Defendants market online programs that offer discounts in
exchange for a “membership fee.” Brian
Schnabel was enrolled in one such program, Great Fun, after making a purchase
on Priceline.com, and two years later his father Edward was enrolled in Great
Fun after making a purchase on Beckett.com, a sports memorabilia site. Neither, they alleged, intentionally or
knowingly enrolled, but they were both presented with “enrollment offer” pages
and entered personal information on those pages:
Edward alleged that, at the time he thought Beckett.com was
collecting his information, not a third party, and Brian alleged the same. Trilegiant has a record of Brian subscribing
to their service under the username “SCHNABEL22.” The confirmation page allegedly similar to
what Edward saw says “your Online Price Guide subscription has also been sent to
[your email address]”; and features, below the hyperlink “Click here to claim
up to $20.00 Cash Back on this purchase!”, a “button” titled “See Details” with
a legend beneath reading: “Click above to learn how to get $20 Back from Great
Fun.” But Great Fun is not further
identified on the order confirmation page.
Trilegiant alleged that only by clicking on “See Details” or “Learn
More” would Edward and Brian have been brought to the enrollment page. It wasn’t clear from the record whether they
could have enrolled without ever seeing the enrollment pages by, for example,
clicking instead on “Click here to claim up to $20.00 Cash Back on this
purchase!” Because, the court concluded, even if they did see the enrollment
pages no binding arbitration agreement was formed, the court didn’t need to
resolve this question.
According to Trilegiant, neither could join Great Fun
without affirmatively entering personal information including “city of birth”
and a password. However, they weren’t
required to reenter credit-card information when signing up for Great Fun;
Beckett and Priceline passed that on.
Indeed, the Beckett page said it was offering a “Special Award for
Beckett Customers.” “Toward the bottom of the page, near an overview of some of
the ‘Benefits’ of the program, though, there do appear the logos of several
popular brands besides Beckett, suggesting that by accepting the offer, the
purchaser will somehow be able to receive discounts when purchasing other goods
or services.” The message also promised
savings at participating restaurants and “top attractions and activities.” Small print said that “[t]here's no
obligation to continue ... Great Fun benefits.... [The purchaser can] call us
to cancel before the end of ... [the] FREE trial and owe us nothing[.]”
Next to the fields for city of birth and password there was
a description of some of the general terms of the agreement, including that the
purchaser’s credit card would be charged $14.99/month in the absence of
cancellation. In addition, the text said that by clicking “Yes,” the purchaser
(1) agreed that Beckett would transmit his credit card information to Great
Fun, and (2) acknowledged that he read the Terms and Conditions. Below that there were hyperlinks to a privacy
policy and to Terms and Conditions.
Trilegiant said that clicking on the latter would produce a page with
many terms, including the arbitration provision.
In addition, Trilegiant argued that it customarily emailed
each newly enrolled member its terms and conditions; if the email bounced, it
would send a paper version to the member’s billing addressed. Edward acknowledged receiving several emails
from Great Fun, but Brian denied it. The
court determined that this didn’t matter because even if they did receive the
emails, the terms didn’t form part of a binding agreement between the
parties.
The arbitration provision provided that any dispute could be
brought in small claims court or by binding arbitration, with a class
arbitration waiver and Connecticut choice-of-law terms.
Edward eventually discovered the credit card charges; he’d
never made any discounted purchases using the program. He asked for a full
refund, but Trilegiant offered to refund only four of six months. Brian also discovered thirty months of
charges, and Trilegiant again offered to refund only four months. They sued on behalf of a class for allegedly
deceptive “data pass” practices. Among
other claims, they alleged the usual California claims. Defendants moved to compel arbitration and
the trial court ruled that plaintiffs had never agreed to arbitrate.
The FAA reflects a national policy favoring arbitration as
long as the parties have agreed to arbitrate.
Whether they have done so is a matter for the court under state contract
law. The choice-of-law provision in the
agreement (not shown on the enrollment screen) wasn’t determinative unless and
until the court found that the parties agreed to it. Fortunately it didn’t matter, since both
relevant jursidictions (California and Connecticut) use substantially similar
rules for determining whether the parties mutually assented to a contract term.
The key is the parties’ outward manifestations of assent,
which can be words or silence, action or inaction, but the party must intend to
engage in the conduct and know or have reason to know that the other party may
infer assent from the conduct.
Trilegiant argued that plaintiffs assented to the arbitration provision
by receiving the emailed terms and then not cancelling their memberships during
the trial period. Acceptance of a
benefit may constitute assent, but only where the offeree decides to take the
benefit with actual or constructive knowledge of the terms.
