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
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 11th Cir Holds "Invasion of Privacy" Exclusion Barred Coverage for TCPA Class Action Settlement

The U.S. Court of Court of Appeals for the Eleventh Circuit recently affirmed a trial court's ruling that, under Florida law, a policy exclusion that barred coverage for claims arising out of an invasion of privacy also unambiguously excluded coverage for claims alleging violations of the federal Telephone Consumer Protection Act (TCPA), when the complaint specifically mentioned invasions of privacy.

 

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

 

The plaintiffs were a class of consumers that sued a company for sending unsolicited text messages, asserting two causes of action under the TCPA. After the plaintiffs filed suit, the defendant company sought coverage for the claims under its insurance policy, but the insurer denied the request.

 

Relevantly, the insurance policy contained an exclusion that provided that the insurer "shall not be liable . . . for Loss on account of any Claim made against [the company] . . . based upon, arising out of, or attributable to any actual or alleged . . . invasion of privacy."

 

The company then settled the TCPA lawsuit. In exchange for the class plaintiffs' promise not to enforce the judgment against the company, the company admitted to liability for monetary damages, settled the suit, and assigned all of its rights against the insurer to the plaintiffs.

 

When the plaintiffs attempted to enforce the judgment against the insurer, the trial court determined that the insurance policy did not cover the settled class claims because the TCPA causes of action were "[c]laims . . . arising out of . . . an invasion of privacy." The class plaintiffs timely appealed.

 

On appeal, the class plaintiffs argued that the class action was not excluded from coverage by the invasion of privacy exclusion because: (1) the class action alleged harms other than invasion of privacy; (2) TCPA claims do not include an element of invasion of privacy; and, (3) at the very least, the exclusion was ambiguous and should have been resolved in favor of coverage.

 

The Eleventh Circuit determined that, under Florida law, it must read the insurance policy "as a whole, endeavoring to give every provision its full meaning and operative effect." Auto–Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000). Additionally, the Court observed "that insurance coverage must be construed broadly and its exclusions narrowly." Hudson v. Prudential Prop. & Cas. Ins. Co., 450 So. 2d 565, 568 (Fla. 2d Dist. Ct. App. 1984). Given that general rule, the Court held that ambiguities are to be construed against the insurer and in favor of coverage, but "to allow for such a construction the provision must actually be ambiguous." Taurus Holdings, Inc. v. U.S. Fid. & Guar. Co., 913 So. 2d 528, 532 (Fla. 2005).

 

To give the invasion of privacy exclusion its "full meaning and operative effect," the Eleventh Circuit focused its analysis on three of the operative terms in the exclusion: (1) "Claim"; (2) "arising out of"; and (3) "invasion of privacy."

 

The Eleventh Circuit concluded that the insurance policy itself clearly defined the term "Claim" as "a civil proceeding against any Insured commenced by the service of a complaint or similar pleading." In this instance, therefore, the Court held that the claim was the civil proceeding against the company commenced by the service of the class action complaint.

 

Accordingly, in the Court's view, if any of the allegations of the complaint were excluded from coverage, the entire lawsuit was excluded, even if the complaint contained allegations that would otherwise be covered.

 

Second, the Eleventh Circuit noted that the Supreme Court of Florida has interpreted the phrase "arising out of" broadly and held that it is "broader in meaning than the term 'caused by' and means 'originating from,' 'having its origin in,' 'growing out of,' 'flowing from,' 'incident to' or 'having a connection with.'" Taurus Holdings, 913 So. 2d at 539. Thus, the Court concluded that Florida's broad interpretation of the phrase "arising out of" meant that if the class action even "had a connection with" the invasion of privacy, the lawsuit fell under the invasion of privacy exclusion. See id.

 

Lastly, the Eleventh Circuit concluded that the class action arose out of an "invasion of privacy" because the class complaint specifically alleged that the company intentionally invaded the class members' privacy and sought recovery for those invasions.

 

The class plaintiffs argued that the invasion of privacy exclusion was ambiguous and should have been construed in favor of coverage because one reasonable interpretation was that, by listing multiple common law tort causes of action but not statutory causes of action like the TCPA, the exclusion did not reach a TCPA claim.

 

The Eleventh Circuit was not persuaded by this argument because the insurance policy did not specifically tie the invasion of privacy exclusion to claims alleging those listed tort causes of action.  Instead, it broadly excluded "civil proceedings" "arising out of" an "invasion of privacy." The Court explained that, when it construed the policy "as a whole" and "[gave] meaning to each of its provisions," the invasion of privacy exclusion unambiguously excluded the class action—which is a civil proceeding arising out of an invasion of privacy—from coverage. Auto–Owners Ins. Co., 756 So. 2d at 34.

 

Therefore, although the Eleventh Circuit acknowledged that "invasion of privacy" is the name of a common law tort, it decided that it could not simply analyze the phrase without heeding the interpretive constraints imposed by the other terms in the policy.

