Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Second Circuit Holds Arbitration Clause Found in Hyperlink in a Confirmation Email Unenforceable

by

SquareTrade, Inc. (“SquareTrade”) sells protection plans for consumer products. Adam Starke (“Starke”) purchased a SquareTrade plan from Amazon to cover a CD player ordered from Staples. When Starke’s CD player broke he made a claim for coverage under the protection plan. SquareTrade informed Starke that the CD player was not covered under the protection plan because the plan only applied to products purchased at Amazon. Starke filed this putative class action, seeking to hold SquareTrade accountable for alleged violations of consumer protection laws. SquareTrade moved to compel arbitration, contending that its contract with Starke included an arbitration clause. The arbitration provision first appeared in a “terms and conditions” document provided via hyperlink in a confirmation email sent to Starke after the purchase of the SquareTrade protection plan on Amazon.

The United States Court of Appeals for the Second Circuit affirmed the decision of the district court, holding that the arbitration provision did not become part of the contract because Starke did not have reasonable notice of and manifest his assent to it. The court reached this decision by applying traditional concepts of contract law. The court explained that 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. New York courts look to whether the term was obvious and whether it was called to the offeree’s attention. Specifically in the context of web-based contracts, courts look to the design and content of the webpage to determine if the offeree would be put on inquiry notice of such terms.

The court determined that Starke did not have reasonable notice of the arbitration provision which was only in the Post Sale Terms & Conditions (“Post Sale T&C”) provided in the confirmation email. Starke received a chain of confirmation emails from Amazon and then SquareTrade, none of which put him on notice that his “Service Contract” would come in a hyperlink. The email from SquareTrade that contained the hyperlink containing the Post Sale T&C was cluttered and mostly devoted to other information about the details of the protection plan. The email contained diverse text, displayed in multiple colors, sizes and fonts, and features various buttons and promotional advertisement that divert the reader’s attention from the hyperlink. And the hyperlink itself was in small font. The SquareTrade email did not direct Starke to click on the link in any way and did not make him aware that the link contains contract terms to which he would be deemed to agree. The court notes that SquareTrade could have easily included the hyperlink on the Amazon purchase page. Starke had no way to review the Post Sale T&C until after he received the SquareTrade confirmation email.

The court notes that even though SquareTrade provided Starke with 30 days to return the protection plan for a refund, which is in compliance with New York law, there is no justification here for providing contract terms after a transaction. Additionally, the court notes that although Starke had transacted with SquareTrade before, the prior transaction similarly did not give Starke clear and conspicuous notice of the arbitration clause. Therefore, the court held that there was no enforceable agreement to arbitrate.

Starke v. SquareTrade, Inc., No. 17-2474-cv (2d. Cir. Jan. 10, 2017).

Fourth Circuit Compels Arbitration Over “Gateway” Issues Of Arbitrability

by

This case involved a consumer, Charleene Novic, who obtained a credit card from Credit One. The card holder agreement contained an arbitration clause that stated “[c]laims subject to arbitration include … disputes related to … enforceability or interpretation of this Agreement.” After Novic accrued a past-due balance, Credit One sold the account to a debt collector. Novic claimed that the past-due balance was the result of fraudulent charges. The debt collector sued Novic in Maryland state court regarding the outstanding balance, and the Maryland court ruled in favor of Novic. Novic then initiated an action against Credit One in Maryland state court, alleging violations of the Fair Credit Reporting Act by failing to conduct a reasonable investigation of her claim that she did not owe the past-due balance. The action was removed to federal court. Credit One moved to compel arbitration under the terms of the card holder agreement. The Maryland district court denied the motion to compel, finding that Credit One lost its right to compel arbitration after it assigned Novic’s account for collection. Credit One appealed to the Fourth Circuit, arguing that an arbitrator should decide the “gateway” issue of whether Novic’s claims are subject to arbitration.

The Fourth Circuit agreed with Credit One. The Court noted that parties may consent to arbitrate the gateway issue of arbitrability, which allows the arbitrator, rather than the courts, to determine the arbitrator’s jurisdiction. The Court, however, noted that any delegation of the issue of arbitrability must be set out in “clear and unmistakable” language in the parties’ agreement. With respect to the arbitration clause at issue, the Fourth Circuit then concluded that it “unambiguously require[d] arbitration of any issues concerning the ‘enforceability’ of the arbitration provisions entered into by the respective parties.” Thus, the Fourth Circuit vacated the Maryland district court’s judgment and remanded to the district court for entry of a stay of court proceedings and for an order compelling arbitration.

