Nothing particularly big in the last two days.  Another judge addresses the contract formation issues raised in a browsewrap case and a decision discusses two narrow, rarely confronted issues – the enforcement of a class arbitration waiver under state law, rather than the FAA, and whether the consideration for an arbitration agreement is too illusory to support a contract.  While you are unlikely to face either of these final two questions, the decisions provide good material to stick in your arbitration notebook – or reptilian brain – so you remember the defenses should they become available to you.  

Browsewrap is back

In Bell v. Royal Seas Cruises, 2020 U.S. LEXIS 172255 (E.D. La.) (Sept. 21, 2020), the court reviews a browsewrap agreement which contained an arbitration clause accessible only by a hyperlink.  In finding the parties formed an agreement to arbitrate, Judge Ruiz holds there are two ways an agreement set forth on a separate page from the main website becomes enforceable –  either the purchaser has actual knowledge of the terms and conditions or the hyperlink is “conspicuous enough to put a reasonably prudent person on inquiry notice of the terms and conditions, such that continued use of the service constitutes assent to the terms and conditions.”  The website in Bell placed the arbitration clause in Terms and Conditions which were located, not on the main page of the website, but on a page reached through a hyperlink.  The announcement regarding the applicability of the Terms and Conditions, which did appear on the main page, read “I understand and agree to email marketing, the Terms and Conditions which includes mandatory arbitration, and Privacy Policy.”  That sentence was located directly above a “Continue” button, which the purchaser had to activate to move ahead with the transaction.  The court opines that a reasonable person would understand that, by clicking “Continue” under a sentence that begins “I understand and agree. . .,” he or she is assenting to the linked terms.  Exercise caution before accepting that conclusion.  The September 4, 2020 “ADR Highlights” discusses Berman v. Freedom Fin. Network, 2020 U.S. Dist. LEXIS 160406 (N.D. Cal.) (Sept. 1, 2020), which, conversely, found that hitting a  “Continue” button on a similar, although not identical site, did not form an agreement because the user was not specifically told that moving on in his or her  transaction would constitute assent to the Ts and Cs.  The cases are distinguishable, but, considering the risk raised by the contrasting Berman and Bell cases, is it safer, rather than using browsewrap, to employ a click wrap, which requires specific acknowledgement from the customer of his or her agreement to the arbitration clause?

Illusory Agreements, State Arb Acts, and Dismissal v. Stay

Reno v. Western Cab Co. 2020 U.S. Dist. LEXIS 171842 (Sept. 18, 2020) is a little case that flags issues you may never face, but which are worth remembering. The dispute was simple – cab drivers for Western alleged that their employer failed to pay the minimum wage, as it required drivers to use their tips to pay for gas. Western sought to compel arbitration.

As a threshold state law argument, the drivers contended that the consideration for their agreement with Western was merely illusory and, therefore, the agreement, including arbitration, was unenforceable.  In the agreement, Western reserved an unlimited, unilateral right to amend the contract.  Under Nevada law, an unlimited right to amend invalidates an agreement for lack of mutuality, In re: Zappos.com, Inc. Customer Data Sec. Breach Lit. 893 F. Supp.2d 1058 (D. Nev. 2012).  However, the Reno agreement provided that, even if Western exercised its right to amend terms, the change was prospective only and, therefore, did not affect the drivers’ unasserted claims.  Accordingly, the court found mutuality, adopted the classic “continued employment” rationale and held a contract existed.

A second issue – whether a waiver of class arbitration was unenforceable as a matter of public policy – arose because the parties’ presumed inapplicability of the FAA turned them to state law.  AT&T Mobility LLC v. Conception, 563 U.S. 333 (2011) makes clear that, in a case governed by the Federal Arbitration Act, the FAA’s enforcement of an agreement’s waiver of the right to class arbitration preempts any state law which would render such an agreement void. Here, however, the parties agreed that the drivers were “transportation workers in interstate commerce” and, therefore, under the “residual exception” to the FAA, the Act did apply. As a result, the court looked to Nevada law to determine the viability of a class waiver in the face of a public policy challenge. (The Ninth Circuit held three weeks ago, Grice v. U.S. District Court, 2020 U.S. App. LEXIS 28207 (9^th Cir.) (Sept. 4, 2020), after the parties briefed Reno, that their conclusion that the drivers were in interstate commerce because they delivered interstate travelers to the airport was wrong.  However, as Judge Gordon reached the same conclusion under state law as he would have under the FAA, he found their error to be irrelevant).   Although Nevada’s highest court has not decided whether a class action waiver in a wage case violates public policy,  Judge Gordon, based on authority holding that, despite a prohibition against the waiving of the right to minimum wages, the employer and employee may enter into an agreement determining the venue and procedure for litigating the issue, predicted that the state’s highest court would find such a class action waiver enforceable.

Finally, there is an interesting twist to the court’s remedy.  Having held that the claims of contracting drivers were arbitrable, the court dismissed the action, noting that the Plaintiffs had not requested a stay as an alternative remedy.  A lesson – if you are opposing a motion to dismiss arising from an alleged agreement to arbitrate, think through the advantages of seeking a stay (an analysis that the plaintiffs may well have made in Reno), rather than presenting the court with no option but to dismiss the case. The retention of jurisdiction makes a later confirmation action easier and keeps the court available should you need to call on it during the arbitral process.

Like I said – this a thin day.  Hopefully, there is some meat on the judicial grill for Friday. See you then.

David Reif
Reif ADR
Dreif@reifadr.com
Reifadr.com