Where the purported assent is largely passive, contract formation
often turns on whether a reasonably prudent offeree would be on notice of the
term at issue. Clarity and conspicuousness is important to this question. There
was no actual notice, so the court turned to inquiry notice and to whether plaintiffs’
conduct in enrolling in Great Fun, and then not cancelling their memberships
before the free trial period expired, constituted an objective manifestation of
their assent to the arbitration provision.
Assent is generally impossible without knowledge. Thus, an
offer and its terms must generally precede acceptance. But there are some exceptions: “The
conventional chronology of contract-making has become unsettled over recent
years by courts' increased acceptance of this so-called ‘terms-later’ contracting.
Assent by receiving later terms and not cancelling is similar to the theory of
shrinkwrap licensing. Courts have found
shrinkwrap licenses enforceable if consumers fail to return a product after reading,
“or at least having a realistic opportunity to read,” the terms and conditions.
Here, failure to cancel the Great Fun membership after receipt of the email
arguably took the place of failing to return the product. In the alternative, the contract may have
been formed at initial enrollment, then its terms changed by the email, which
was accepted by plaintiffs’ failure to cancel.
(Some authorities require consideration for contract amendments, but
some of those hold that mutual arbitration supplies that consideration.) These approaches differ in the timing of
contract formation, but the court didn’t need to distinguish them here because
the later-emailed terms were never accepted by the plaintiffs. (The court noted that the initial enrollment
page didn’t include a clause incorporating subsequent terms delivered by email,
so it didn’t need to decide whether such a clause could bind the offeree to
unknown “and effectively unknowable” terms.)
What is notice, in an age of infinite form contracts? One can assent to terms one doesn’t actually
read, but the offer must still make clear to a reasonable consumer both that
terms are being presented and that they can be adopted through the conduct that
the offerer wants to constitute assent.
An offeree isn’t bound by inconspicuous contractual provisions of which
she’s actually unaware when contained in a document whose contractual nature
isn’t obvious. Here, an unsolicited
email from an online business didn’t put its recipients on inquiry notice of
the terms in that email and those terms’ relationship to a service in which
they’d already enrolled, nor of the fact that a failure to act affirmatively by
cancelling the membership would constitute assent.
In a footnote, the court also deemed the email unclear,
whether deliberately or not. The subject
line, “Important information about your membership privileges” didn’t mention
the contract or the terms. The body began with a welcome message and other
details, including extensive discusison of “your great benefits.” The 13th
paragraph began the “Terms & Conditions,” with the arbitration provision
following seven paragraphs later. “But
even had the email more clearly indicated that it contained an arbitration
clause, the fact that it was delivered after enrollment and did not require any
affirmative acknowledgment of receipt, undermines Trilegiant's assertion that
the plaintiffs received sufficient notice to bind them to the additional terms
through their inaction.”
It’s true that in the “modern commercial context, there are
reasons to allow parties to contract without consideration of, and the
possibility to negotiate, every term.”
But duty-to-read cases involving terms delivered after a contract begins
don’t “nullify the requirement that a consumer be on notice of the existence of
a term before he or she can be legally held to have assented to it.” What’s sufficient inquiry notice depends on
various factors including the conspicuousness of the term, the parties’ course
of dealing, and industry practices, but the ultimate question is “whether
reasonable people in the position of the parties would have known about the
terms and the conduct that would be required to assent to them.” In a shrinkwrap case, when a purchaser opens
the package and discovers the additional provisions, she will understand that,
unless she returns the goods, she’ll be bound.
(She will? Love the empiricism
here.) So, she can’t begin to use the
product until she’s been presented with the terms, whether she reads them or
not. Other examples of after-arriving
terms are likewise rooted in the reasonable expectations of the parties. In
many such cases, the language of the original agreement contemplates
modifications. Unilateral modification
terms aren’t necessarily effective, but their inclusion at least bolsters the
argument that the offeree is on inquiry notice when later terms arrive, “particularly
where the modification (or amendment) is itself submitted in such a manner that
a reasonable offeree would be likely to see it,” such as when it arrives with a
bill. (The court noted, however, that
legislation in some states was needed to make this work for credit card terms,
and then rather cryptically suggested that even without specific legislation
such a practice “may” support a conclusion that a reasonable person would be on
actual notice.)
Trilegiant argued that plaintiffs’ receipt of the email was
enough to establish that they were on inquiry notice. “But that someone has received an email does
not without more establish that he or she should know that the terms disclosed
in the email relate to a service in which he or she had previously enrolled and
that a failure affirmatively to opt out of the service amounts to assent to
those terms.” Register v. Verio, by contrast, involved a prior/ongoing
relationship between the parties. “Nor
would a reasonable person likely understand in some other way that disputes
arising between him or her and Trilegiant were to be resolved by an alternative
dispute resolution procedure.”
