InfoBytes Blog

Federal Court Holds Combination of Clickwrap Agreement and 30-Day Right to Cancel Letter Made Arbitration Clause Clear to User

Recently, the U.S. District Court for the District of Colorado held that a clickwrap agreement combined with a follow up thirty-day right to cancel letter presented users with an arbitration clause in a reasonably conspicuous manner. Grosvenor v. Qwest Corp., No. 09-02848, 2012 WL 602655 (D. Colo. Feb. 23, 2012). The plaintiff brought suit against his internet service provider (ISP), Qwest Corporation, claiming that Qwest violated a lifetime price guarantee for the service. Qwest moved to compel arbitration. The court held that although the terms were not presented in the clearest manner, they were sufficiently conspicuous and provided an opportunity for a reasonable user to review them. The installation software provided to the plaintiff specifically mentioned the existence of an arbitration clause, directed the plaintiff to the ISP's website to review the agreement, and required that the plaintiff accept the terms before installing the software. The court raised concerns that once directed to the ISP website to review the arbitration terms, the plaintiff was required to click through two pages to find the terms. Despite this, the court stated that, as a matter of law, the multiple clicks requirement does not prevent contractual formation. Moreover, a follow up "Welcome Letter" sent to the plaintiff by the ISP again identified the arbitration clause and provided plaintiff with an opportunity to cancel the service within thirty days. The court decline to determine whether either the clickwrap agreement or the letter would be sufficient on their own, but together they rendered the contractual terms sufficiently clear for a reasonable user. In the end, the court found the arbitration agreement unenforceable on other grounds.

Arbitration

U.S. Supreme Court Upholds Pre-Emptive Power of the Federal Arbitration Act

On February 21, the U.S. Supreme Court upheld the Federal Arbitration Act’s (FAA) pre-emptive power over conflicting state laws and vacated a West Virginia Supreme Court of Appeals decision in which the West Virginia court found that arbitration clauses in nursing home contracts were unenforceable if adopted prior to an occurrence of negligence that resulted in personal injury or wrongful death. Marmet Health Care Center, Inc. v. Brown, 565 U.S. __ (2012) (per curiam). The three plaintiffs—family members of patients who had died in nursing homes—sued the homes in state court alleging negligence. The trial court dismissed two of the suits based on agreements to arbitrate that were found in the contracts. The Supreme Court of Appeals of West Virginia consolidated all three cases, and held that the arbitration clauses in the contracts were unenforceable “as a matter of public policy.”  The U.S. Supreme Court, citing recent decisions in which the FAA pre-emptive power was reinforced, reversed the West Virginia court, stating, “[t]he West Virginia court’s interpretation of the FAA was both incorrect and inconsistent with clear instruction in the precedents of this Court.” The Court explained that whenever a state law prohibits outright the arbitration of a particular type of claim, the conflicting rule is displaced by the FAA. Because West Virginia’s prohibition against predispute agreements to arbitrate negligence claims in nursing home suits was a categorical rule prohibiting arbitration, the rule was contrary to the terms and coverage of the FAA and could not be used to avoid arbitration.

Arbitration

Two Federal Appeals Courts Address Enforceability of Arbitration Agreements

This week, the U.S. Courts of Appeals for the Second and Eleventh Circuits issued rulings regarding the enforceability of arbitration clauses in customer agreements. On January 31, the Eleventh Circuit, on remand from the U.S. Supreme Court, reversed its earlier unpublished decision that affirmed a district court ruling allowing a consumer class action to proceed against a bank because the class action waiver in the arbitration agreement at issue was substantively unconscionable. The underlying case involves allegations that the bank improperly ordered customer transactions in order to maximize overdraft fees. The bank sought to enforce the arbitration clause in its customer agreement. Given the U.S. Supreme Court's holding in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), which held that the Federal Arbitration Act establishes a broad policy requiring arbitration of such disputes, and preempts state law that may allow class actions despite customer arbitration agreements, the Eleventh Circuit vacated its earlier decision and remanded the case to the district court for further proceedings and reconsideration of the bank's original motion to compel arbitration.

