The Ninth Circuit recently issued two opinions addressing whether companies should require customers to explicitly agree to key provisions of user terms and other policies.

On Monday, a unanimous three-judge panel issued an opinion in Knutson v. Sirius XM Radio.  In this case, the plaintiff purchased a Toyota that included a trial subscription to Sirius.  About a month after his trial subscription began, he received a Welcome Kit that included a customer agreement with an arbitration clause.

After allegedly receiving unauthorized calls to his cellphone from Sirius, the plaintiff brought a putative class action lawsuit under the Telephone Consumer Protection Act.  Relying on the arbitration clause, Sirius filed a motion to compel arbitration.

The district court granted Sirius’s motion to compel arbitration, but the Ninth Circuit reversed.  The Ninth Circuit held that the plaintiff never agreed to the arbitration provision, in part because there was no evidence that the plaintiff opened the Welcome Kit and read the agreement.

Although the Court recognized that, in general, consumers cannot avoid a contract’s terms by claiming that they never read those terms, the Court held that an exception to that rule applies here because the writing did not appear to be a contract, and the terms were not called to the attention of the plaintiff.

Key to the Ninth Circuit’s holding was the fact that there was no evidence in the record that the plaintiff received the Sirius customer agreement when he purchased the Toyota.

“The Toyota  purchase agreement could clearly state that Toyota has a relationship with Sirius XM to provide Toyota customers with a trial service, and that therefore the Toyota customer is entering into a contractual relationship with Sirius XM,” Judge Harry Pregerson wrote in the opinion. “Toyota could also provide its customers with literature that similarly explains the agreement between Sirius XM and the Toyota customer and ask for assent to such agreement.  Because Sirius XM’s offer was not effectively communicated, there was no knowing consent to the Customer Agreement, including the arbitration clause within it.”

The Knutson decision comes a few months after the Ninth Circuit’s opinion in Nguyen v. Barnes & Noble, Inc., in which the Ninth Circuit refused to enforce an arbitration clause on Barnes & Noble’s website’s terms of use.  The terms were made available to users via a link at the bottom of each page of the website.  But the site did not require users to affirmatively agree to the terms, such as by checking a box or clicking “I agree.”

The Ninth Circuit held that such terms are only enforceable if “the website puts a reasonably prudent user on inquiry notice of the terms of the contract.”  The Court found that Barnes & Noble did not meet this requirement.

“[W]e therefore hold 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 sufficient to give rise to constructive notice,” Judge John Noonan wrote in the Aug. 18 opinion. “While failure to read a contract before agreeing to its terms does not relieve a party of its obligations under the contract, the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers.”

In both Knutson and Nguyen, the Ninth Circuit did not provide explicit requirements for customer agreements or terms of service.  But the opinions generally suggest that “click-through” agreements that require a customer to check a box or click “I agree” to terms will be binding, provided that the customer is aware of the companies that are parties to the agreement as well as the terms contained in the agreement.  Although both opinions involved arbitration clauses in customer agreements, their reasoning could theoretically be extended by others to important provisions contained in privacy policies.