 

Accordingly, because the invasion of privacy exclusion barred coverage for the class action, the Eleventh Circuit affirmed the trial court's grant of summary judgment in favor of the insurer.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 2nd Cir Holds No FDCPA Violation When Debt Settlement Offer Did Not Disclose Accruing Interest and Fees

The U.S. Court of Appeals for the Second Circuit recently held that a collection notice that provided settlement payment options, but did not state that the balance may increase due to interest and fees, did not violate the Fair Debt Collection Procedures Act's ("FDCPA") prohibition against false, deceptive, or misleading representation or means in connection with the collection of any debt (15 U.S.C. § 1692e).

 

In so ruling, the Second Circuit held that its requirement for debt collectors to disclose that the balance may increase due to interest and fees when they notify consumers of their account balance (Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016)) did not apply, because the settlement offer unmistakably communicated that acceptance of one of the options would extinguish the debt, and could not mislead even the least sophisticated consumer.

 

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

 

A consumer's ("Consumer") outstanding credit card debt was placed with a debt collector ("Debt Collector") for collection.  After the Debt Collector obtained a default judgment in state court to collect on the debt, it sent a number of collection notices to the Consumer over several years. 

 

One such notice (the "Notice") provided the Consumer three payment options to settle the debt at a "substantial discount off the current balance due."  Notably, the Notice did not disclose that interest was continuing to accrue on the debt.

 

The Consumer filed suit against the Debt Collector in federal court alleging a violation of the FDCPA's prohibition against "any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. § 1692e, for failing to state whether interest was accruing on the account. 

 

As you may recall, in Avila v. Riexinger & Associates, LLC, 817 F.3d 72, 76 (2d Cir. 2016), the Second Circuit held that section 1692e of the FDCPA requires "debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees."

 

Relying upon Avila, the trial court denied the Debt Collector's motion for summary judgment, observing that the Notice did not state whether interest and fees were accruing on Cortez's account as required. 

 

In doing so, the trial court rejected the Debt Collector's argument that the notice did not mislead the Consumer because it "clearly stated that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date," (Avila, 817 F.3d at 77), and read Avila to require that such a settlement offer must nevertheless be accompanied by a disclosure of whether interest would continue to accrue if the debtor "do[es] not make the payment by the specified date."  Deciding that no genuine issues of material fact existed, the trial court entered judgment in the Consumer's favor. 

 

Following an unsuccessful motion for reconsideration, the Debt Collector appealed.

 

On appeal, the Second Circuit was tasked with applying Avila to the facts at bar under the least sophisticated standard, according to which a notice is deceptive or misleading in violation of section 1692e if it is "open to more than one reasonable interpretation, at least one of which is inaccurate." Clomon v. Jackson, 988 F.2d 1314, 1319 (2d Cir. 1993).

 

The Court held in Avila that a collection notice that states a debtors' current balance, but does not disclose whether interest or fees are accruing, was misleading because "[a] reasonable consumer could read the notice and be misled into believing that she could pay her debt in full by paying the amount listed on the notice" when, in fact, "if interest is accruing daily, or if there are undisclosed late fees, a consumer who pays the 'current balance' stated on the notice will not know whether the debt has been paid in full." Avila, 817 F.3d at 76. 

 

However, the Court further explained that no FDCPA liability would be imposed for failing to disclose such information "the collection notice either [1] accurately informs the consumer that the amount of the debt stated in the letter will increase over time, or [2] clearly states that the holder of the debt will accept payment in the amount set forth in full satisfaction of the debt if payment is made by a specified date" (Id. at 77), reasoning that these safe harbors address a potential concern that a debtor might remit the listed balance without realizing it has not fully paid of the debt. 

 

The Second Circuit noted that it applied the safe harbor exceptions in Taylor v. Financial Recovery Services, Inc., 886 F.3d 212 (2d Cir. 2018), holding that no section 1692e violation occurred where the debt collector defendant failed to disclose that interest and fees were not accruing on accounts whose balances were static, but stated that "prompt payment of the amounts stated in [plaintiffs'] notices would have satisfied their debts."  Taylor, 886 F.3d at 214. 

 

Reviewing the judgment here, the Second Circuit found that the lower court extended the application of Avila to hold that debt collectors extending offers of full satisfaction must also "advise consumers that their debt [is] still accruing interest and/or fees."  However, the appellate court noted that its opinion in Avila held only that a debt collector must "either" disclose that interest and fees continue to accrue "or" offer to extinguish the debt in exchange for a specified payment. 817 F.3d at 77. 

 

Although the trial court concluded that the it was "debatable" that the Notice "a debt collector must "either" disclose that interest and fees continue to accrue "or" offer to extinguish the debt in exchange for a specified payment," the Second Circuit disagreed. 

 

Reasoning that its findings in Taylor extended to a collection notice proposing to accept a specified amount in full satisfaction of a debt, the Second Circuit held that the Notice's language extending three "settlement choice[s]" at a "substantial discount off the current balance due" unmistakably extended an offer to clear the outstanding debt upon payment of the specified amount(s) by the specified date(s) —- even when viewed from the perspective of the least sophisticated consumer. 

 

As such, the appellate court clarified that Avila's disclosure requirement does not apply to collection notices that extend offers to settle outstanding debt.

 

Accordingly, because the lone reasonable interpretation of the Notice was not misleading or deceptive, the appellate court concluded that it did not violate the FDCPA, and reversed and remanded the lower court's judgment with directions to enter judgment in favor of the Debt Collector.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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