Ninth Circuit Provides Guidance Regarding Forming Online Contracts | Insights and Events

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Summary

In a recent decision upholding the denial of a motion for compulsory arbitration, a Ninth Circuit panel provided new guidance on the formation of online contracts under California and New York law.1 The court held that, in order to place a consumer in demand for information about the terms and conditions of a website, the website must provide “reasonably visible“Notice of Terms and Consumer Must”manifest without ambiguity[]” acceptance of these terms. During its analysis, the court gave several examples. berman follows a recent decision by the California State Court of Appeals, Sellers v JustAnswer LLC, 73 Cal. App. 5th 444 (2021), which also found that a company failed to provide “sufficiently prominent” notice of its terms. Businesses seeking to enter into online contracts with consumers in California and New York, particularly where their terms include arbitration agreements with class waivers, should consider reviewing their current website feeds in light of these decisions.

Background

One of the defendants of bermanFluent, Inc., is a digital marketing company that offers rewards to consumers who provide it with contact information which the company then uses in targeted marketing campaigns.2 The plaintiffs were several consumers who visited Fluent’s websites and alleged that they subsequently received unsolicited phone calls and text messages in violation of consumer protection law over the telephone.3 The plaintiffs have filed a class action lawsuit against Fluent and other companies involved in the alleged marketing campaigns. The defendants requested compulsory arbitration, arguing that when the plaintiffs provided their information to Fluent on its websites, they had consented to Fluent’s terms and conditions (“Terms”), which included an arbitration clause.4 The relevant parts of the web pages (as reproduced in the berman review) was as follows:

Webpage 1:

Webpage 2:

Webpage 2

Identifier. in Appendices A and B.

The defendants argued that in each case, by clicking the “Continue” button, the plaintiffs had agreed to the terms, including the arbitration clause, which were referenced and linked above the “Continue” button.5 The district court denied the defendants’ motion, finding that the layout of the web page did not sufficiently tell plaintiffs that clicking the “continue” button constituted agreement to the terms. The defendants appealed.6

The Ninth Circuit decision

Choice of law and categories of online contracts

At the threshold, the court declined to decide whether New York or California law governed the dispute, concluding that the law of both states would follow the same path: in the online context, “if a website offers contractual terms to those who use the site, and a user engages in conduct that demonstrates acceptance of these terms, a binding agreement may be formed. »7 The court outlined the now-familiar range of online consumer agreements, with the concept of “browsewrap” at one end (inferring a consumer’s consent from mere use of the website) and “clickwrap” at the other (obtaining affirmative consent from a consumer by providing the terms and conditions themselves, or a link to them, with a checkbox that the consumer must click to consent).8 Generally speaking, courts are more likely to enforce click agreements than browse agreements.9

The Ninth Circuit Test

Based on its earlier decision in Nguyen v Barnes & Noble, Inc.ten and the decision of the Second Circuit in Meyer versus Uber Technologies,11 the berman The court formulated the following test for a consumer’s assent to the terms of an online contract: Unless the business can demonstrate that the consumer has actual knowledge of the terms, (1) the website must provide a “reasonably conspicuous notice” of the terms, and (2) “the consumer must take steps … that unambiguously manifest their consent to these terms.12 The court concluded that the defendants did not meet either prong.13

Reasonably visible notice

In explaining the first element of the test, the court said that users “have the right to assume that material provisions – such as those that disclose the existence of proposed contract terms – will be prominently displayed”.14 Citing Sellersthe court added that it was the companies’ responsibility to inform consumers of these conditions.15 Significantly, berman does not say that all terms themselves must be “reasonably visible” or “prominently displayed”, but only this notice of existence of these terms must be presented in this way. The court also pointed out that the existence of a hyperlink to terms must be “readily apparent”.16

In applying these principles to Fluent’s website, the court made several observations that may provide relevant guidance to businesses in the future:

  • The notice must appear “in a font size and format such that the court can reasonably assume that a reasonably prudent Internet user would have seen it”.17 The language in “tiny gray font” referencing Fluent’s terms, surrounded by much larger text and other visual elements, did not meet this standard, because, in the opinion of the panel, it was “to hardly legible to the naked eye”.18
  • Mere underlining of a hyperlink, as Fluent did, will “often” be insufficient to provide adequate notice, court says, and company “must do more” than underlining to distinguish link from text that surrounds it.19 The panel suggests that putting the link in (1) a different colored font (usually blue) and/or (2) all caps are examples of ways to sufficiently alert users to the existence of linked terms.20

