Friday, June 18, 2021

FYI: 2nd Cir Denies Arbitration Under Calif Law Due to Lack of Reasonably Conspicuous Notice

The U.S. Court of Court of Appeals for the Second Circuit recently affirmed a trial court's denial of a motion to compel arbitration in a putative class action lawsuit under the federal Telephone Consumer Protection Act ("TCPA").


In so ruling, the Second Circuit concluded that, under California law, the plaintiff was not bound by the arbitration provision at issue because the defendant did not provide reasonably conspicuous notice in a brochure that the plaintiff was agreeing to the terms on the defendant's website.


A copy of the opinion is available at:  Link to Opinion


The plaintiff entered the defendant's business, a sandwich shop, and an employee showed the plaintiff an in-store, hard-copy advertisement, on which the defendant offered to send special offers to the plaintiff's phone if she texted a keyword.


The plaintiff proceeded to send a text message using the keyword to the defendant. The defendant began sending her, via text message, hyperlinks to electronic coupons. The plaintiff alleged in her lawsuit that she later requested by text that the defendant stop sending her messages, but her request was ignored.


The plaintiff filed a putative class action lawsuit alleging TCPA violations. The defendant moved to compel arbitration, arguing that a contract was formed because the in-store advertisement, from which the plaintiff got the keyword, included a reference to terms and conditions, including an arbitration requirement, located on the defendant's website and provided the URL.


The trial court denied the defendant's motion to compel arbitration. First, it held that the arbitration clause was not "reasonably conspicuous" because "a reasonably prudent consumer would not have had inquiry notice of the arbitration clause on the defendant's website." Second, the court held that the plaintiff did not "unambiguously manifest" intent to be bound by the arbitration clause by sending a text.


Because the court determined that there was no agreement to arbitrate, it declined to consider the parties' additional arguments about the scope of the arbitration agreement or whether the arbitration agreement was unconscionable. The defendant timely appealed.


On appeal, the Second Circuit addressed whether, under California Law, a consumer was bound to the terms and conditions contained on a company's website, which were generally referenced on a print advertisement as "[t]erms and conditions" alongside the web address for the website containing the exact terms/conditions (including an arbitration provision), because that consumer viewed the advertisement on display in a store.


It was undisputed that the plaintiff never actually saw the terms and conditions on the website, including the arbitration clause therein. Nevertheless, the defendant argued that the advertisement put the plaintiff on reasonable notice of those terms such that she should be bound by them.


The Second Circuit noted that, under California law, the basis of a lawfully formed contract is "a manifestation of mutual assent." See Binder v. Aetna Life Ins. Co., 89 Cal. Rptr. 2d 540, 551 (Cal. Ct. App. 1999). Even where the offeree does not have actual notice of the contract terms, she will still be bound by such terms if a "reasonably prudent" person would be on inquiry notice of those terms and she unambiguously manifested assent to those terms. Meyer v. Uber Techs., Inc., 868 F.3d 66, 74-75 (2d Cir. 2017). A person is on inquiry notice of terms if the terms are presented in a clear and conspicuous manner. Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 30 (2d Cir. 2002)


The Second Circuit held that the defendant failed to demonstrate that the terms and conditions on the website would be clear and conspicuous to a reasonable person in the plaintiff's position because:


(1) the defendant failed to provide evidence regarding the size of the advertisement at issue, or the print size contained within that advertisement;


(2) the reference to "[t]erms and conditions" was in the Court's view buried on the advertisement in a paragraph that was printed in significantly smaller font relative to the other text on the advertisement, and the reference itself was surrounded by a substantial amount of unrelated information;


(3) the advertisement only vaguely referenced "[t]erms and conditions," and did not state that a consumer would be agreeing to those terms if she sent a text message to the defendant's short code, nor did it otherwise direct the consumer to such terms;


(4) access to the terms and conditions on the defendant's website required the plaintiff to type in the URL text provided on the hardcopy print advertisement into an internet browser on her cell phone or some other device with internet browsing capabilities; and


(5) once linked to the defendant's website, the heading stated that it contained "terms of use for this website," thus potentially suggesting to a reasonable person (searching for conditions of the promotional offer) that the website did not contain any terms or conditions beyond those relevant to the use of the website.


This combination of barriers led the Second Circuit to conclude that the terms and conditions in this case were not reasonably conspicuous under the totality of the circumstances and, thus, a reasonable person would not realize she was being bound to such terms and conditions by texting the defendant in order to begin receiving promotional offers.


Accordingly, the Second Circuit concluded that, under California law, the plaintiff was not bound by the arbitration clause contained in the terms and conditions at issue and affirmed the trial court's denial of the motion to compel arbitration.




Ralph T. Wutscher
Maurice Wutscher LLP
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