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.