The Limits on “Agreements” to Arbitrate

One of things that bothers opponents of binding pre-dispute mandatory agreements in consumer contracts is that often they don't seem like agreements at all. In most cases, the arbitration clauses are buried in take-or-leave-it contracts that the consumer doesn't read (and sometimes has little opportunity to read). Arbitration opponents sometimes say that contracts of adhesion are efficient and thus good. Or perhaps some consumers know that they will be bound to whatever the hell is in the contract (even if they don't know what's in it). But it's hard to say that these contracts are consensual in the ordinary sense of that term. And, yet, in the arbitration context, the courts' opinions upholding ariitration contracts are full of language about the parties' "consent" and "agreement"–because the Federal Arbitration Act is supposedly built on those concepts–even when the underlying contract is of the take-it-or-leave it variety.

But last Friday the Second Circuit in Schnabel v. Trilegiant Corp. put on the brakes, at least a little bit, in the context of on-line consumer contracting. The opinion is worth reading in full, but here's a summary of the holding that gives you a flavor:

The question presented to us on this appeal is whether the plaintiffs are bound to arbitrate their dispute with the defendants as a consequence of an arbitration provision that the defendants assert was part of a contract between the parties.Neither of the plaintiffs acknowledge being aware of the existence of the arbitration provision when their contractual relationships with the defendants were formed. But, according to the defendants, the provision was made available to the plaintiffs through a hyperlink appearing on the page the plaintiffs would have seen before enrolling in a service offered by the defendants and an email sent to the plaintiffs after their enrollment. We conclude that despite some limited availability of the arbitration provision to the plaintiffs, they are not bound to arbitrate this dispute. As regards the email, under the contract law of Connecticut or California –- either of which may apply to this dispute –- the email did not provide sufficient notice to the plaintiffs of the arbitration provision, and the plaintiffs therefore could not have assented to it solely as a result of their failure to cancel their enrollment in the defendants' service. As regards the hyperlink, we conclude that the defendants forfeited the argument that the plaintiffs were on notice of the arbitration provision through the hyperlink by failing to raise it in the district court. [Read the opinion, and decide for yourself whether the hyperlink created an agreement to arbitrate.]

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