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August 29, 2017 Articles

Exercise Caution When Relying on Electronic Arbitration Agreements

By Joel M. Everest

In this digital age, it is not surprising that businesses are increasingly relying on electronic communications for all manner of transactions. Businesses must exercise caution, however, when attempting to utilize electronic means to provide employees or customers with arbitration agreements. Courts across the country have taken vastly different approaches in addressing the sufficiency of electronic notice of an arbitration agreement.

Courts Finding Electronic Notice Sufficient
In Grant v. Morgan Stanley Smith Barney LLC, 2017 U.S. Dist. LEXIS 39515 (S.D. Fla. Mar. 19, 2017), the plaintiff asserted an age-discrimination claim against his brokerage firm employer. Prior to 2015, the relevant employment agreement included a mandatory arbitration program for some claims and a voluntary arbitration program for other claims. In September 2015, the employer altered the agreement to make arbitration mandatory for all claims. The employer notified its employees, including the plaintiff, of this change via email. The plaintiff argued that the new agreement was unenforceable because he never opened or read the email in question. In compelling the matter to arbitration, the court held that "plaintiff's decision not to open and read an email does not render the arbitration agreement invalid and unenforceable." Id. at *7.

Courts in jurisdictions such as Connecticut and the District of Columbia have taken an approach similar to that of the Grant court in Florida. See, e.g., Ferrie v. DirecTV, LLC, 2016 U.S. Dist. LEXIS 5081 (D. Conn. Jan. 12, 2016) (concluding that the plaintiff was on inquiry notice of an arbitration provision that was emailed to him where the only evidence offered was that the email had been sent but the plaintiff stated that he did not recall having ever seen it); Selden v. Airbnb, Inc., 2016 U.S. Dist. LEXIS 175162 (D.D.C. Dec. 19, 2016) ("Mutual arbitration provisions in electronic contracts—so long as their existence is made reasonably known to consumers—are enforceable.").

Courts Requiring Heightened Proof of Electronic Notice
On the other hand, an emerging number of courts appear to be applying greater scrutiny to the exact means of the electronic notice. Some courts have even gone as far as to require proof of actual notice for electronic agreements. In Moore-Dennis v. Franklin, 201 So. 3d 1131, 1139 (Ala. 2016), the Alabama Supreme Court established a rule that a party relying on electronic notice must demonstrate that the web page containing the arbitration provision was actually viewed by the individual it seeks to compel to arbitration. Notably, this is in direct contradiction to a long line of holdings by the same court with respect to hard-copy arbitration agreements. See, e.g., Am. Bankers Ins. Co. v. Tellis, 192 So. 3d 386 (Ala. 2015) (compelling arbitration where "the policyholders did not execute stand-alone arbitration agreements or necessarily even read or receive the [] policies containing the arbitration provisions" because they manifested their assent to those policies by continuing a business relationship with the company after the arbitration provision became effective).

Alabama is not alone in its stance. Courts in New York, California, and other states have also adopted heightened standards regarding the level of notice required to enforce electronic arbitration agreements. See, e.g., Rightnour v. Tiffany & Co., 2017 U.S. Dist. LEXIS 31398, at *12–14 (S.D.N.Y. Mar. 6, 2017) ("without evidence that [plaintiff] ever followed the link contained in [the emails referencing the arbitration agreement], continuing to work after the date that those emails were received cannot constitute the kind of 'conduct which evinces the intention of the parties to contract' contemplated under New York law"); Schnabel v. Trilegiant Corp., 697 F.3d 110 (2d Cir. 2012) (sending an e-mail containing the arbitration provision did not constitute sufficient notice); Hines v., Inc., 380 F. App'x 22, 24–25 (2d Cir. 2010) (passive acceptance of a website's terms and conditions by virtue of using the website was insufficient to compel arbitration); Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1179 (9th Cir. 2014) (applying California law and holding that provision of the agreement on the company's website was insufficient notice).

Businesses in jurisdictions such as New York, California, and Alabama should certainly consult with an attorney regarding the sufficiency of their specific notification method. For jurisdictions where no clear rule has been adopted, businesses should consider erring on the side of caution by providing hard-copy agreements where feasible. In the alternative, requiring some type of affirmative acknowledgement for electronic arbitration agreements should provide the evidence that many courts now require.

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