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 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.
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.