In a recent unpublished opinion, the Eleventh Circuit refused Toyota’s request to compel arbitration against one of its customers. This decision is consistent with several others, including in the Ninth Circuit.
In Drayton v. Toyota Motor Credit Corp., plaintiff sued Toyota for violating the TCPA and Florida’s analog statute. Toyota moved to compel arbitration, pointing to the purchase contract entered into between plaintiff and her local dealership.
Toyota, like most automotive manufacturers, does not sell vehicles directly to its customers. So as is typical of vehicle purchase transactions, Toyota was not a party to the purchase agreement. And Florida law, like many other states, does not ordinarily allow non-signatories to enforce contracts.
Toyota sought to exploit an exception, arguing that under the equitable estoppel doctrine, plaintiff could not seek to hold a party to the terms of an agreement while simultaneously trying to avoid the agreement’s arbitration clause. The problem? Plaintiff was not seeking to hold Toyota to the terms of the agreement. Her claims stemmed from Toyota attempting to collect a consumer debt.
The Eleventh Circuit’s decision continues the consumer friendly trend of disallowing automotive manufacturer attempts to avoid liability by pointing to the forced arbitration clauses in their dealers’ contracts. … Read more
The year 2017 has brought in several consumer-friendly arbitration rulings, with several federal appellate courts refusing to enforce arbitration clauses. Today, the California Supreme Court followed suit, ruling that a Citibank arbitration provision did not bar its customers from proceeding in court with claims seeking a public injunction under California consumer protection law.
Dating back to 1999, in its decision in Broughton v. Cigna Healthplans of California, 21 Cal.4th 1066 (1999), the California Supreme Court has held that California law does not permit arbitration of claims brought for broad, public injunctive relief. The Court reaffirmed that principle in 2003 in Cruz v. PacifiCare Health Systems, Inc., 30 Cal.4th 303 2003). And it has remained in effect, at least in California state courts, ever since.
The US Supreme Court’s Concepcion decision in 2011 engendered doubt as to whether the Broughton and Cruz decisions remain in effect, or whether they are instead preempted by the Federal Arbitration Act. A series of district court decisions in 2011 and 2012 reached differing outcomes, and the Ninth Circuit ultimately ruled in Kilgore v. KeyBank N.A. that the FAA does preempt the Broughton-Cruz rule.
Today’s California Supreme Court ruling in McGill v. Citibank appeared poised to either contradict or fall in line with Kilgore. … Read more
Last week, the Third Circuit was presented with an arbitration issue that dealt with, as the court put it, “an unusual hybrid of technology.” The defendant had offered services through an interactive telephone system. But the contract that purportedly bound plaintiffs to arbitration was located exclusively on defendant’s website.
Because of the disconnect between the phone-based interaction between the parties, on the one hand, and the web-located terms of service, on the other, the court declined to compel arbitration. James v. Global TelLink Corp., — F.3d —, 2017 WL 1160893 (3d Cir. 2017).
The court emphasized that while defendant informed telephone users their service was governed by website terms, users were not required to visit the website or otherwise demonstrate acceptance of the website’s terms.
The Third Circuit then distinguished various lines of cases. It distinguished cases where plaintiffs had “manifested assent through the affirmative act of signing contracts”; where the contractual terms had been “immediately accessible to online users”; where plaintiffs had “received a copy of the contract with their [purchase] and conceded that they had notice of the [relevant] clause”; and where the plaintiffs “received physical copies of the terms and conditions upon opening the products, and their subsequent use of the products manifested assent.”
The court concluded by emphasizing that while arbitration is a favored remedy where the parties assent to its use, arbitration cannot be compelled where one party did not agree to arbitrate:
Congress has made clear that arbitration is an important federal policy and the Supreme Court has vindicated that policy many times.
… Read more
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. … Read more
Say you sign up for a department store credit card, and that credit agreement has an arbitration clause. Then you buy merchandise at the store, using the credit card, and later want to sue because you believe the merchandise was marketed in a fraudulent manner. Does the arbitration clause bar your suit? According to one court at least, the answer is no.
Judge Thelton E. Henderson of the Northern District of California recently declined to enforce an arbitration clause within a Banana Republic Visa card agreement. The plaintiff had purchased merchandise at a Banana Republic affiliate (a Gap store) and alleged that the Gap had marketed the merchandise unlawfully. The Gap moved to dismiss based on the arbitration clause.
Plaintiff argued that The Gap was not privy to the arbitration agreement and so could not enforce it. Defendant responded that it was a third party beneficiary of the agreement, giving it the right to enforce it.
Judge Henderson sided with the plaintiff:
Here, while the parties’ agreement could be read to make Defendants third-party beneficiaries, the agreement itself is ambiguous. … Further, it is unclear to the Court how Plaintiff’s claims are “related to” her credit card agreement when Plaintiff’s claims are unrelated to her method of payment; in other words, her claims against Defendants would not be affected had Plaintiff made the purchase with a different credit card or payment method.
