Presentation Matters When Seeking to Compel Arbitration in Consumer Class Actions
A pair of recent opinions proves that when it comes to compelling arbitration in a consumer class action, presentation of the arbitration clause may matter more than favorable Supreme Court precedent. First, in Norcia v. Samsung Telecommunications America, the 9th Circuit Court of Appeals affirmed a trial court decision denying Samsung's motion to compel arbitration in a case concerning misrepresentations about the Samsung Galaxy S4 phone. Second, in Johnson v. Uber Technologies, the U.S. District Court for the Northern District of Illinois denied a motion to compel arbitration in a putative class action against the ride hailing app, Uber. In both instances, the courts declined to compel arbitration because the courts found the consumers did not form an enforceable arbitration agreement. These opinions reinforce earlier decisions, and make it clear that businesses should consider the presentation of the arbitration clause to their consumers regardless of whether the business is selling its services or products in traditional packaging or electronically.
The plaintiff in Norcia alleged that Samsung misrepresented the performance of the Galaxy S4 phone. Samsung moved to compel arbitration based on an arbitration clause contained in a warranty brochure placed in the Galaxy's box. Samsung contended the warranty slip was akin to a shrink-wrap license, which has been held to be an enforceable contract, but the court rejected Samsung's position. The lower court denied the motion to compel after concluding that no arbitration agreement had been formed between Samsung and Galaxy consumers. The appellate court affirmed and explained that putting a shrink-wrap license on the outside of the box allows a consumer to open the shrink-wrap and thereby take an affirmative step indicating their consent to be bound by the terms of the shrink-wrap license. A warranty slip inside the box, however, does not require the same affirmation step by the consumer; a consumer can simply open the box and discard the slip. Samsung also argued the arbitration clause was enforceable because it was analogous to a warranty term, which does not require the consumer to consent. The 9th Circuit disagreed and held that warranties arise as a result of the mere sale of a product and that unlike a warranty, an arbitration contract imposes binding obligations on the consumer.
Johnson involved a totally different type of product, but the court reached a similar conclusion and applied similar reasoning. The plaintiff in Johnson alleged that Uber sent him unsolicited text messages in violation of the Telephone Consumer Protection Act. Uber moved to compel arbitration based on the existence of an arbitration clause in Uber's current electronic account registration application. Uber presented evidence showing that its current registration process required consumers to click through and indicate their agreement to be bound by an arbitration clause. The court, however, denied Uber's motion to compel because it found that Uber failed to present any evidence about the process that existed in 2013, when the plaintiff had signed up for the service. The court also took judicial notice of a court document filed by Uber in a different case describing a different account registration process in 2014. The court thus concluded Uber had not met its burden of showing that Uber consumers had consented to arbitration in 2013.
Norcia and Johnson provide valuable lessons for businesses that sell products in traditional packaging, like phones, and businesses that sell services online or via an app, like ride sharing. The plaintiffs prevailed in both cases because the defendants could not show the consumers had taken any action to demonstrate consent to be bound by an arbitration agreement. In both cases, the court denied motions to compel despite favorable precedent and the presumptively enforceable nature of arbitration agreements and class-action waivers.
Enforcement of an arbitration clause may be as simple as opening a package or clicking a button on an app, but businesses should ensure they keep packaging and account applications up-to-date or they face the possibility of litigating a consumer class action instead of arbitration.