Also, email was different from shrinkwrap because “the
recipient of the terms in this case would not have been confronted with the
existence of additional terms before being able to benefit from Great
Fun.” Other cases approving amendments
involved their presentation “during the course of maintaining and using the
service to which the terms apply.” Here,
though, the arbitration provision “was both temporally and spatially decoupled
from the plaintiffs' enrollment in and use of Great Fun.” The critical connection between the terms and
the goods/services was missing.
A reasonable person “may understand that terms physically
attached to a product may effect a change in the legal relationship between him
or her and the offeror when the product is used.” (So, I guess servitudes on chattels are okay
now?) “But a reasonable person would not be expected to connect an email that
the recipient may not actually see until long after enrolling in a service (if
ever) with the contractual relationship he or she may have with the service
provider, especially where the enrollment required as little effort as it did
for the plaintiffs here.” On these
facts, the email wouldn’t have raised a red flag vivid enough to make a
reasonable person anticipate a legally significant alteration in the contract.
“To be sure, the ‘duty to read’ rule combined with the
‘standardized form’ contract makes it unlikely in many contexts that a consumer
will actually read such a agreement beyond a quick scan, if that.” The offeror doesn’t really expect customers
to read, much less understand, the standard terms. But formalities must be observed! At the very least, consumers should be
confronted with the terms they won’t read or understand “at a place and time
that the consumer will associate with the initial purchase or enrollment, or
the use of, the goods or services from which the recipient benefits,” since at
least the consumer will be vaguely aware that there are terms “that may one day
affect him or her.” Here, however, “Trilegiant
effectively obscured the details of the terms and conditions and the passive
manner in which they could be accepted.”
The solicitation and enrollment pages, combined with the credit card
passthrough, “made joining Great Fun fast and simple and made it
appear—falsely—that being a member imposed virtually no burdens on the consumer
besides payment.”
The court of appeals pointed out that shrinkwrap-approval
cases often refer to the efficiency benefits of such contracting. “Here, however, there is no policy rationale
supporting Trilegiant's approach inasmuch as there are a plethora of other
ways—such as requiring express acknowledgment of receipt of the terms—through
which Trilegiant could have met the minimum requirements of notice.” No case cited had found a contract
formed/modified with a sequence and terms like this, and this court wasn’t
going to be the first.
Lack of notice led to the next issue. “A requirement that the plaintiffs expressly
manifest assent to the arbitration provision together with such assent would
likely have overcome the email's defects in providing notice.” But the passive conduct of failing to cancel
wasn’t enough, even if passive conduct may in other situations be enough to
constitute assent. “In order to
constitute acceptance, the failure to act affirmatively must carry a
significance that reasonable people in the parties' positions would understand
to be assent. A party cannot require an evidentiary trial before a trier of
fact simply by asserting that the other party assented through a failure to
respond to proffered contractual terms.”
There has to be evidence that the offeree knew or should have known of
the terms, and understood that accepting the benefit would be construed by the
offeror as agreement. Here, there was no
inquiry notice, and auto-debited payments were too passive for any reasonable
finder of fact to find a manifestation of an understanding of the existence of
the arbitration terms and an intent to be bound in exchange for continued
benefits from Great Fun.
What about the hyperlink on the enrollment screen to the
terms and conditions? Maybe it could
have created a substantial question as to whether arbitration was part of the
parties’ contract, but Trilegiant forfeited the argument by not raising it in
the district court. In a footnote, the
court of appeals expressed a bit of skepticism, noting that previously it had
concluded that a browsewrap provision only readable after scrolling down
multiple screens wasn’t enforceable because it didn’t provide inquiry or
constructive notice.
But this wasn’t a browsewrap or clickwrap case. There was some indication next to the “click
to subscribe” button that there were additional terms. But by contrast to a typical clickwrap, the
button didn’t explicitly refer to the terms by asking the user to assent to
them. Instead, it only suggested that
the user would get benefits by clicking “yes.”
“[I]t seems likely that the district court not only did not mention the
hyperlink, but pointed out the peculiarity of the fact that the enrollment screen
did not seem to indicate to the user that he or she would be bound by
additional terms, precisely because the issue was not raised.”
Query: how much does hostility to the credit card
passthrough practice—so abusive that Congress was moved to try to stop it—drive
the court’s conclusion? The plaintiffs,
and others who signed up for these “benefits,” often didn’t understand that
they were signing up for a service at all, much less that the service would have
arbitration provisions. But, as the
court acknowledges, in a world of unknown contract terms, what’s special about
this one? Is it possible for legitimate
businesses to make arbitration so standard that a consumer has to expect that
she’s signing up for one?
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