October 18, 2021

Volume XI, Number 291

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October 15, 2021

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Will a Maryland Court Enforce an Arbitration Clause in a “Click-Wrap” Agreement?

As the Maryland courts recognize, we all “agree” to “click-wrap” agreements routinely,1   but can we be compelled to arbitrate when we do? While the Maryland courts have yet to rule directly on this issue,2   such agreements would likely bind a business – but not necessarily a consumer – to arbitrate. Here’s why:

As the Maryland Court of Appeals “noted more than 60 years ago, the question of arbitrability is one of intention. No one is under a duty to resort to arbitration tribunals, however helpful their process, except to the extent that he has signified his willingness.”3   In a case between businesses involving the validity of a click-wrap agreement’s forum selection clause, the Hon. Ronald B. Rubin of the Circuit Court for Montgomery County (a) noted that under Maryland law, a party’s conduct may manifest intent to be bound to a written contract and (b) found that the defendants accepted the terms of their click-wrap agreement when they clicked on the “I Accept” button.4   Is there really more to the issue?

In the seminal case on this subject, Specht v. Netscape Commc’n Corp., 306 F.3d 17 (2d Cir. 2002), then Circuit Judge Sotomayor affirmed the Southern District of New York’s decision not to enforce an arbitration clause in a click-wrap agreement against a putative class of individuals. In that case, users downloaded free software which came with terms of use that included an arbitration clause, but the terms were located on a screen below the download button. Thus, the court concluded that “plaintiffs’ bare act of downloading the software did not unambiguously manifest assent to the arbitration provision contained in the license terms.” Specht, 306 F.3d at 20. Specht continues to be applied by courts considering arbitration clauses in click-wrap agreements. As reflected in these three recent decisions, courts focus both on the notice of terms provided to the plaintiffs, as well as the actions taken by plaintiffs to acknowledge and agree to those terms.

On December 11, 2012, in Hancock v. AT&T, the Tenth Circuit Court of Appeals noted that, applying state law contract principles, “[c]ourts evaluate whether a click-wrap agreement’s terms were clearly presented to the consumer, the consumer had an opportunity to read the agreement, and the consumer manifested an unambiguous acceptance of the terms.” 701 F.3d 1248, 1256 (10th Cir. 2012) (citations omitted). In that case, consumer plaintiffs were presented with a printed copy of terms (including the arbitration clause) related to the use of defendant’s Internet service, and specifically had to click an “I Acknowledge” button on a technician’s laptop prior to installation, and had to click another “I Agree” button when registering for the service. The court affirmed the district court’s enforcement of the arbitration provision.

On February 27, 2013, in Vernon v. Qwest Comm’n Intl., Inc., __ F.Supp.2d__, 2013 WL 752155 (D. Colo. Feb. 27, 2013), the District of Colorado enforced an arbitration provision in a click-wrap agreement in a putative consumer class action challenging a $200 early termination fee relating to Internet service. In that case, plaintiffs were repeatedly provided a link to terms of use; warned that the terms included an arbitration provision; provided an opportunity to cancel service within 30 days; and, on installation, clicked a button labeled “I accept the terms of the license agreement” that specifically noted that the plaintiffs were acknowledging that they understood and agreed to terms, even if plaintiffs did not read such terms.5

On March 19, 2013, in Rasschaert v. Frontier Comm’n Corp., 2013 WL 1149549 (D. Minn. Mar. 19, 2013), the district court again compelled arbitration in a putative class action involving Internet service. In a “close” call, the district court found that an arbitration agreement existed even though it was not present in the defendant’s original terms of use and it was added unilaterally. There, the plaintiffs were notified in their monthly bills that the arbitration provision would be added to the terms of use (to be effective 45 days from the date of the bill) and the bill directed plaintiffs to the terms of use.6

Particularly when dealing with individual users, courts focus on whether an objectively reasonable plaintiff would be aware of the terms of the contract he or she is asked to accept by conduct. Consistent with that, Maryland has adopted the Uniform Computer Information Transactions Act, Md. Code Ann., Comm. Law Art., § 22-101, et seq. (UCITA), which provides that a user takes an action – electronically signing or other conduct – that manifests assent only after an opportunity to review terms that would be called to the attention of a reasonable person. Id. § 22-112. Applying the UCITA, in CVent, Inc. v. Eventbrite, Inc., 739 F.Supp.2d 927, 936-37 (E.D.Va. 2010), the Eastern District of Virginia dismissed a breach of contract claim between two businesses where the alleged contract was predicted on terms of use found only through a link at the bottom of the first page of the plaintiff’s website, and no allegations in the complaint reflected actual or constructive knowledge of the terms, let alone any manifestation of assent to them. The Eastern District of Virginia noted that screen shots of the website contracted the UCITA’s requirement that terms of use must be available in a matter than would be called to the attention of a reasonable person and further noted that mere use of the website was not assent to the terms of use.  Were the court in Rasschaert applying the UCITA, the “close” call may well have tipped in favor of the plaintiffs and against finding the existence of an agreement, as it did in the CVent case.

