had been an arbitration agreement at all.

In James v. Global Tellink Corp., __ F.3d __, 2017 WL 1160893 (3d Cir. Mar. 29, 2017), a putative class of New Jersey inmates sued the sole provider of inmate telecommunication services, and the Defendant moved to compel individual arbitration.  The class representative who created her account through the website and actively clicked a button accepting the terms and services was dismissed.  But, the class representatives who had created accounts by telephone were a different story.  They received an audio notice that “your account…[is] governed by the terms of use at [defendant’s website].”  The system did not require those telephone users to take any affirmative step to indicate consent to the terms.

As a result, the district court refused to compel those telephone members of the class to arbitration and the Third Circuit affirmed.  Applying New Jersey law, the court distinguished this situation from those involving on-line services, where a link is easily accessible to terms, and from shrinkwrap cases, where consumer received physical copies of the terms when they open the product. It suggested the telephone situation may be closer to “browsewrap” agreements that do not require a manifestation of express consent, and which courts have refused to enforce if the terms are obscured.  In sum, the court said the telephone users “neither received GTL’s terms of use, nor were they informed that merely using GTL’s telephone service would constitute assent to those terms” and therefore there was no arbitration agreement to enforce.

In Aliments Krispy Kernels, Inc. v. Nichols Farms, __ F.3d __, 2017 WL 1055569 (3d Cir. Mar. 21, 2017), Aliments was attempting to confirm an arbitration award it received, and Nichols Farms was trying to vacate that award.  Aliments and Nichols had exchanged some sales confirmations to purchase pistachios, none of which were signed.  However, Nichols ended up refusing to deliver the pistachios without advance payment, based on Aliments’ credit application.  Aliments bought elsewhere, and then sought to recoup the extra cost from Nichols at arbitration (in which Nichols refused to participate).  In the action to confirm or vacate the award, the district court allowed months of discovery and then vacated the award, finding no genuine issue of fact on that issue.  On appeal, the Third Circuit vacated and remanded for further proceedings.  In the course of its decision, the Third Circuit noted that its previous expressed standard — that there must be express and unequivocal agreement to an arbitration contract — is outdated and that nothing more than relevant state law on contract formation is required.

Two federal circuit courts of appeals have recently found that documents Samsung included in boxes with consumer products did not effectively create an arbitration agreement.   In both cases, the documents had titles indicating they related to safety and warranty information, and therefore were ruled insufficient to put consumers on notice of any obligation to arbitrate.

In Noble v. Samsung Electronics America, Inc., 2017 WL 838269 (3d Cir. March 3, 2017), the putative class action complained that the battery life of the Samsung Galaxy Gear S Smartwatch was significantly less than advertised.  In response, Samsung moved to compel individual arbitration with the class representative and to dismiss the class action.  Samsung relied on an arbitration clause, including a class waiver, contained on pages 97-102 of a “Health and Safety and Warranty Guide” that was packaged in the box with the watch.  The district court denied the motion to compel and the Third Circuit affirmed.  Critically, the appellate court found that under New Jersey state law, there had been no meeting of the minds with respect to arbitration, because the Warranty Guide “did not appear to be a bilateral contract, and the terms were buried in a manner that gave no hint to a consumer that an arbitration provision was within.”  The court distinguished this case from enforceable shrink-wrap or click-wrap agreements by saying those agreements clearly inform consumers that they contain contractual terms.

Just a few weeks earlier, the Ninth Circuit had reached a similar result with regard to Samsung’s ability to compel arbitration of class claims about its phones.  In Norcia v. Samsung Telecommunications America, LLC, 2017 WL 218027 (9th Cir. Jan. 19, 2017), the putative class complained of misrepresentations regarding the Galaxy S4 phone.  Samsung moved to compel arbitration.  The district court denied the motion, and the Ninth Circuit affirmed.  Mr. Norcia’s receipt from the Verizon Wireless store stated “I am agreeing to …settlement of disputes by arbitration and other means instead of jury trials and other important terms in the Customer Agreement.”  But the Customer Agreement only mentioned Verizon Wireless, so Samsung could not avail itself of that language.  Inside the phone’s box was a 101-page brochure called “Product Safety & Warranty Information,” which included a statement that “all disputes with Samsung arising in any way from this limited warranty or the sale, condition or performance of the products shall be resolved exclusively through final and binding arbitration.”

Applying California contract law, the court found that the consumer did not express any consent to the terms in the Warranty brochure.  And, while silence can in some instances be treated as consent to a contract, the court noted that is not true when the silent person did not reasonably know there was an offer on the table.  The Ninth Circuit also distinguished shrink-wrap and click-wrap cases, by saying the outside of the Galaxy S4 box “did not notify the consumer that opening the box would be considered agreement to the terms” in the brochure and finding that in this instance the customers did not have “inquiry notice of the arbitration provision”.

The issue of whether arbitration clauses within warranty documents packaged with consumer products are enforceable is an issue in a petition for certiorari at SCOTUS right now.  In that case, the manufacturer of roofing shingles printed its warranty on the wrapper of every bundle of shingles, and the warranty included an arbitration clause.  The Missouri Court of Appeals found insufficient evidence that the consumers consented to the arbitration clause and therefore refused to enforce it.  SCOTUS appears to be holding that case in abeyance while it decides the Kindred case.

What are manufacturers of consumer products to do with these cases?  If the goods are sold by third parties, such that the manufacturer cannot get its arbitration terms on the receipt itself, the next best thing may be to put clear language on the outside of the box, informing consumers that if they open and keep the goods, they will be agreeing to the terms of X document.  If nothing else, it sounds like these brochures and guides need to be renamed.