On November 3, the Second Circuit reversed a lower court decision denying a motion to compel arbitration in a putative class action against Klarna.  See Edmundson v. Klarna, Inc., 85 F.4th 695 (2d Cir. 2023).  The decision offers guidance (and support) for companies looking to enforce similar “click-wrap” agreements with mandatory arbitration provisions.

Klarna offers a “buy now pay later” service that allows consumers to purchase products and pay for them over time in four installments without incurring any interest or fees.  Plaintiff used Klarna’s services to make two online purchases, but when Klarna automatically deducted the partial repayments from Plaintiff’s checking account, the account lacked sufficient funds and, as a result, Plaintiff allegedly incurred overdraft fees from her bank.  Plaintiff filed a class action lawsuit alleging that Klarna misrepresented and concealed the risk of bank-overdraft fees that consumers face when using Klarna’s pay-over-time service.

Klarna moved to compel arbitration of Plaintiff’s claims on the ground that, when Plaintiff made her purchases using Klarna, she was repeatedly presented with and agreed to Klarna’s Services Terms, which include a mandatory arbitration provision.  For example, Plaintiff was presented with the below “Klarna Widget” before finalizing her purchase.  The phrase “payment terms” was a hyperlink that, when clicked, would direct the consumer to Klarna’s “Pay Later in 4 Agreement,” which incorporated by reference the mandatory arbitration provision in Klarna’s Services Terms.  Plaintiff was required to click “Confirm and continue” to complete her purchase(s).

The district court concluded that the above Widget could not support an inference that Plaintiff unambiguously assented to the arbitration provision, but the Second Circuit disagreed.  The appellate court found that several factors weighed in favor of finding that Klarna provided “reasonably conspicuous notice” of its Services Terms (and, thus, the arbitration agreement) such that Plaintiff should be bound by those Terms:

  • Lack of clutter.  There is only one hyperlink (to Klarna’s Terms) and one button to click (“Confirm and continue”), all of which is visible at once, meaning the user does not need to scroll beyond what is immediately visible to find the notice of Klarna’s Terms.  The court distinguished Klarna’s Widget from other cases where consumers were presented with a screen with dozens of links, varying text sizes and colors, and multiple buttons, promotional advertisements, and other purchase information.
  • Contrast.  The hyperlink to Klarna’s Terms is set apart from surrounding information by being underlined and in a color that contrasts to the color of the interface’s background (i.e., black text on white background).  That contrast, according to the Second Circuit, outweighed the fact that the hyperlink was in a smaller font relative to other text on the Klarna Widget screen.
  • Spatial and temporal proximity.  Spatially, the hyperlink to Klarna’s Terms appears directly above the “Confirm and continue” button, which the user is required to click to complete her purchase using Klarna.  Temporally, the placement of the terms at the point when the consumer is about to finalize a purchase would lead a reasonably prudent user to understand that the terms presented on the interface signal, and govern, the user’s future relationship with Klarna.
  • Language signaling agreement.  The language used on the Klarna Widget—“I agree to the payment terms”—adequately signals to users that they would be agreeing to Klarna’s Terms through their conduct (i.e., by clicking “Confirm and continue”).

That said, the court also offered its views on how Klarna could have improved upon its notice:

  • More readily identifiable hyperlinks.  The court noted that blue font is arguably a better signal to consumers that text contains a hyperlink, as opposed to the black font used by Klarna.
  • Clearer instructions.  The court noted that Klarna’s instruction could have more clearly indicated that the consumer would be agreeing to its Services Terms, and it offered the following suggested language: “By selecting ‘Confirm and continue,’ I agree to the terms set forth under this hyperlink: payments terms.”

Importantly, though, the court confirmed that there are “no particular features that must be present to satisfy the reasonably conspicuous standard.”  Under the circumstances of this case, the court held that reasonable internet users would understand that selecting “Confirm and continue” on the Klarna Widget would constitute their confirmation that they “agree to the payment terms” and thus the arbitration agreement.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Alyssa McGraw Alyssa McGraw

Alyssa Vallar is an associate in the firm’s Washington, DC office and a member of the Litigation and Investigations Practice Group. Prior to joining the firm, Alyssa clerked for the Hon. Gerald Bard Tjoflat on the U.S. Court of Appeals for the Eleventh…

Alyssa Vallar is an associate in the firm’s Washington, DC office and a member of the Litigation and Investigations Practice Group. Prior to joining the firm, Alyssa clerked for the Hon. Gerald Bard Tjoflat on the U.S. Court of Appeals for the Eleventh Circuit.

Photo of Andrew Soukup Andrew Soukup

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which…

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which were defeated through dispositive pre-trial motions.
Andrew is co-chair of the firm’s Class Action Litigation practice group.

Andrew has helped his clients achieve successful outcomes at all stages of litigation, including through trial and appeal. He has helped his clients prevail in litigation against putative class representatives, government agencies, and commercial entities. Representative victories include:

  • Delivered wins in multiple nationwide class actions on behalf of large financial companies related to fees, disclosures, and other banking practices, including the successful defense of numerous lenders accused of violating the Paycheck Protection Program’s implementing laws, which contributed to Covington’s recent recognition as a “Class Action Group Of The Year.”
  • Successfully defending several of the nation’s leading financial institutions in a wide variety of litigation and arbitration proceedings involving alleged violations of RICO, FCRA, TILA, TCPA, FCBA, ECOA, EFTA, FACTA, and state consumer protection and unfair and deceptive acts or practices statutes, as well as claims involving breach of contract, fraud, unjust enrichment, and other torts.
  • Successfully defended several of the nation’s leading companies and brands from claims that they deceptively marketed their products, including claims brought under state consumer protection and unfair deceptive acts or practices statutes.
  • Obtained favorable outcomes for numerous clients in commercial disputes raising contract, fraud, and other business tort claims.

Because many of Andrew’s clients are subject to extensive federal regulation and oversight, Andrew has significant experience successfully invoking federal preemption to defeat litigation.

Andrew also advises clients on their arbitration agreements. He has successfully helped numerous clients avoid multi-district class-action litigation by successfully enforcing the institutions’ arbitration agreements.

Clients praise Andrew for his personal attention to their matters, his responsiveness, and his creative strategies. Based on his “big wins in his class action practice,” Law360 named Mr. Soukup a “Class Action Rising Star.

Prior to practicing law, Andrew worked as a journalist.