Thus, when seeking to enforce an arbitration clause in a “click-wrap” agreement in Maryland – particularly against an individual – the arbitration provision should be presented clearly, the user should be given an opportunity to review it and the user should be asked to “click” his or her assent unambiguously.


1  Harold H. Huggins Realty, Inc. v. FNC, Inc., 575 F.Supp.2d 696, 698 (D. Md. 2008) (“Nearly every person in the burgeoning population that regularly uses the Internet has encountered one form or another of a website user agreement, or “click-wrap” agreement. Whether it be in the context of a subscription membership to a news service or an online banking and bill payment account, anyone subscribing to an Internet-based service is inevitably greeted with a “pop-up” window containing a lengthy set of “terms and conditions of use.” Normally, the user is informed that the agreement is accepted by using the service and is often asked to acknowledge such acceptance through clicking a radio button labeled with an affirmative statement such as “I accept.” While clicking “I accept” constitutes the user's acceptance of the website's contract under the terms and conditions contained therein, such clicking may in reality merely reflect a desire by the user to simply make the pop-up window disappear. In this sense, these contracts are not unlike many other consumer purchase contracts in that they may not be read by the party agreeing to them but they are also no less valid.”) (footnote omitted).

2  In Harold H. Huggins Realty, Inc., the parties assumed that an arbitration clause in a click-wrap agreement was valid and then argued over whether it properly had been modified. The Federal Arbitration Act (FAA) provides that agreements to arbitrate “shall be valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.  In AT&T Mobility LLC v. Concepcion, the U.S. Supreme Court held that the FAA preempted California’s judicial rule regarding the unconscionability of class arbitration waivers in consumer contracts, but reiterated that "[t]his saving clause permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." Id., 131 S. Ct. 1740, 1746 (2011).  Thus, Maryland’s substantive law regarding contract formation applies to arbitration agreements and is not preempted by the FAA. See Noohi v. Toll Bros., Inc., 708 F.3d 599 (4th Cir. 2013) (holding that the rule in Cheek v. United Healthcare of the Mid-Atlantic, 378 Md. 139 (Md. 2003) – requiring mutuality of obligation for an arbitration agreement to be enforceable – survived Concepcion and was not preempted by the FAA).  UP

3   Baltimore Cnty. Fraternal Order of Police Lodge No. 4 v. Baltimore Cnty., 429 Md. 533, 549-550 (2012) (citations, quotations, brackets and ellipses omitted; emphasis added).  UP

4   Blue Bird, LLC v. Nolan, 2009 WL 1498704 (Md. Cir. Ct. Apr. 28, 2009); accord Costar Realty Info., Inc v. Field, 612 F.Supp.2d 660, 669-670 (D. Md. 2009) (collecting other federal decisions on validity of click-wrap agreements).  UP

5   "Could Qwest's process have been more user-friendly? Yes. Did Qwest go out of its way to make accessing the Subscriber Agreement as easy as possible, such as by providing a hyperlink that would provide instant access? No. But, I am satisfied that plaintiffs had a reasonable opportunity to access the Subscriber Agreement had they wished to do so. They received repeated instructions to do so, as well as warnings that by enrolling in the program they were agreeing to be bound by the terms and conditions of the program. They accepted the benefits of the Price for Life Program, and I conclude that they are bound by the arbitration and class action waiver terms.” Id., at *5.  UP

6  This type of agreement is not really a “click-wrap” agreement because the contract of arbitration was formed without the subscriber clicking anything. This type of contract, formed by actual or constructive knowledge of terms of use available through a website’s hyperlink, is often called a “browse-wrap” agreement. Browse-wrap agreements may require prominent disclosure of the terms before they will be enforced. See, e.g., CVent, Inc. v. Eventbrite, Inc., 739 F.Supp.2d 927, 936-37 (E.D.Va. 2010) (dismissing breach of contract claim). Of course, not all terms of use agreements fall neatly into one or the other category. See, e.g., Fteja v. Facebook, Inc., 841 F.Supp.2d 829, 837-838 (S.D.N.Y. 2012) (involving a hybrid agreement that required a user to click acceptance to terms that were available elsewhere by hyperlink, but which the user did not have to be examine before clicking his assent).    

©2021 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume III, Number 116
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