… Read more
In a recent opinion, Judge Block of the Eastern District of New York declined to enforce AT&T Mobility, LLC’s arbitration agreement. The plaintiff had contracted with AT&T Mobility, LLC for wireless services. The plaintiff then received unwanted phone calls from one of AT&T’s affiliates – AT&T Corp. Plaintiff filed suit against AT&T Corp. under the TCPA.
AT&T Corp. asked the court to compel the dispute to arbitration based on the broad language in the AT&T Mobility contract. Among other things, the contract purported to cover not only disputes with AT&T Mobility, but also any disputes with AT&T Mobility’s subsidiaries, affiliates, or any other related entity.
Declining to enforce the arbitration provision, Judge Block reasoned that
the words expressed [in the arbitration clause] must be judged according to “what an objective, reasonable person would have understood them to convey.” Leonard v. Pepsico, Inc., 88 F. Supp. 2d 116, 127 (S.D.N.Y. 1999) (citing Kay-R Elec Corp. v. Stone & Webster Constr. Co., 23 F.3d 55, 57 (2d Cir. 1994)). Notwithstanding the literal meaning of the clause’s language, no reasonable person would think that checking a box accepting the “terms and conditions” necessary to obtain cell phone service would
obligate them to arbitrate literally every possible dispute he or she might have with the service provider, let alone all of the affiliates under AT&T Inc.’s corporate umbrella—including those who provide services unrelated to cell phone coverage.
… Read more
In an important ruling, Morris v. Ernst & Young, the U.S. Court of Appeals for the Ninth Circuit held that employment contracts requiring employees to arbitrate suits individually, rather than on a class or collective basis, violate employees’ right to engage in “concerted activity” under the National Labor Relations Act (NLRA). The decision is one of several in the past few months invalidating class action waivers in employment agreements.
Employees of Ernst & Young brought a class action in federal court alleging the accounting firm denied them overtime wages in violation of the Fair Labor Standards Act (FLSA) and California labor laws. In the district court, Ernst & Young successfully moved to compel individual arbitration because the employment contract required employees to arbitrate disputes in “separate proceedings,” and the action was dismissed. The Ninth Circuit, however, reversed.
Writing for himself and Judge Hurwitz, and over the dissent of Judge Ikuta, Chief Judge Thomas concluded that an employer violates § 7 and § 8 of the National Labor Relations Act by requiring employees to sign an agreement precluding them from bringing, in any forum, work-related legal claims together. The court agreed with the National Labor Relations Board that the NLRA establishes a federal right of employees to pursue work-related legal claims together in some forum—arbitration, court, or elsewhere.… Read more
In April, we wrote about a California Court of Appeal opinion in which the court decline to compel arbitration based on a “browsewrap” agreement (i.e., where a website’s terms and conditions of use posted via a hyperlink, often at the bottom of the screen). A recent opinion from U.S. District Judge Cormac J. Carney reflects a similar outcome based on federal precedent.
In Nghiem v. Dick’s Sporting Goods Inc., a TCPA case, defendant argued that the plaintiff was on notice of the arbitration agreement posted on its website. The plaintiff responded that he had been unaware of the clause’s presence.
Citing the Ninth Circuit’s Nguyen v. Barnes & Noble, Inc., decision, Judge Carney began by noting that “courts enforce browsewrap agreements with ‘reluctance,’ and will generally only do so when a consumer has ‘actual or constructive knowledge of a website’s terms and conditions.”
Then, after rejecting the argument that plaintiff had actual knowledge of the contract, Judge Carney also found a lack of constructive knowledge. The reasoning tracked closely to the Ninth Circuit’s Nguyen holding that “close proximity of the [arbitration clause] hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice”:
… Read more
As has been widely reported, the Consumer Financial Protection Bureau is soliciting public comment on whether to establish regulations concerning arbitration agreements for consumer financial products and services. The formal comment period closes on August 22, 2016, and you can comment by following this link.
The proposed rule would accomplish two things. First, it would prohibit the consumer finance industry from using arbitration agreements which block class action lawsuits and force consumers to seek relief on an individual basis in arbitration. Second, it would require the consumer finance industry to turn over arbitral records to the CFPB.
The proposed rule is without question in the best interests of consumers. The consumer finance industry has used arbitration agreements to block consumers from banding together to obtain relief in court. This has effectively given the industry a “free pass”; as the CFPB notes, “companies can sidestep the legal system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm countless consumers.”
The CFPB’s comprehensive study on the use of arbitration agreements for financial products and services fully supports this rule-making. The study found that very few consumers even seek relief through arbitration, and those who do rarely receive any recovery.… Read more
A few weeks ago, we wrote about the Seventh Circuit’s decision in Sgouros v. TransUnion Corp., declining to compel arbitration because the defendant’s website failed to clearly inform users that they were agreeing to arbitrate their claims.
The Court of Appeal distinguished “browsewrap” agreements from “clickwrap” agreements, in that “browsewrap agreements do not require users to affirmatively click a button to confirm their assent to the agreement’s terms; instead, a user’s assent is inferred from his or her use of the website.”
… Read more