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.