Annual Update of Alternative Dispute Resolution Cases and Legislation
| Jurisdiction | California,United States |
| Author | Written by Paul J. Dubow |
| Citation | Vol. 2023 No. 1 |
| Publication year | 2023 |
Written by Paul J. Dubow*
The matters discussed below include cases issued in 2022 by California courts and federal courts that have jurisdiction over California that may be of interest to attorneys drafting contracts containing arbitration or mediation clauses.
We report these two cases together because they illustrate how and how not to create a path to an enforceable arbitration agreement when the vendor's product is purchased on the Internet.
In Berman, plaintiffs filed a class action alleging violation of the Telephone Consumer Protection Act.1 Defendants filed a motion to compel arbitration based on an agreement to arbitrate contained on their website. The link to the agreement to arbitrate was found between two other links, both of which were large and conspicuous. The upper link asked plaintiffs to provide contact information and the lower link was a "continue" button. Sandwiched in between were two lines of tiny gray font stating "I understand and agree to the Terms and Conditions which includes mandatory arbitration and Privacy Policy." The underlined words were links, but they were in the same gray font, rather than the normal blue font that alerts users to links. Plaintiffs averred that they did not realize these were links and hence never saw nor agreed to the arbitration clause. Defendants' motion to compel arbitration was denied.
Defendants appealed and the Ninth Circuit affirmed. The webpages did not provide reasonably conspicuous notice of the terms and conditions for two reasons. First, to be conspicuous in this context, a notice must be displayed in a font size and format such that the court can fairly assume that a reasonably prudent Internet user would have seen it. The text disclosing the existence of the terms and conditions on these websites was not conspicuous. It was printed in a font so small that it was barely legible to the naked eye. The comparatively larger font used in all the surrounding text naturally directed the user's attention everywhere else. And the textual notice was further deemphasized by the overall design of the webpage, in which other visual elements drew the user's attention away from the barely readable critical text. Second, while it is permissible to disclose terms and conditions through a hyperlink, the fact that a hyperlink is present must be readily apparent. Simply underscoring words or phrases, as in the webpages at issue here, will often be insufficient to alert a reasonably prudent user that a clickable link exists.
Unlike the vendor in Berman, the vendor in B.D. was able to enforce its arbitration agreement. B.D., a minor, purchased a game program from Blizzard wherein he could buy "loot boxes" that entitled him to various
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prizes. He used the program over fifty times in a two-year period. Subsequently, B.D. and his father sued Blizzard, alleging that the program was a gambling enterprise in violation of the Unfair Competition Law.2 They sought to enjoin Blizzard from continuing to market the program.
Blizzard moved to compel arbitration. The arbitration agreement was contained in a licensing agreement which popped up when B.D. clicked on Blizzard's site to purchase the program. The license agreement immediately visible in the text box displayed, inter alia, a notice that users should read the section of the license agreement "below" titled "dispute resolution" because it contained an arbitration agreement and class action waiver that affected users' legal rights. That section stated that disputes under the license agreement would be resolved in accordance with Blizzard's dispute resolution policy, to which the section connected via hyperlink. The dispute resolution policy contained a comprehensive arbitration agreement. The popup window admonished users that by clicking the "Continue" button (immediately below the admonishment) the user "acknowledge[d] that [he or she has] read and understood the [license agreement]." B.D. could not have continued to use Blizzard's service if he did not click the "Continue" button, and Blizzard's records indicated B.D. did, in fact, continue to use the service.
Notwithstanding the notice, B.D. and his father signed declarations that they did not see the arbitration agreement. The trial court denied the motion, finding that the reference to the arbitration agreement was not conspicuous. Blizzard appealed and the court of appeal reversed.
The court ruled that the popup provided sufficiently conspicuous notice. It consisted primarily of a scrollable text box that contained the entire license agreement. Blizzard made clear the significance of clicking the "Continue" button in the popup. Immediately above the button, in white text contrasting against a dark background, the popup notice stated: "By clicking 'Continue,' I acknowledge that I have read and understand the Blizzard [License Agreement] applicable to my country of residence." The portion of the license agreement immediately visible in the text box advised users in boldface to carefully read the agreement and admonished that they could not install or otherwise access the platform if they did not agree with all the terms of the agreement. This provided sufficiently conspicuous notice to users that by clicking the "Continue" button on the popup, they were agreeing to be bound by the license agreement and the license agreement clearly indicated that it contained a dispute resolution policy that included an arbitration clause. The portion of the license agreement immediately visible in the scrollable text box advised that the agreement contained a dispute resolution section. It was not in extremely small print, lacking contrast, or outside the area where the consumer's attention would necessarily be focused. And no hyperlink was required to access, the license agreement because the entire agreement was contained in the popup, and the hyperlink stood out in underlined blue text.
Comment. These decisions spell out what a vendor who sells its product on the Internet must do to enforce an arbitration agreement. In a nutshell, the links that lead to the agreement must be conspicuous. Setting the links in a color other than the other print on the page and perhaps using larger font can accomplish this. In addition, the site should contain language that the link leads to an arbitration agreement. At the end of the arbitration agreement, there should be a clickable icon stating that the reader has read and understood the arbitration agreement. However, if the site requires the user's signature, this warning should be in bold face above the signature.
The trial court denied defendant's motion to compel arbitration of plaintiff's complaint alleging violation of the Fair Employment and Housing Act (FEHA)3 on grounds of unconscionability because it reduced the statute of limitations and discovery was restricted.
Defendant appealed and the court of appeal affirmed. The court noted that shortened limitations periods in arbitration agreements are not inherently unconscionable, but they must be reasonable. A contractual period of limitation is reasonable if the plaintiff has a sufficient opportunity to investigate and file an action, the time is not so short as to work a practical abrogation of the right of action, and the action is not barred before the loss or damage can be ascertained. Three months was not enough time to investigate and file an action, or to vindicate plaintiff's rights under FEHA or his other claims, all which had the same or longer limitations periods.
With respect to discovery restrictions, the agreement stated that the arbitration would be conducted in accordance with the employment rules of the American Arbitration Association (AAA), but further stated "[t]he arbitrator shall have the authority to allow for appropriate discovery and exchange of information before a hearing, including but not limited to production of documents, information requests, depositions, and subpoenas." Although defendant
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claimed on appeal that discovery would proceed according to AAA rules, there was no mention of AAA rules in this subparagraph. Indeed, by its plain language, the subparagraph put the issue of whether to allow discovery or not entirely in the arbitrator's hands.
Comment. It is not a good idea to limit statutes of limitation in employment contracts, given that employees often charge employers with FEHA violations. This is so because employees who file complaints with the Department of Fair and Employment and Housing (DFEH) cannot file a lawsuit or arbitration demand until after the DFEH issues a right to sue letter. It takes time for the DFEH to investigate a complaint and the statute of limitations does not begin to run until after the employee receives the right to sue letter.4
With respect to the discovery issue, the defendant's error was to fail to specifically state that discovery would be conducted in accordance with the rules of the AAA.5 Indeed, there is one case where the arbitration agreement stated that the AAA would be the provider but there was no mention of discovery in the agreement, which led the court of appeal to find the agreement to be substantively unconscionable.6
Plaintiff filed a thirteen-count complaint against his former employer and one of its employees (Stewart) containing various employment and discrimination related claims. Defendants moved to compel arbitration based on an "Issue Resolution Agreement" (IRA) that plaintiff signed when he was hired. Plaintiff opposed the motion on the ground that the IRA was unconscionable, inter alia, because of its restrictions on discovery. The discovery rules...
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