Novic v. Credit One Bank, No. 17-2168 (4th Cir. Jan. 4, 2019).

Third Circuit Compels Arbitration Finding that Failure to Carefully Read Arbitration Agreement Does Not Vitiate Assent

by

Plaintiff entered into an agreement with Kaplan University (Kaplan) as part of registration for online courses through the university’s website portal. After entering the necessary information, Plaintiff electronically signed an “Enrollment Packet,” which included an arbitration agreement and a waiver of a jury trial. When Plaintiff later brought suit against Kaplan for various causes of action relating to false advertising and violation of copyright laws, Kaplan moved to dismiss and compel arbitration, asserting that Plaintiff’s claims fell within the arbitration agreement. In an attempt to avoid dismissal, Plaintiff argued that she was never made aware of the arbitration agreement and did not consent to the use of her electronic signature for that agreement. Despite this, the District Court for the District of Pennsylvania entered an order compelling arbitration, finding that because Plaintiff acknowledged her participation in the enrollment process, there was no genuine issue of material fact as to whether she assented to arbitration.

On appeal, Plaintiff argued that Kaplan employed a deceptive practice by attaching the arbitration agreement to the Enrollment Packet without making Plaintiff fully aware of its contents. However, the Third Circuit found this argument unavailing, noting that the arbitration agreement was “clearly labeled” within the Enrollment Packet, and that Plaintiff conceded that she electronically signed the packet. The Third Circuit ultimately affirmed the District Court’s judgment, finding that Plaintiff’s failure to carefully read the information could “not save her from her obligation to arbitrate.”

Dicent v. Kaplan University, No. 18-2982 (3d. Cir. Jan. 10, 2019).

Second Circuit Affirms Order Compelling Arbitration, Rejects as Waived Arguments Not Made Before Trial Court

by

The Second Circuit Court of Appeals had no difficulty affirming a district court’s order compelling the executor of an estate to arbitrate his claims based on an arbitration clause contained in an IRA application signed by the deceased.

At oral argument, the executor (an attorney appearing pro se) admitted that he had forfeited any argument that the arbitration provision itself was invalid, and thus was left to rely on the theory that the contract as a whole was invalid. The Second Circuit easily rejected this, noting that the U.S. Supreme Court has held that “unless [a] challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.” Thus, the Court found that the matter should go to arbitration where the arbitrator could decide the question of the contract’s validity.

The executor also argued that the district court erred in even considering the motion to compel due to an “electronic filing error” not specified in the opinion. However, in addition to being waived for not having been raised before the district court, the Court found that this argument lacked all merit because the executor knew about the motion, responded to it, and could not show any prejudice.

Aretakis v. First Financial Equity, Corp., Hilltop Securities, Inc., No. 17-3649 (2d Cir. Dec. 10, 2018)

11th Circuit Compels Arbitration Despite Allegation that Arbitration Agreement was Procedurally and Substantively Unconscionable

by

This case involves a dispute between American Family Life Assurance Company of Columbus (“Aflac”) and a group of independent contractors (“associates”), arising out of alleged misrepresentations by Aflac. Pursuant to their contracts with Aflac, the associates agreed to arbitrate any claims against the company, and after learning of the associates’ plans to file a class action, Aflac filed a motion to compel arbitration in Georgia state court. In response, the associates removed the case to federal court and sought to void the arbitration agreement by arguing that it was procedurally and substantively unconscionable.

Specifically, the associates argued that (1) they did not have a sufficient opportunity to review the arbitration provision before executing the agreement, (2) that the agreement was one-sided because it required the associates to arbitrate claims against Aflac, but did not include the same requirement for Aflac, and (3) the costs and fees to be paid by the associates were so great that it would effectively deny the associates a forum to bring their claims. The district court for the Middle District of Georgia found these arguments unavailing and entered an order compelling arbitration.

The associates moved for reconsideration, but were denied. On appeal, the Eleventh Circuit reviewed the district court’s order to compel arbitration de novo. However, the court’s analysis did not progress past the associates’ failure to produce any evidence in support of their unconscionability claims at the briefing and hearing stage. For some of their arguments, the Eleventh Circuit noted that even if the associates had produced evidence, Georgia law governing mutuality of remedies and confidentiality provisions in arbitration agreements still would not support a finding that the agreement was unconscionable. As such, the panel affirmed the district court’s judgment compelling arbitration and denying the motion for reconsideration.

American Family Life Assurance Co. of Columbus v. Hubbard, et al., No. 18-11869 (11th Cir. Jan. 7, 2019).