Ninth Circuit Revisits Enforcement Standards for Online Arbitration Provisions

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Recently, the Ninth Circuit Court of Appeals reconsidered under what circumstances use of a website can bind a consumer to hyperlinked “Terms and Conditions” containing an arbitration provision that the consumer has never seen or read. . Confirming the district court, the appeals court held that the plaintiffs in Berman v Freedom Financial Network, LLC have not entered into a binding agreement to arbitrate because they have not “unambiguously indicated their consent to the terms and conditions when browsing the [defendants’] websites.”

berman involved a class action lawsuit alleging that the defendants violated the Telephone Consumer Protection Act. The defendants filed for arbitration, arguing that by using their website, the plaintiffs agreed to its terms and conditions which included an arbitration clause. The court began its analysis by noting that the party seeking arbitration must establish the existence of an “arbitration agreement” under applicable state law. Under the laws of New York and California (which produced the same result), to form a contract, the parties must manifest their mutual consent to the terms of the contract, and may do so by conduct. As it has done in previous decisions, the court distinguished between “clickwrap” and “browsewrap” online agreements. “Clickwrap” agreements are generally enforceable because they present website users with explicit terms and require them to tick an “I agree” box in order to continue. In contrast, in browsewrap agreements, terms are usually disclosed through a hyperlink and consent is evidenced by continued use of the website. A contract can be based on proof that the consumer had actual knowledge of the terms and conditions. Even in the absence of such evidence, a contract may be based on a “notice of inquiry” if (1) the website has provided a “reasonably conspicuous” notice of the terms of the contract, and (2) the consumer has taken an action which unambiguously manifests its consent to these conditions.

The Ninth Circuit concluded that the web pages of berman failed to provide reasonably conspicuous notice of the terms and conditions, including the existence of an arbitration clause. To be visible, “a notice must be displayed in such a font size and format that the court can reasonably assume that a reasonably prudent Internet user would have seen it”. Here, the text revealing the existence of the “Terms and conditions which includes binding arbitration” was printed in lower case gray type, rather than blue type which usually signifies a hyperlink. Additionally, the font was smaller than the font used in surrounding website elements and “was barely legible to the naked eye”. Surrounding text used a larger font that drew the user’s attention away from the hyperlink, as did the overall design of the web page. Thus, it was not obvious that a hyperlink was present. The court noted that these shortcomings could have been avoided by better formatting and the use of blue rather than gray font and capital letters to draw attention to the hyperlink.

The court further found that clicking a large green “continue” button did not unambiguously manifest the plaintiffs’ consent to be bound by the terms and conditions as there was no explicit notice that clicking the button would constitute consent. Thus, the fact that the notice referred to “binding arbitration” was “irrelevant”. According to the court, this lack of notice could have been corrected by using more specific language such as “By clicking the Continue button, you agree to the Terms and conditions which includes binding arbitration.

Businesses that offer their financial products and services online should heed the Ninth Circuit’s scrutiny in berman when they design their web pages. Care should be taken not only when drafting the substantive terms of the arbitration clause, but also to ensure that a court charged with enforcing the clause will conclude that the consumer has contractually agreed to it.

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