9th Circuit Refuses to Compel Arbitration in Samsung Litigation

In a published decision handed down on Thursday, the Ninth Circuit affirmed a denial of a motion to compel arbitration in a class action about the performance of the Galaxy S4 phone.

The court’s analysis hinged in large part on the circumstances surrounding the purchase, including the location of the arbitration language.  Plaintiff bought the phone at a Verizon Wireless store. Inside the box, a warranty brochure purported to require the plaintiff to arbitrate any disputes with Samsung arising from the “warranty or the sale, condition or performance of the product[].”  Plaintiff did not read the brochure and left it, along with the box, at the Verizon store when he left with his new phone. The receipt plaintiff received said that he agreed to arbitrate any disputes with Verizon, but did not mention Samsung.

Samsung tried to force arbitration under two theories.  First, by arguing that the inclusion of the arbitration provision in the warranty brochure created a contract between plaintiff and Samsung. Second, Samsung argued that by signing his agreement with Verizon, plaintiff agreed to arbitrate his claims against Samsung. The Ninth Circuit rejected both arguments.

On the first, the panel rejected Samsung’s theory that the warranty brochure created a binding contract between plaintiff and Samsung to arbitrate, relying on the general California rule that an offeree’s silence does not constitute consent.  The court rejected the notion that plaintiff’s consent to the arbitration agreement could be inferred based on a line of case involving licenses on shrink-wrap.  And the court disagreed with Samsung’s attempt to analogize contract law to express warranty jurisprudence, explaining that California appellate courts had “not adopt[ed] the rule … that statements in a brochure enclosed in a product box create a contract between the seller and consumer that can limit the consumer’s rights to bring legal actions against the manufacturer for claims not involving an express warranty.”

Finally, the panel disposed of Samsung’s second argument summarily, calling it “meritless”:

The Customer Agreement is an agreement between Verizon Wireless and its customer. Samsung is not a signatory. … [N]othing in the agreement references Samsung or any other party.

 

Samsung argues that it may enforce the arbitration agreement because it is a third-party beneficiary …. Under California law, “[t]he mere fact that a contract results in benefits to a third party does not render that party a ‘third party beneficiary’”; rather, the parties to the contract must have intended the third party to benefit. Matthau v. Superior Court, 151 Cal. App. 4th 593, 602 (2007); see also Hess v. Ford Motor Co., 27 Cal. 4th 516, 524 (2002); 1 Witkin, Summary of California Law, Contracts § 689 (10th ed. 2005).

 

In this case, Samsung does not point to any evidence in the record indicating that [plaintiff] and Verizon Wireless intended the Customer Agreement to benefit Samsung. Therefore, we conclude that Samsung fails to bear its burden of establishing that it was a third-party beneficiary.