Companies that include arbitration agreements in online terms and conditions may want to take note of a recent Ninth Circuit opinion that refused to enforce an arbitration agreement on lack-of-consent grounds even though the arbitration agreement contained an opt-out provision.

In Berman v. Freedom Financial Network, LLC, the Ninth Circuit affirmed the district court’s refusal to compel arbitration of claims for violation of the Telephone Consumer Protection Act where the defendants’ websites did not conspicuously notify users of hyperlinked terms and conditions, including a mandatory arbitration provision.  – F.4th –, 2022 WL 1010531 (9th Cir. Apr. 5, 2022).  The defendants’ websites featured large and colorful graphics that prompted users to click a button to “continue” to provide personal information in exchange for free samples, promotions, and gift cards.  Between the more conspicuous website elements and “continue” button, the defendants “sandwiched” two lines of tiny gray text stating, “I understand and agree to the Terms & Conditions which includes mandatory arbitration and Privacy Policy.”  The underlined phrases contained hyperlinks, but without customary design elements – like a contrasting color or all capital letters – that would conspicuously set the hyperlinks apart from the surrounding text.

Following the analytical framework for online contract formation set forth in Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014), the court concluded the defendants failed to prove that the plaintiffs had consented to the terms and conditions, including the arbitration provision in those terms.  The court faulted the defendants for not “indicat[ing] to the user what action would constitute assent to those terms and conditions.”  Specifically, “the text of the button itself”—which prompted users only to “continue”—“gave no indication that it would bind plaintiffs to a set of terms and conditions.”  But the Ninth Circuit gave guidance on what could have constituted adequate notice: the opinion suggested that it might have enforced the arbitration agreement if the defendants’ websites had stated:  “By clicking the Continue >> button, you agree to the Terms & Conditions.”

The Ninth Circuit emphasized that the question was not whether the plaintiffs “may have been aware of the mandatory arbitration provision in particular,” because the defendants’ websites “did not explicitly inform [the plaintiffs] that by clicking on the ‘continue’ button they would be bound by the terms and conditions” in the first instance.  In the wake of Berman, companies may want to consider whether their websites adequately notify users that by taking certain actions, users are agreeing to terms and conditions that may include arbitration agreements.