Arbitration/Nonsignatories: Ninth Circuit Raps Browsewrap Contract, Affirming Order Denying Motion To Compel Arbitration
A Progression: From Shrink Wrap To Browsewrap To Clickwrap Contracts
Above: Shrink wrapped helicopters to be shipped to Iraq. US Navy photo, Bart Jackson. Wikimedia Commons.
In a case that will be important to e-commerce merchants, and on-line consumers, a Ninth Circuit panel holds that Barnes & Noble’s website provided insufficient notice of its Terms of Use, and thus, insufficient notice of an agreement to arbitrate claims. Kevin Khoa Nguyen v. Barnes & Noble Inc., No. 12-56628 (9th Cir. Aug. 18, 2014) (Noonan, Wardlaw, Silver).
The Terms of Use, available via a hyperlink in the corner of every page of the Barnes & Noble website, was part of a “browsewrap” agreement. The Court explains that contracts formed on the Internet “come primarily in two flavors” – “clickwrap” and “browsewrap.” With a clickwrap agreement, the user affirmatively consents to the terms and conditions of use by clicking on an “I agree” box. With a browsewrap agreement, however, “a website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen.”
The Court does not exactly chuck browsewrap agreements out the window, because it explains that “the validity of the browsewrap agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.”
“[P]roximity or conspicuousness of the hyperlink alone is not enough to give constructive notice,” explains the Court. Instead, something more is needed, “to capture the user’s attention and secure her assent.” Fn. 1. Here, even though the website link to Terms of Use may have been conspicuous, “there is no evidence that the website user had actual knowledge of the agreement . . . “
The Court holds, “in keeping with courts’ traditional reluctance to enforce browsewrap agreements against individual consumers”, that:
“where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on – without more – is insufficient to give rise to constructive notice.”
NOTE: This case should help e-commerce merchants see the benefits of clickwrap over browsewrap agreements.
Arbitration/Class: Trial Court’s Order Denying Class Certification Because Putative Members Signed Releases And Arbitration Agreements Is Reversed
Popping Affirmative Defenses Without Adequate Notice Surprised Plaintiffs
The employer here tried to gut plaintiff’s efforts to certify a class of 53 individuals in a wage dispute by producing evidence that “44 of those individuals had settled their claims or agreed to arbitrate their claims against the defendant.” The employer was successful in the trial court, because the trial judge denied certification on the ground that the putative class members were not numerous enough to be certified as a class. Plaintiffs appealed. Hendershot v. Ready to Roll Transportation, Inc., B247730 (2/3 Aug. 14, 2014) (Croskey, Klein, Aldrich).
The order was reversed on three grounds.
First, the court’s analysis of the “numerosity” factor was incorrect. There is no hard and fast rule on numerosity, and the trial court concluded that nine members was not numerous enough, without adequate explanation.
Second, by “essentially” ruling that the defendant’s affirmative defenses based on releases and arbitration agreements had merit, the trial court improperly considered the merits of the affirmative defenses – something it should not have done at the certification stage. One problem with this was that “these agreements did not require that the parties arbitrate their disputes until a party requested arbitration” – and defendant had not stated whether it would request arbitration. Fn. 8.
Third – and perhaps this is what bothered the Court of Appeal most – there was a lack of proper notice, because the releases and arbitration agreements were sprung on plaintiffs late. “The plaintiffs now argue that the assertion of these defenses took them by surprise and prejudiced them,” explained the Court of Appeal, adding: “It clearly did.” One senses a disapproval of sharp practices at work here.
News/Employment/Civil Rights: Executive Order Limits Pre-Dispute Arbitration Clauses For Federal Contracts Exceeding $1 Million In Title VII And Sexual Assault/Harassment Cases
Fair Play and Safe Workplaces Executive Order Is Announced July 31, 2014
One of the impactful judicial trends in recent years has been the expanded use of arbitration in employment disputes. Counter to that judicial trend is the recent Executive Order announced July 31, 2014 by the White House.
Section 6 of the Executive Order provides:
“Complaint and Dispute Transparency. (a) Agencies shall ensure that for all contracts where the estimated value of the supplies acquired and services required exceeds $1 million, provisions in solicitations and clauses in contracts shall provide that contractors agree that the decision to arbitrate claims arising under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment may only be made with the voluntary consent of employees or independent contracts after such disputes arise. Agencies shall also require that contractors incorporate this same requirement into subcontracts where the estimated value of the supplies acquired and services required exceeds $1 million.”
There are particular exclusions from this requirement for contracts or subcontracts for the acquisition of commercial items or commercially available off-the-shelf items; for employees covered by collective bargaining agreements; and, for valid contracts to arbitrate entered into prior to the bidding covered by this Executive Order.
Arbitration/Gateway Issues/Waiver/Employment: Court Of Appeal Affirms Order Denying Employer’s Motion Seeking To Compel Kurt The CyberGuy To Arbitrate
Opinion Addresses Substantive Versus Procedural Arbitrability – And Who Gets To Decide
Kurt Knutsson, aka Kurt the CyberGuy, and his company, Woojivas, Incorporated, filed claims against KTLA, LLC, a television broadcaster, for breach of contract, misappropriating CyberGuy’s name and likeness, unfair business practices, and age discrimination. The company brought a motion to compel arbitration that the trial court denied, leading to an appeal. Knutsson v. KTLA, LLC, B251567 (2/5 Aug. 12, 2014) (Turner, Mosk, Kriegler).
