Contract Formation

Ninth Circuit Holds That a Change-of-Terms Provision Cannot Bind Parties To a New Browse-Wrap Agreement

November 11, 2020 by Brendan Gooley

The Ninth Circuit recently concluded that a consumer was not bound by updated terms merely because she accessed a website that contained new terms in a “browse-wrap” agreement on the website. The court also concluded that an arbitration clause in the original “click-wrap” terms that did apply did not preclude arbitration under a California rule invalidating arbitration clauses that preclude public injunctive relief actions under the California Unfair Competition Law.

In 2014, Rachel Stover purchased a credit monitoring product called Experian Credit Score. In so doing, she assented to certain terms and conditions, including an arbitration clause requiring arbitration of any claims arising out of the transaction “to the fullest extent permitted by law” and a change-of-terms provision stating that “[e]ach time” she “accessed . . . the . . . Product Website,” she manifested to “the then-current” terms of the agreement.

Stover cancelled her subscription in 2014, but accessed the website again in 2018. The following day, she filed a putative class action in California federal court alleging violations of, inter alia, the Fair Credit Reporting Act and California’s Unfair Competition Law.

Experian moved to compel arbitration. The District Court granted that motion. It concluded that (1) the dispute was governed by Experian’s 2018 terms because the change-of-terms clause in the 2014 terms made the 2018 operative as soon as Stover logged onto the website in 2018, (2) a carve out for Fair Credit Reporting Act claims in the 2018 terms did not apply, and (3) Stover’s claims were not exempt from arbitration under the California Supreme Court’s decision in McGill v. Citibank, N.A., 393 P.3d 85, 94 (Cal. 2017), which held that “a provision in any contract . . . that purports to waive, in all fora, the statutory right to seek public injunctive relief under the [California Unfair Competition Law (UCL)] is invalid . . . .”

The Ninth Circuit affirmed on appeal, albeit on different grounds.

The court held that “[i]n order to bind parties to new terms pursuant to a change-of-terms provision, consistent with basic principles of contract law, both parties must have notice that the terms have changed and an opportunity to review the changes.” In this case, “[b]ecause Stover ha[d] not alleged that she had such an opportunity, the 2018 terms did not form a valid contract.” The court also explained “that mere inquiry notice of changed terms is [not] enough to bind the parties to them” and that “Stover had no obligation to investigate whether Experian issued new terms without providing notice to her that it had done so.” The 2014 terms applied.

The court then concluded that arbitration was not precluded by McGill. The arbitration clause in the 2014 terms provided for arbitration “to the fullest extent allowed by law.” That phrase “presumably exclude[d] claims for public injunctive relief in California.” Stover’s claims, the court explained, did not meet the Article III standing requirement for seeking public injunctive relief. As a result, “the McGill rule d[id] not excuse Stover from binding arbitration.”

Rachel Stover v. Experian Holdings, Inc., No. 19-55204 (9th Cir. Oct. 21, 2020).

Determining Whether “Clickwrap Agreement” Provides “Reasonable Notice” of an Arbitration Agreement Is a Fact-Intensive Inquiry

July 13, 2020 by Benjamin Stearns

Timothy Hidalgo sued the Amateur Athletic Union of the United States Inc. (AAU) on behalf of a purported class for damages emanating from a data breach suffered by the AAU. The court granted the AAU’s motion to compel arbitration.

Hidalgo used the Safari web browser on his iPhone to access and complete the AAU membership application. Because the AAU application was “not compatible for smartphone use,” the plaintiff “had to move the screen back and forth for each line of text and zoom in and out because the full application was not visible on the iPhone screen at one time.” The application contained a “clickwrap agreement” that required Hidalgo to click an “I agree” box after being presented with a list of terms and conditions of use. The court noted that to be bound by an arbitration agreement contained within the clickwrap agreement, the web user must have “reasonable notice of the arbitration provision.” The parties disputed whether the web-based application provided sufficiently reasonable notice of the arbitration provision.

The court discussed several recent cases that examined the enforceability of arbitration provisions contained within clickwrap agreements and identified the following facts as relevant:

The font size, bolding, and capitalization of the relevant language;
The color of the hyperlink directing the user to the full agreement and whether it “stands out” from the other language;
Whether the language next to the checkbox sufficiently notifies the user that he or she is entering into an agreement (as opposed to merely completing a purchase or step, e.g., clicking “place your order” does not specifically manifest assent to additional terms);
The layout of the page, including whether the page is “cluttered”;
Whether the relevant language directing the user to the full agreement is conspicuously placed on the webpage;
The number of other links on the same webpage;
The number of different font types and sizes used on the same webpage;
Whether the page contains distracting elements, such as other “buttons” or “promotional advertisements”; and
Whether notice of the full agreement is provided contemporaneously with the user’s agreement (i.e., on the same page), or later in time (i.e., via a follow-up email).

In sum, the “inquiry whether a web user had ‘reasonable notice’ of contract terms contained in a contract accessible by hyperlink depends on the ‘totality of the circumstances.'” Here, the “AAU application screen clearly draws a reasonable user’s attention to it because of the blue hyperlinks, the red asterisks, the normal font size, and the clear contrast between the mostly black text and the yellow background.” In addition, the terms and conditions box was “prominently placed squarely in the middle of the very end of the application, which is a conspicuous part of the application because it is the last place an applicant looks before finishing the application process.” After discussing other characteristics of the webpage, the court found that the user had sufficient “reasonable notice” of the arbitration provision contained within the clickwrap agreement, and therefore the arbitration agreement was enforceable.

