Ninth Circuit Enforces Online Arbitration Clause That Tested "Outer Limits" of Reasonable Conspicuousness in Consumer Contract

Yesterday, the Ninth Circuit upheld the district court's grant of a motion to compel individual arbitration in a case that "tests the outer limits of what constitutes a 'reasonably conspicuous' provision" in an online contract. The decision in Holl v. United Parcel Service, Inc. contrasts with prior Ninth Circuit rulings, arguably involving less extreme facts, which denied motions to enforce online arbitration clauses. Holl, however, was decided on a petition for mandamus, a remedy that requires the petitioner to establish clearly and indisputably that "extraordinary circumstances" exist to overturn the district court's decision. Holl could not immediately appeal the district court's arbitration order because Section 16 of the Federal Arbitration Act (FAA) permits interlocutory appeals "as of right" only from the denial, not the grant, of a motion to compel arbitration.

The class action complaint in Holl alleged that UPS systematically overcharged its retail customers. UPS moved to compel individual arbitration of Holl's claims pursuant to an arbitration clause in its My Choice Program that allows customers to track and manage deliveries. The Ninth Circuit summarized the online path that users would need to take to get to the arbitration clause while enrolling in the My Choice Program:

As the district court recognized, locating the arbitration clause at issue here requires several steps and a fair amount of web-browsing intuition. The user must access the UPS My Choice Service Terms via the enrollment page's hyperlink, potentially after following the first hyperlink to the 96-page Technology Agreement. The user must then read the UPS My Choice Service Terms and understand that they incorporate the UPS Tariff/Terms and Conditions of Service. Because the My Choice Service Terms do not include hyperlinks to the incorporated documents, the user must visit the full ups.com website, intuitively find the Service Terms and Conditions link at the bottom of the webpage, select it, and locate yet another link to the UPS Tariff/Terms and Conditions of Service. Then, the user must read the UPS Tariff/Terms and Conditions of Service to find the arbitration clause.

Nevertheless, the Ninth Circuit, applying mandamus standards, concluded that the district court's grant of arbitration was not clearly erroneous as a matter of law because, among other things, Holl affirmatively assented to the My Choice Service Terms by checking a box that acknowledged his assent. In other words, this was a "clickwrap" agreement that required website users to click on an "I agree" box after being presented with the terms. By contrast, in a "browsewrap" agreement, the terms and conditions of use are posted on the website via a hyperlink. Previously, in Nguyen v. Barnes & Noble, Inc., the Ninth Circuit held 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."

In Holl, the Ninth Circuit noted that UPS subsequently revised its terms of use to make the existence of the arbitration clause more conspicuous. Thus, the current version "now include[s] a hyperlink to the UPS Tariff/Terms and Conditions of Service and expressly inform[s] the user that the incorporated document contains an agreement to arbitrate." 

Therefore, even though the Ninth Circuit, in Holl, enforced UPS's arbitration clause falling within the "outer limits" of reasonable conspicuousness, companies with online terms of use that include an arbitration clause must still exercise great care in designing the website so that users become contractually bound to arbitrate.  The FAA requires the existence of a "written agreement for arbitration," and courts scrutinize online agreements carefully to ensure that a binding contract exists. In most circumstances, a reviewing court will apply de novo review, not the narrow mandamus standards that were applicable in Holl.

Ballard Spahr's Consumer Financial Services Group pioneered the use and implementation of pre-dispute arbitration provisions in consumer financial services agreements. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

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