On February 1, the Second Circuit decided not to enforce an arbitration agreement, notwithstanding the Supreme Court's decision in Concepcion. In this case, merchants sued a credit card provider arguing that the card provider's interchange fee system violated federal antitrust laws. The card company moved to compel arbitration and enforce a class action waiver provision in the merchant agreement. The Second Circuit vacated a district court decision to enforce the arbitration agreement. That decision in turn was vacated by the Supreme Court and remanded. The Second Circuit, though, did not find that Concepcion altered its original analysis, and the Second Circuit again held that the class action waiver agreement was unenforceable in this case because the practical effect would be to preclude the merchants' ability to pursue statutory rights, an issue not addressed by Concepcion. Consistent with prior Supreme Court caselaw untouched by Concepcion, the merchants proved as a matter of law that the costs of individual arbitration with the lender would be so costly as to deprive them of statutory protections granted by the antitrust laws.

Credit Cards Arbitration U.S. Supreme Court

U.S. Supreme Court Rules Credit Repair Organizations Act Does Not Override Arbitration Agreements

On January 10, the U.S. Supreme Court ruled (8-1) that the Credit Repair Organizations Act (CROA) does not override the Federal Arbitration Act’s (FAA) broad requirement that arbitration agreements be enforced according to their terms. CompuCredit Corp. v. Greenwood, No. 10-948, 2012 WL 43514 (Jan. 10, 2012). This case involves a proposed class of consumers alleging CompuCredit violated the CROA when it marketed and provided a no-deposit credit card to consumers with poor credit and then charged fees against the credit limit. CompuCredit sought to compel arbitration to enforce the terms of the card agreement, which mandated individual arbitration of disputes. The district court and Ninth Circuit both sided with the proposed class, finding the arbitration clause in conflict with the CROA’s “right to sue” provision and therefore void. On appeal, the consumer respondents urged the Supreme Court to follow the Ninth Circuit and hold that because the CROA requires a disclosure that a consumer has the right to sue a violating credit repair organization, and because the CROA prohibits waiver of any right given under the CROA, the right to file suit cannot be waived by an arbitration agreement. The Supreme Court rejected the Ninth Circuit’s line of reasoning and reversed, holding instead that (i) the FAA establishes a liberal policy requiring enforcement of arbitration agreements according to their terms, (ii) the CROA is silent on arbitration and its disclosure provisions do not create a right to sue that overrides the broad FAA mandate, and (iii) Congress could have specifically prohibited arbitration provisions in the CROA.

Credit Cards Arbitration U.S. Supreme Court CROA

Washington District Court Rules ISP Contract Terms Were Not Reasonably Conspicuous

On January 3, the U.S. District Court for the Western District of Washington denied an Internet service provider’s (ISP) motion to compel arbitration, holding in part that the ISP’s terms of service agreement containing the arbitration clause was not reasonably conspicuous. Kwan v. Clearwire Corp., No. C09-1392JLR, 2012 WL 32380 (W.D. Wash. Jan. 3, 2012). In this case, plaintiffs filed suit on behalf of a putative class against an ISP and its debt-collection vendors for violations of federal and state consumer-protection laws based on the defendants’ repeated attempts to collect payments the ISP claimed it was due under mobile Internet service contracts. The ISP moved to compel arbitration, asserting (i) that its customers are required to acknowledge and agree to certain terms of service, including an agreement to arbitrate disputes, before using the ISP’s services (i.e., a so-called “clickwrap agreement”); and (ii) that the ISP sent to customers order-confirmation e-mails that also included a link to the terms of service (i.e., a so-called “browsewrap agreement”).

Relying on the Second Circuit’s analysis in Specht v. Netscape Comms. Corp., 605 F.3d 17 (2nd Cir. 2002), the court identified as the central issue whether the consumer had notice of and access to the terms and conditions of the contract prior to the conduct that allegedly indicated the consumer’s assent. With regard to the confirmation e-mail, the court found that the e-mail did not contain a direct link to the terms of service but rather a link to the ISP’s homepage that provided subsequent links to the terms of service. Further, the link that was provided in the confirmation e-mail did not appear until the third page of the e-mail. Thus, the court held that access to the terms of service did not constitute sufficient or reasonably conspicuous notice of those terms. However, the court also held that the consumers’ acceptance of terms through the clickwrap agreement would have bound them to the terms of service and the arbitration clause, but that issues of fact exist as to whether the named plaintiffs actually clicked to accept the terms. The court deferred resolution of those issues for a factual hearing, as well as a decision on whether a consumer who specifically declines to accept the terms of service is still bound by those terms by virtue of simply accessing the terms of service.

Arbitration