October 31, 2019 Articles

Online Arbitration: Avoiding the “Outer Limits” of Enforceability

A Ninth Circuit decision provides insights on contract principles governing online arbitration agreements.

By Erin Gleason Alvarez

Earlier this year, the Ninth Circuit Court of Appeals reviewed an online arbitration agreement for its enforceability. Ultimately, the appellate court upheld the lower court’s decision to allow for arbitration under the parties’ agreement. But the court of appeals also noted that the arbitration provision was on the “outer limits” of what is allowable.

This article reviews the standard applied by the court and provides considerations for drafting online arbitration provisions going forward. 

Background

In re Holl, No. 18-70568 (9th Cir. May 30, 2019), involved a petition to vacate the district court’s order compelling arbitration of Mr. Holl’s putative class action claim that UPS overcharged customers. Here, the plaintiff used UPS services in sending a package from California to Minnesota. In so doing, he agreed to subscribe to UPS My Choice, a free service that allows UPS customers to track and manage deliveries.

When Mr. Holl joined the UPS My Choice program, he agreed to its terms and conditions. Though Mr. Holl conceded that he checked a box indicating his assent to the UPS technology agreement and the UPS My Choice service terms, he had no memory of reading either document, though both were included via hyperlinks.

The UPS My Choice service terms hyperlink directed users to a document that incorporated several other documents by reference, including UPS Tariff/Terms and Conditions of Service. The latter document contained an arbitration provision as follows:

Claimant and UPS agree that, except for disputes that qualify for state courts of limited jurisdiction (such as small claims, justice of the peace, magistrate court, and similar courts with monetary limits on their jurisdictions over civil disputes), any controversy or claim, whether at law or equity, arising out of or related to the provision of services by UPS, regardless of the date of accrual of such dispute, shall be resolved in its entirety by individual (not class-wide nor collective) binding arbitration.

Paragraphs following this text contained additional information about arbitration and specific waivers.

Meanwhile, the UPS technology agreement did not make reference to arbitration; instead, it including a “Governing Law, Jurisdiction and Language” provision, which stated:

The exclusive jurisdiction for any claim, case, or controversy arising out of or relating to this Agreement (whether for breach of contract, tort or otherwise) shall be a federal or state court in Atlanta, Georgia, and the parties hereby consent to such exclusive jurisdiction and irrevocably waive and shall not assert any defenses based on lack of in personam jurisdiction, improper venue or inconvenient forum.

What’s more, Exhibit B to this technology agreement provided that for customers in “Middle Eastern Countries,” all disputes “arising out of or in connection with th[e] Agreement . . . shall be referred to and finally resolved by arbitration.”

Online Arbitration Agreements—Standard of Review

Mr. Holl subsequently brought a putative class action regarding the disparity between rates advertised by UPS for mailing to remote locations and the actual amount of fees incurred for this service. The plaintiff complained to the district court that his case should be permitted to proceed in court, not arbitration, because the arbitration clause was so inconspicuous that no reasonable user would be on notice of the provision.

However, the district court determined that the plaintiff and UPS had entered into a binding arbitration agreement. While the court reasoned that a party cannot be required to submit to arbitrate a dispute that he or she has not agreed to so submit, an offeree (knowing that an offer has been made but not knowing all of its terms) may be held to have accepted, by his or her conduct, whatever terms the offer contains.

The test articulated by the court as to whether the arbitration clause would be enforced was the same for an online contract as would be applied to paper agreements, in that California courts have held that both require that documents may be incorporated by reference so long as those documents are reasonably available.

In the instant case, all documents were available to Mr. Holl for online viewing—whether through a hyperlink attached to the click box or incorporated by reference. Mr. Holl chose not to read those documents, so his argument that an arbitration provision was too inconspicuous (in a document he never read) failed.

The Court of Appeals’ Determination

The court of appeals held that the district court’s order was not clearly erroneous as a matter of law, and so the extraordinary remedy of mandamus was not warranted. Because the standard for granting a writ of mandamus, an “extraordinary remedy” granted in “only exceptional circumstances,” was so high, the court refused Mr. Holl’s application.

Here, the court reasoned that Mr. Holl unequivocally assented to the My Choice service terms, which clearly incorporated the document containing the arbitration clause in question.

However, the appellate court’s ruling was not an enthusiastic endorsement of the clause drafting presented here, nor of the district court’s findings. The ruling stated: “[W]e are not left with the definite and firm conviction that the district court erred in a manner sufficient to justify mandamus.” Further, “[t]his case tests the outer limits of what constitutes a ‘reasonably conspicuous’ provision as part of the terms of usage so prevalent in the adhesion contracts of modern internet commerce.”

Conclusion

Key takeaways from this decision include the following considerations:

  • Rules applicable to paper contracts and online contracts are the same; while terms and conditions may be incorporated by reference, those provisions must be available to parties and not so inconspicuous that they cannot be readily found.
  • The court also noted that since Mr. Holl’s filing, the company had updated its arbitration provision so that it was more readily accessible to UPS My Choice offerees.
  • Here, the standard applicable to Mr. Holl’s writ of mandamus was a high one, and one the appellate court ultimately refused to allow.

Erin Gleason Alvarez is an independent arbitrator and mediator based in New York City, New York. 


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