A recent ruling by the U.S. Court of Appeals for the Seventh Circuit affirming a decision compelling arbitration provides a “how to” guideline for using online terms and conditions to form a binding agreement.
In Domer v. Menard, Inc., the plaintiff filed a putative class action lawsuit alleging that the defendant manipulated its prices by failing to disclose a $1.40 pickup service fee for her online order of a can of paint. The defendant moved to compel arbitration based on an arbitration clause included in its online terms of order. The district court granted the defendant’s motion, finding that the parties had entered into an arbitration agreement and that the plaintiff’s claims fell within its scope. The plaintiff appealed, arguing that the website was “sufficiently distracting so as to divert users’ attention from the disclosure and consequences of placing an order.” The Seventh Circuit upheld the district court’s decision, agreeing that the plaintiff had agreed to arbitrate any claims against the defendant by accepting the terms of service on the website.
The decision highlights the legal framework for online contracts, distinguishing between “clickwrap” and “browsewrap” agreements. Clickwrap agreements, where users actively click to accept terms, are generally enforceable, says the court. On the other hand, browsewrap agreements, which rely on passive assent through mere use of the website, are typically not enforced unless the terms are conspicuously presented, says the court. The defendant’s terms fell somewhere in between, requiring the court to determine if the notice was reasonably conspicuous and if the plaintiff’s actions unambiguously manifested assent.
To determine whether the defendant had provided fair notice of its terms, the court considered the simplicity of the screen, the clarity of the disclosure, the size and coloring of the font, the spatial placement of the hyperlink, and the temporal relationship to the user’s action. The appellate court, providing a screenshot of the purchase page in its opinion, noted that the page was “streamlined, well-spaced, and internally consistent,” with plenty of white space and text organized into neat boxes. “The page has a consistent color and typeface, and only a few items are presented in bold type. So, those items — including the disclosure of the Terms of Order — are likely to catch a user’s attention.” The “Please note” instruction, placed alone below the billing and credit card information, explicitly told the user, “By submitting your order you accept our terms of order,” drawing the customer’s attention to the terms. Directly below the note, there were two links: “View Return Policy | Terms of Order Information.” Clicking on the “Terms of Order Information” link opened a text box with the Terms of Order containing an arbitration clause in the first paragraph. The court also found the font of the disclosure and hyperlinks were readable and distinct from the surrounding text and the disclosure was temporally connected to the required act of the user, since the disclosure was on the same page where the order would be placed. Thus, the court concluded that the website provided conspicuous terms to the user.
The court of appeals next analyzed whether the plaintiff took some action that unambiguously manifested her assent to the terms. In this case, the court found that by completing the purchase, the plaintiff accepted the terms, including the arbitration agreement. The court noted that while the plaintiff did not click an “I Accept” button, the overall presentation of the terms and the action of completing the purchase constituted sufficient assent.
The appellate court lasty concluded that since all the plaintiff’s claims arose from or related to her contract of purchase, they fell within the scope of the arbitration agreement. The decision of the district court was affirmed.
Our Take:
Given the granular review courts are undertaking of online terms and conditions to ascertain if a consumer has agreed to arbitration, this case is a “must read” for in-house and outside compliance and regulatory lawyers who draft arbitration agreements. Adhering to practices approved by the Seventh Circuit will help to insulate arbitration provisions and keep cases in the preferred arbitral forum rather than in the courts. Further, this decision serves as a good reminder of some of the “dos and don’ts” of obtaining consumer consent in electronic contracting.
