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Enforcing Online Arbitration Clauses is Losing in Courts

Arbitration clauses have changed significantly as online transactions have become even more ubiquitous. In a consumer transaction, arbitration clauses dictate the venue and means by which a consumer complaint may be brought. While traditionally easy to enforce, the "clickwrap" or "browsewrap" formatting of online consumer agreements create new legal questions surrounding enforceability that have not existed before.

"Clickwrap" agreements require website users to click a button stating they agree to the website's terms, whereas a "browsewrap" agreement does not require any affirmative act by the user. These "clickwrap" or "browsewrap" agreements are especially common on modern retail websites, which came into question this March as the Seventh Circuit heard the appeal in Sgouros v. Transunion Corp.

The Seventh Circuit focused on questions of "reasonable communicativeness." The Court believed that, after a review of Transunion's webpage, the service agreement to submit to arbitration was not clearly indicated. The actual text or the arbitration clause was found in a scroll window over ten pages long, which showed only a few lines of the agreement's text on the eighth page. The arbitration agreement was therefore ruled unenforceable.

This "reasonable communicativeness" test employed by the Seventh Circuit contains two parts. The first determines whether the webpage sufficiently communicated all the terms and conditions of the agreement. And second, whether there was a reasonable assumption that the purchaser had reasonable notice of the terms.

This is not the first blow to consumer arbitration clauses. The Ninth Circuit also found an arbitration clause related to a browsewrap agreement unenforceable in the 2014 case Nguyen v. Barnes & Noble Inc. In the Nguyen ruling the Ninth Circuit stated that consumers must actively accept the terms , by clicking a button or through another similar action, for the terms to be binding. More than ten years prior to Nguyen, the Second Circuit, in Specht v. Netscape, also found a browsewrap agreement unenforceable because of the amount of information on the webpage that the consumer was expected to scroll through.

Other government agencies have been taking action to aid consumers who have unwillingly or unknowingly agreed to arbitration. The Consumer Financial Protection Bureau recently proposed regulations on arbitration clauses that would prevent retailers from including class action bans. Furthermore, Congress has revived the Arbitration Fairness Act, which would only allow businesses to arbitrate consumer claims if the consumer agreed to arbitrate after the dispute arose.

The legal team at SFMS has significant experience litigating class action matters. If you have any questions regarding this subject or this posting, please contact Nick Lussier (nlussier@sfmslaw.com) or Chiharu Sekino (csekino@sfmslaw.com). We can also be reached toll-free at (866) 540-5505.

Shepherd, Finkelman, Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS is an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.

SOURCES

Boyle, Edward P. "Online Arbitration Clauses After Sgouros: Down But Not Out." Law 360. Last modified May 6, 2016.

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