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Mandatory Arbitration is More Than Just a Click Away

August 29, 2022

Posted in Blog

Mandatory Arbitration is More Than Just a Click Away. Arbitration is usually a more business-friendly way to resolve disputes than litigation. A recent US Court of Appeals for the Ninth Circuit decision lays down some ground rules if you want your website visitors bound by a mandatory arbitration clause.

Unwanted Sales Calls Lead to Important Arbitration Agreement Decision

Stephanie Hernandez and Erica Russell, the plaintiffs in the case, visited websites operated by Fluent, Inc., a digital marketing and lead generation company. In exchange for “free” merchandise, website visitors had to provide contact and some private information. 

Each website stated that to get what the website visitors sought, they had to click on a “Continue” button next to the statement: “I understand and agree to the Terms & Conditions, which includes mandatory arbitration and Privacy Policy.” The underlined sections spelled out their contents.

Fluent and Lead Science, LLC, took contact information provided by consumers to conduct a telemarketing campaign for a client. Plaintiffs accuse Fluent and Lead Science of making unsolicited telephone calls and text messages to hundreds of thousands of people.

Arbitration Agreements are Enforceable Only If They’re Valid

Mandatory Arbitration is More Than Just a Click Away

Plaintiffs filed a lawsuit and sought class-action status. In response, the defendants asked the trial court to compel arbitration, as it was spelled out in the terms and conditions contained on the website. The district court denied their motion. The judge ruled the content and design of the webpages failed to conspicuously show users that, by clicking the “Continue” button, they agreed to Fluent’s terms and conditions (including arbitration).

The Federal Arbitration Act (FAA) mandates that federal district courts compel arbitration of claims covered by a valid, enforceable arbitration agreement. The issue for the appeal was whether the plaintiffs agreed to Fluent’s terms. The court ruled they did not.

Appeals Court Finds Plaintiffs Didn’t Agree to Arbitration Clause

To form a contract, the parties must show their mutual consent to the proposed terms. Though traditionally, people do this in writing or verbally, a party’s conduct indicating their agreement may make it legally enforceable. 

The court stated before using conduct to bind a person to a contract, the party seeking its enforcement must show an intent to engage in the conduct, and they must know or have reason to know the other party may infer consent by their actions. In the context of websites, the court stated there are two different approaches to disclosing agreement terms and how a website visitor may show their intent to agree:

  1. “Clickwrap”: The website shows contract terms on a pop-up screen, and users check a box stating “I agree” to proceed. The consumer gets the offered terms and knows, or has reason to know, that the website owner may infer agreement from their conduct. This approach is routinely found enforceable by courts.
  2. “Browsewrap”: The website visitor only sees agreement terms if they use a hyperlink. The user supposedly shows their agreement by continuing to use the website. The courts don’t universally accept this practice because users may be unaware that contractual terms were offered, and by just using the website, they accept those terms.

If a Website User Lacks Actual Knowledge of an Arbitration Clause, That Knowledge May Be Imputed Depending on the Circumstances

The court ruled that unless a plaintiff has actual notice of agreement terms, whether they’re enforceable will be based on inquiry notice (notice is imputed or assumed if the person has information that would prompt an ordinarily prudent person to investigate the issue further) if:

  • The website has reasonably conspicuous notice of the terms (the font size and format are such that a court can fairly assume a reasonably prudent Internet user would have seen it). Essential provisions, like disclosing proposed contractual terms, must be prominently displayed, not buried in the fine print. A hyperlink can connect to terms and conditions, but its presence must be readily apparent to a reasonably prudent website user, not an expert one.
  • The website user takes action (checking a box or clicking a button) that unambiguously shows agreement to the terms. Clicking a button can be an unambiguous showing of consent only if the user is explicitly warned that by doing so, they’ll assent to the terms and conditions of an agreement. The notice must expressly inform the user of the legal significance of the action they must take to enter into a contractual agreement. 

The court ruled the plaintiffs, in this case, didn’t get a reasonably conspicuous notice of the proposed terms of the agreement, nor did they unambiguously show they agreed to them. As a result, the arbitration clause was deemed unenforceable.

Your Website Can Do More Than Market Your Business or Sell Your Products or Services. It Can Get You Into Legal Trouble

Your website’s design and how the content’s written can mean the difference between a strong defense against a website user’s claim against you or a protracted, expensive legal battle. If you have questions or concerns about your website, contact us.

Focus Law is an established business law firm that helps clients deal with this and many other business issues. We’re available at (714) 415-2007, or you can reach us by clicking here.