Defendant argued that plaintiffs were bound by a personal services agreement to an arbitration clause in a collective bargaining agreement that contained a tiered grievance procedure. That procedure included three steps: (1) the union or employee were allowed to resolve a grievance by discussion with a supervisor; (2) if the union was dissatisfied with the supervisor’s resolution of the matter, it could formally present a grievance to a manger; (3) the union could (a) file an appeal followed by a discussion process; (b) if that did not resolve the dispute, arbitration could result.
The defendant’s problems were several: first, “defendant has forfeited the right to compel compliance with the collective bargaining agreement’s non-arbitration provisions” in the grievance process by moving to compel arbitration without mentioning steps one and two; second, the arbitration provisions simply did not say that the defendant could compel arbitration – only the union could compel arbitration; and third, the trial court, not the arbitrator, was entitled to resolve the substantive arbitrability issue – a so-called “gateway issue.”
The last issue – whether the court or the arbitrator gets to decide arbitrability – is the most interesting. By labeling the issue as a substantive arbitrability issue, the Court of Appeal telegraphed that this was a gateway issue for the trial judge to decide.
When the issue of “arbitrability” is whether procedural prerequisites to arbitration have been complied with, the issue may be decided by the arbitrator. See, e.g., our March 6, 2014 post on BG PLC v. Republic of Argentina, 573 U.S. __, 134 S. Ct. 1198 (2014).
At first blush, John Wiley v. & Sons, Inc. v. Livingston, 376 U.S. 543, 556-558 (1986) should have supported defendant’s argument that an arbitrator should have decided the arbitrability issue, because “John Wiley held an arbitrator should decide whether the first two steps of a grievance procedure, which were prerequisites to arbitration, had been completed.” However, John Wiley also “held the issue of whether the dispute must be arbitrated is decided by the court.” And here in Knutsson, “as we have explained, defendant cannot compel plaintiffs to arbitrate anything – there is no agreement between them.”
One curious point about the opinion is that the issue of “substantive arbitrability” decided by the Court of Appeal – the “gateway issue” – is seemingly resolved on the ground that there is no arbitration agreement between plaintiff and defendant, and therefore no duty to arbitrate. The trial court’s reasoning, at least as described by the Court of Appeal, is different: “Concluding the grievance procedure was a condition precedent for arbitration and it had not occurred, the trial court denied the motion.”
Employment/Construction of Arbitration Agreement: Fourth District, Div. 3 Certifies Rebolledo v. Tilly’s, Inc. For Publication
Court Agreed With Trial Court That Parties’ Arbitration Agreement Expressly Excluded Statutory Claims From The Arbitration Obligation.
On July 14, 2014, I blogged about Rebolledo v. Tilly’s, Inc., in which the Court of Appeal, 4th District, Division 3, affirmed the trial court’s order denying an employer’s motion to compel arbitration of an employee’s putative class action regarding statutory wage claims. The key to the case was that the operative language in the employment agreement provided for arbitration, except for “matters governed by the California Labor Commissioner.” The Court of Appeal held that the employee’s statutory wage claims were within the jurisdiction of the California Labor Commissioner if they would have fallen within its jurisdiction, even if the claims were not brought before the Commissioner – and that was the case. Therefore, the statutory wage claims were excluded from arbitration. On August 6, 2014, the Court certified the case for publication.
Arbitration/Celebrities/Vacatur: Narrow Grounds For Vacating Arbitrator’s Award Were Not Satisfied In Arbitration Involving Adam Sandler’s Children’s Nanny
In Which An In Pro Per Defendant/Appellant Takes On Adam Sandler’s Corporation . . .
HP, a company owned by Adam Sandler, employed McDonald as a nanny for his children. When her employment ended, she entered into a confidential settlement agreement, and as a result, $48K was paid to her, and $32K was paid to her attorneys. After McDonald “purported to terminate the settlement agreement and threatened to sue,” HP invoked an arbitration provision. Things did not go so well for McDonald in arbitration, because she was ordered to cough up the $48K, was permanently enjoined from filing suit against HP and from disclosing confidential information, and was directed to pay $33K in attorneys fees and costs. The award was confirmed, and McDonald appealed in pro per. HP Production, Inc. v. McDonald, B252175 (2/4 Aug. 5, 2014) (Epstein, Willhite, Edmon) (unpublished).
The grounds for vacating a judgment under CCP 1286.2 are narrow. And McDonald’s arguments that the fee award was “exorbitant,” and “obscene”; that HP breached the settlement agreement; that it was unconscionable for her to have to pay more than she could afford; that the disparity in net worth of the parties made consideration for settlement unfair; and that she signed the settlement agreement under economic duress, just didn’t cut it. Nor did her argument that the trial court had no authority to issue an injunction, because the arbitration clause gave broad authority to the arbitrator to issue an injunction, and the trial court could confirm the award.
Sometimes it’s better not to stir the pot.
Stirring the pot. Thomas Fogarty. Sometime between 1890 and 1938. Library of Congress.