Creating Enforceable Online Arbitration Agreements – Guidance from California’s Courts of Appeal

By: Alison M. Crane

Two recent appellate recent decisions may shape the way businesses present their online contracts if they want to ensure they have an enforceable arbitration agreement.

In a case before the Fourth District Court of Appeal, the Court held that an arbitration agreement contained in JustAnswer’s “sign-in wrap agreement” was not sufficiently conspicuous and, therefore, unenforceable. (Sellers v. JustAnswer LLC, 73 Cal. App. 5th 444 (2021).)   The case is a putative class action against JustAnswer, a service which offered responses to medical inquiries from users. When a customer signed up for the service, they were automatically enrolled in a renewal membership with a monthly fee. Plaintiffs contend they were enrolled without their consent and in violation of California’s 2020 Automatic Renewal Law. JustAnswer filed a motion to compel arbitration based on the language of the online terms of service. The Superior Court denied the request and the Court of Appeal affirmed.

The Court of Appeal held that JustAnswer could not compel arbitration because its sign-up process did not contain sufficiently conspicuous disclosures of the mandatory arbitration clause to bind plaintiffs. When customers clicked a link on the site to “Start my trial,” they were advised that by clicking ‘Start my trial’ “you indicate that you agree to the terms of service and are 13+ years old.” The “terms of service” phrase was a hyperlink to another webpage with approximately twenty-six pages of terms, including a binding arbitration clause and class action waiver. Notably, subscribers were not required to actively view the hyperlinked terms of service. This hyperlink was deemed insufficient to put users on notice of the waiver of a right to a jury trial. The Court stated, “the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers.”  (Id. at 470.)

The Ninth Circuit also recently upheld the denial of a motion compel arbitration. (Berman, et al., v. Freedom Financial Network, 30 F.4th 849 (2022).) Defendant Fluent, Inc. is a digital marketing company that offers rewards to consumers who provide it with contact information that the company then uses in targeted marketing campaigns. Customers who visited its website argue they subsequently received unsolicited calls and texts resulting in a class action lawsuit. Fluent contended that when users provided information to the site, they consented to the company’s terms and condition which included an arbitration provision. As users navigated through submission process on the website there was language (in smaller font) indicating that by clicking “continue” “[The user] understand[s] and agree[s]” to the hyperlinked Terms & Conditions “which includes mandatory arbitration . . .”

The Court set forth a test for a consumer’s agreement to online contract terms. Unless the business can demonstrate actual knowledge of the terms, they must show they provided “reasonably conspicuous notice” of the terms and “the consumer must take some action . . . that unambiguously manifests his or her assent to those terms.” (Id. at 856.)

Citing the Sellers case, the Court reiterated that the “onus” is on businesses to advise consumers of significant terms. Users “are entitled to assume that important provisions – such as those that disclose the existence of proposed contract terms – will be prominently displayed.” (Id. at 857.) Businesses seeking to rely on online arbitration provisions should ensure that the terms of said provisions are clearly set forth to consumers. This may include use of larger font sizes, different color text, and/or capitalization.   Additionally, it should be clear to users that when clicking accept or continue on a website that they are expressly agreeing to any terms and conditions.