Hyperlink Arbitration Clause Is Not Enforceable

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SquareTrade, Inc. (“SquareTrade”) sells protection plans for consumer products. Adam Starke (“Starke”) purchased a SquareTrade plan from Amazon to cover a CD player ordered from Staples. When Starke’s CD player failed, he applied for coverage under the Protection Plan. SquareTrade informed Starke that the CD player was not covered by the protection plan because the plan only applied to products purchased from Amazon. Starke filed this putative class action lawsuit, seeking to hold SquareTrade liable for alleged violations of consumer protection laws. SquareTrade decided to compel arbitration, saying its contract with Starke included an arbitration clause. The arbitration clause first appeared in a “terms and conditions” document provided via a hyperlink in a confirmation email sent to Starke after purchasing the SquareTrade Protection Plan from Amazon.

The United States Court of Appeals for the Second Circuit upheld the district court’s decision, finding that the arbitration clause was not part of the contract because Starke had not been given reasonable notice of it and did not had not given his consent. The court reached this decision by applying traditional concepts of contract law. The court explained that when a recipient has not actually been notified of certain contractual terms, he is nevertheless bound by these terms if he is informed of them by an investigation and consents to them by behavior that a person reasonable would understand to constitute consent. New York courts consider whether the term was obvious and brought to the recipient’s attention. Specifically in the context of online contracts, courts examine the design and content of the web page to determine whether the recipient would be required to be notified of these terms.

The court determined that Starke had not received reasonable notice of the arbitration clause which was contained only in the after-sales terms and conditions (“After-sales T&C”) provided in the confirmation email. Starke received a string of confirmation emails from Amazon and then SquareTrade, none of which warned him that his “service agreement” would come in a hyperlink. The email from SquareTrade containing the hyperlink containing the after-sales terms and conditions was cluttered and mostly devoted to other information about the protection plan details. The email contained various text, displayed in multiple colors, sizes, and fonts, and featured various buttons and promotional advertisements that distracted the reader’s attention from the hyperlink. And the hyperlink itself was in small font. The SquareTrade email in no way instructed Starke to click on the link and did not let him know that the link contained any contractual terms to which he would be deemed to agree. The court notes that SquareTrade could have easily included the hyperlink on Amazon’s purchase page. Starke had no way of reviewing the after-sales terms and conditions until he received the confirmation email from SquareTrade.

The court notes that even though SquareTrade provided Starke with 30 days to return the protection plan for a refund, which is in accordance with New York law, there is no justification here for providing contractual terms after a transaction. . Additionally, the court notes that although Starke has previously transacted with SquareTrade, the prior transaction also did not give Starke clear and visible notice of the arbitration clause. Therefore, the court held that there was no binding agreement to arbitrate.

Starke vs. SquareTrade, Inc.no. 17-2474-cv (2d. Cir. Jan. 10, 2017).

©2011-2022 Carlton Fields, Pennsylvania National Law Review, Volume IX, Number 50

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