Unambiguous expression of assent

With respect to the second element, the court stated that the clicking of a button by a user will only constitute the necessary unambiguous manifestation of assent “if the user is explicitly informed that the act of clicking will constitute the ‘assent to the terms and conditions of an agreement’.21 The court observed that although Fluent’s web pages had wording indicating that the user accepted the terms, there was no wording that explicitly linked the acceptance of the terms to the click of the “Continue” button.22

For guidance, the court offered wording such as “By clicking the Continue>> button, you agree to the terms and conditions.”23 This language (or a similar language) may appear near the button or on the button itself.24 And while the court did not mention a tickbox as another option in this passage, the court’s implied endorsement of “clickwrap” agreements earlier in the notice – along with extensive case law on the subject – makes it very likely that providing such language alongside a checkbox that the user must click to advance would also satisfy this element.

The Competition

Judge M. Miller Baker of the United States Court of International Trade (sitting by appointment) wrote a detailed concurring opinion. Judge Baker considered the choice of law issues to be critical, concluding that these issues should have been resolved in favor of California’s choice of law. He then discussed California law in detail, focusing primarily on Sellers. Arriving at the same ultimate conclusion as the majority, Justice Baker found it significant that, under Sellers, an additional consideration is whether the consumer is engaged in a “one-time” transaction or involved in an ongoing relationship (such as an auto-renewing subscription). A “one-off” transaction, such as that of bermanfor a single gift card – will be subject to greater scrutiny as to the opinion and assent of the consumer, because (in the opinion of the Sellers court) a consumer would be less likely to expect an accompanying contract than an ongoing relationship (which is generally expected to require terms and conditions).

Take away food

The test in berman does not break new ground or establish a fundamentally different standard than the courts of California and New York previously applied, but it does offer guidance on particular methods of contract formation that businesses should review and consider when enforcement of their own online terms and conditions, particularly where they include arbitration agreements that provide for individual arbitration rather than class actions. At least, berman gives businesses tools they can use to increase the likelihood of enforcing terms and conditions online:

  • Use language indicating that by checking a box or clicking a particular button, the consumer agrees to the terms and conditions of the business.
  • Make sure that this language is directly adjacent to the checkbox or button, and is not in a noticeably smaller font size or otherwise noticeably less noticeable (e.g. through choice of font color) than the features of the website that surround it.
  • If a hyperlink is used to provide the user with access to the terms and conditions, have the hyperlink both (1) underlined and (2) either in a different color (ideally the “traditional” blue font of the link hypertext) or in capital letters.

For more information on the topics raised in this legal update, please contact any of the following members of our Consumer Litigation and Class Actions practice: Michael Jaeger, Dominique Shelton Leipzig, Archis Parasharami and Kevin Ranlett.


1 ___ F.4th ___ (9th Cir. 2022), Case No. 20-16900, 2022 WL 1010531 (Berman).

2 ID. at 2 o’clock.

3 ID. at 3.

4 ID.

5 ID. at 3.

6 The defendants also appealed the dismissal of a motion for reconsideration of the decision (identifier. to 7) for reasons not relevant to this legal update. (The Ninth Circuit also upheld this denial. ID.)

7 ID. at 4 o’clock.

8 ID. at 4-5. berman describes “clickwrap” agreements as having “contract terms specified on a pop-up screen” with a checkbox (identifier. to 4), but “clickwrap” is generally considered to also encompass the linked terms and conditions (without “pop-up”). See, for example, Sellers, 73 Cal. App. 5th to 463 (“A’click‘ is an agreement in which a user agrees to a website’s terms of use by clicking an “I accept” or “I agree” button, with a link to the agreement readily available.”)

9 ID. at 4-5.

ten 763 F.3d 1171 (9th Cir. 2014).

11 868 F.3d 66 (2017).

12 berman2022 WL 1010531 to *5.

13 ID. at 5.

14 ID.

15 ID.

16 ID. at 6.

17 ID. at 5.

18 ID.

19 ID. at 6.

20 Identifier.

21 Identifier.

22 ID.

23 Identifier.

24 Identifier.

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