Hidalgo v. Amateur Athletic Union of the United States, Inc., No. 1:19-cv-10545 (S.D.N.Y. June 16, 2020).

Sixth Circuit Affirms Ruling That Arbitrator Is to Determine Arbitrability of Employment Dispute Between Franchise Employees and Domino’s

July 9, 2020 by Nora Valenza-Frost

The plaintiffs filed a class action against Domino’s, alleging that the company’s franchise agreement violated federal antitrust law as well as state law. Domino’s moved to compel arbitration, and the plaintiffs opposed on the basis that Domino’s couldn’t enforce the arbitration agreements because Domino’s hadn’t signed the agreements; only their franchises had. However, incorporation of the AAA rules in the plaintiffs’ agreements provided “clear and unmistakable” evidence that the parties agreed to arbitrate “arbitrability.”

The plaintiff offered several arguments against such conclusion: (1) the arbitration agreement incorporates the AAA rules only as to claims that fall within the scope of the agreement; (2) the relevant AAA rule addresses only the “existence, scope, or validity” of his agreement, not whether non-signatories may enforce arbitration agreements under the FAA; (3) even if the relevant AAA rule gives arbitrators the power to decide the question of “arbitrability,” it does not give them the exclusive power to do so; (4) Sixth Circuit precedent has held, in certain instances, that incorporation of the AAA rules does not provide “clear and unmistakable” evidence that the parties agreed to arbitrate “arbitrability”; (5) the incorporation of the AAA rules is not “clear and unmistakable” evidence that the parties agreed to arbitrate “arbitrability”; and (6) a ruling for Domino’s would mean that anyone could force him to arbitrate “arbitrability” no matter how frivolous the argument for arbitration. The circuit court did not find these arguments availing and affirmed the Eastern District of Michigan’s ruling referring the matter to arbitration.

Blanton v. Domino’s Pizza Franchising LLC, No. 19-2388 (6th Cir. June 17, 2020).

Fourth Circuit Declines to Compel Arbitration Due to Missing Arbitration Agreements

July 8, 2020 by Brendan Gooley

The Fourth Circuit Court of Appeals recently declined to compel arbitration in a Fair Labor Standards Act (FLSA) class action with respect to more than 70 employees for whom the defendant employer could not produce signed arbitration agreements due to apparent poor record-keeping.

April Hill worked for Employee Resource Group LLC (collectively with other defendants “ERG”), which operated Applebee’s restaurants in several states. Hill filed a putative FLSA class action. In response, ERG moved to enforce arbitration agreements it purportedly had with all its employees. In support of that motion, ERG submitted agreements containing arbitration clauses for a number of employees. It also admitted, however, that it could not locate signed arbitration agreements for a number of plaintiffs, including Hill. It therefore submitted an affidavit from its director of human resources, David Bates. Bates averred that all ERG employees are required to sign agreements containing arbitration clauses when they are hired, described the training that managers received requiring them to have new employees sign such agreements, and explained that the fact that some agreements could not be found was the result of record-keeping errors.

The district court granted ERG’s motion to compel arbitration with respect to the employees for whom ERG had produced signed arbitration agreements, but denied it with respect to the more than 70 other employees for whom ERG could not produce such agreements.

The Fourth Circuit affirmed. Applying state law that required a heightened standard for establishing the existence and terms of a contract through parol evidence and the summary judgment standard, the court concluded that no reasonable trier could conclude that ERG had presented sufficient evidence with respect to the individuals for whom it could not produce signed arbitration agreements. Bates’ affidavit described ERG’s general human resources policies. It did not describe the actual hiring process experienced by the class members in question. Nor was there any other evidence describing the processes for those employees. The arbitration agreements ERG produced for some 780 other employees did not cure this deficiency. ERG argued that the large number of agreements confirmed Bates’ sworn statement that all employees signed arbitration agreements. There was no evidence, however, of how many employees ERG had during the relevant time period. It could have been 900 or 9,000, which doomed ERG’s argument.

Hill v. Employee Resource Group, LLC, No. 18-2009 (4th Cir. June 9, 2020).

Ninth Circuit Affirms Ruling That Successor Is Bound to Collective Bargaining Agreement

July 7, 2020 by Nora Valenza-Frost

“Although a predecessor collective bargaining agreement does not automatically bind a ‘perfectly clear’ successor, it may if the employer expresses an intent to be bound.” Here, Vectrus Systems Corp. entered into an agreement with Teamsters Local 631, wherein it promised to accept the terms and conditions of the preexisting collective bargaining agreement before staffing its operations. Thus, the fact that the staffing determination that gave rise to the dispute took place before the effective date of the collective bargaining agreement did not divest the arbitrator of the authority to arbitrate the dispute. The District of Nevada’s denial of Vectrus’ petition to vacate the arbitration award was affirmed.

Vectrus Systems Corp. v. Teamsters Local 631, No. 19-16640 (9th Cir. June 11, 2020).