Berman v. Freedom Financial Network, ___ F.4th ___ (9th Cir., April 5, 2022, No. 20-169000) [2022 WL 1010531]

Prepared by Bennett Reichard, student at Pepperdine Caruso School of Law

Summary

This case gave the Ninth Circuit an opportunity to revisit the issue of whether websites can enforce mandatory arbitration clauses found in hyperlinked “terms and conditions” that users never read.  The Ninth Circuit affirmed a district court order  denying the defendants’ motion to compel arbitration, finding that the parties had never formed a valid arbitration agreement. 

Factual Background 

This case involves on a digital marketing company that allegedly violated the Telephone Consumer Protection Act (TCPA) by directing telemarketing campaigns at nonconsenting individuals. Defendant, Fluent Inc., provides its clients with information about consumers visiting one of its websites. These sites offer incentives such as gift cards in an effort to obtain consumer contact information for future marketing. The plaintiffs here are two individuals who visited different Fluent websites and were subsequently added to telemarketing campaigns.

One plaintiff, Stephanie Hernandez, visited a Fluent website and entered personal information on her desktop computer. Before doing this, she clicked through multiple pages of brightly colored and large graphics directing her to input her zip code. Next to the large zip code text box and green “continue” button, the website offered two lines of small grey text stating “I understand and agree to the Terms & Conditions which includes mandatory arbitration and Privacy Policy.” Both of these underlined phrases were hyperlinked but written in the same text color as the rest of the sentence. Had Hernandez clicked on the “Terms & Conditions” link, she would have seen a long agreement which included the mandatory arbitration clause.

Erica Russell, the second plaintiff, visited a different Fluent website on a mobile phone. Similarly to Hernandez, Russell entered personal information before clicking a large green button titled “Continue >>.” She clicked this in order to proceed to the next webpage where, as in Hernandez’s case, the site displayed an identical terms and conditions sentence placed between larger colorful buttons.

Once Russell and Hernandez had clicked their acceptance of the terms and conditions, Fluent began allegedly placing unsolicited text messages and phone calls to both plaintiffs as part of a debt-relief program for defendants Freedom Financial Network, LLC and Freedom Debt Relief, LLC (collectively Freedom).

Hernandez and Russell filed a putative class action against Freedom and Fluent on behalf of consumers similarly targeted with unsolicited calls or text messages. Plaintiffs allege these calls and texts were made without consent and as such violated TCPA. Defendants then moved to compel arbitration, arguing that plaintiffs’ clicking of the “continue” buttons showed agreement to the terms and conditions, which included the mandatory arbitration clause. The district court denied this motion, concluding that the webpages’ content and design “did not conspicuously indicate” acceptance of Fluent’s conditions by clicking the “continue” button.  The defendants appealed to the Ninth Circuit.

Result and Reasoning

The Ninth Circuit explained that, under the Federal Arbitration Act (FAA), the court’s duty is to determine “whether a valid arbitration agreement exists and, if so, whether the agreement encompasses the dispute at issue.” Because the plaintiffs did not contest that the terms and conditions’ arbitration provision encompassed the TCPA claims, the only issue for the court was “whether an agreement to arbitrate was validly formed.” Under the applicable law, “parties must manifest their mutual assent to the terms of the agreement. See Specht v. Netscape Communications Corp., 306 F.3d 17, 29 (2d Cir. 2002). While assent is traditionally manifested through written or spoken word, parties can additionally establish it through conduct. In the case of websites, if a user is offered contractual terms and shows conduct manifesting acceptance of those terms, “an enforceable agreement can be formed.”

Clickwrap agreements, where a website displays a contract that must be agreed to with a click by the consumer, are routinely found enforceable. Conversely, courts less often enforce browsewrap, in which users “supposedly manifests assent” by clicking to continue in the presence of a hyperlink to the terms and conditions. Courts hesitate to enforce these because “consumers are frequently left unaware that contractual terms were even offered.” See Nguyen, 763 F.3d at 1176. A contract is enforceable in this context only when: “the website provides reasonably conspicuous notice of the terms to which the consumer will be bound,” and if the consumer clicks a button or checks a box to show unambiguous assent to those terms. See Meyer, 868 F.3d at 75; Nguyen, 763 F.3d at 1173.

In order to be enforceable, a website must provide “reasonably conspicuous notice of the terms to which the consumer will be bound.” In this case, the Ninth Circuit found that Fluent did not meet this standard for two primary reasons. First, the “terms and conditions” text was “tiny gray font” and displayed much smaller than the other nearby graphics and text. As held in Nguyen, a website is required “to capture the user’s attention and secure her assent.” Nguyen, 763 F.3d at 1178. Second, if a hyperlink is used to redirect users to the terms and conditions, it must be “readily apparent.” In this case the hyperlink was exhibited in the same text color as surrounding words, not clearly distinguishing its existence to consumers. For these reasons, Fluent did not provide “reasonably conspicuous notice.”

The second requirement to bind users to a contract without their actual knowledge is through an unambiguous manifestation of assent. Fluent argued that Hernandez and Russell clicking on the “continue” button satisfies this standard. The Ninth Circuit however found that “merely clicking on a button” does not show actual agreement. Further, the court held that “even close proximity of the hyperlink” to other buttons to be clicked is “insufficient to give rise to constructive notice.” Explaining that Fluent could have easily included language specifying what exactly users were agreeing to with the clicking of “continue,” the Ninth Circuit offered suggestions for similar companies looking to create enforceable agreements.

For the preceding reasons, the Ninth Circuit affirmed the district court’s denial of defendants’ motion to compel arbitration.