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January 27, 2021 Articles

Computer Signatures and Arbitration Agreements May Not Mix

At least two aspects of this precedential decision raise questions about, among other things, a merchant’s negating the delegation clause in the contract.

By Robert E. Bartkus

On December 2, the New Jersey Appellate Division returned an arbitration case to the trial court for a plenary hearing on whether the plaintiff/customer had agreed to arbitration. Knight v. Vivint Solar Developer, LLC, __ N.J. Super. __, 2020 N.J. Super. LEXIS 240 (N.J. Super. Ct. App. Div. Dec. 2, 2020). At least two aspects of this precedential decision—which focused on severability, delegation, and whether the court or the arbitrator should decide arbitrability—raise questions about, among other things, a merchant’s negating the delegation clause in the contract. 

The Background of the Case

Knight concerned a long-term agreement to install solar panels on a home. When problems arose regarding payments withdrawn from her bank account, the home owner sued and the merchant moved to compel arbitration pursuant to the terms of their provider contract. The parties presented the law division with conflicting stories regarding the customer’s agreeing to the terms of the contract by electronic signature on the salesman’s computer. The merchant explained its standard procedure for obtaining permission to use electronic signatures, and the customer alleged that she had neither seen nor agreed to the terms. In particular, she denied having agreed to “check” a box next to a short statement by which she ostensibly agreed to be bound by the arbitration clause a few pages earlier in the contract, which notably delegated arbitrability questions to the arbitrator. The law division ordered discovery regarding contract formation and eventually ordered arbitration of the contract formation issues in light of Goffe v. Foulke Management Corp., decided earlier that year. In Goffe, the Supreme Court confirmed the principle of severability of the arbitration clause from the contract in which it was contained and found that the parties had delegated to the arbitrator the question of whether the contract was formed, unless the formation of the arbitration clause itself is disputed. This italicized issue was the focus of the “law” discussed in the case.

The appellate division in Knight reversed and remanded for a plenary hearing regarding the circumstances of the customer’s interaction with the salesman and his computer, in particular whether plaintiff checked the box authorizing arbitration. Because the checkbox required a separate action signifying consent to arbitration, the customer’s denial of having agreed to check the box meant that her signature at the end of the contract was not in and of itself sufficient evidence of mutual assent to arbitration. If the law division finds that plaintiff checked the box, then the question of the arbitration contract validity goes to the arbitrator.

The drafter of the arbitration clause, which otherwise met the requirements in New Jersey for waiver of court and jury trial rights in Atalese and statutory claims in Garfinkle, began the arbitration clause in standard fashion that, as one learns from New Jersey Supreme Court decisions in 2020, evidences the primacy of the intent to arbitrate: “(e) Arbitration of Disputes. PLEASE READ THIS PROVISION CAREFULLY. BY SIGNING BELOW, YOU ACKNOWLEDGE AND AGREE THAT, WITH LIMITED EXCEPTIONS, ANY DISPUTE BETWEEN US SHALL BE RESOLVED BY BINDING ARBITRATION.” The clause also added a proviso that it should be read in the broadest fashion to favor arbitration. Whether the overall contract was agreed to by manual or electronic signature, this likely would have been sufficient for a court to grant a motion to compel arbitration and to delegate any questions of arbitrability to the arbitrator (rather than the court as would normally be the case) as required by the delegation clause in both the rules of the chosen provider (JAMS) and the text of the clause.

So far so good. However, the end of the clause added a unique belt and suspenders condition: “NOTICE: BY CHECKING THE BOX BELOW, YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION DECIDED BY BINDING NEUTRAL ARBITRATION ….” (Emphasis added.) The addition goes on to reiterate other waivers that are triggered by checking the box above the customer’s signature at the end of the contract. The text next to the final box says, “BY CHECKING THIS BOX, YOU AGREE TO ARBITRATE AND WAIVE THE RIGHT TO A JURY TRIAL AS DESCRIBED IN SECTION 6(e), AND AGREE THIS CHECKBOX CONSTITUTES YOUR ELECTRONIC SIGNATURE.”

There are, therefore, two ways for the customer to indicate consent to arbitration: (1) by “signing below” (on the last page) and (2) by checking the box “which constitutes your electronic signature.” The appellate division might have decided that the primary clause sentence (above) and plaintiff’s signature on the last page would be sufficient to compel arbitration, and the reference to checking the box was surplusage. There was a signature on the proper line, so that might have been enough. But there was a dispute about checking the box, and the customer’s pre-printed name under the signature line was indicated to be that of the prior owner of the property—because the system automatically populated information in the salesman’s computer—which raised questions about the customer’s approval. As New Jersey lawyers know from NAACP v. Foulke Management Corp., multiple documents with different arbitration clauses, not necessarily varying in material details, can doom an overall intent to arbitrate. The drafter’s exuberance to use tech to “populate” the electronic document, based on information in a company database, did not help. This was not an insurance contract or an employment agreement sent to thousands of recipients for which such electronic wizardry might make sense. It was a single-owner contract that would last for 20 years; one could have taken the time to have the correct information included manually and with the participation of the customer.

Lessons Learned

Several lessons may be gleaned from the Knight opinion, in which violating the KISS principle meant the merchant may have lost the ability to arbitrate.

First, the merchant's affixing a computer-generated signature above a printed name of another person is not a good idea. Computer signatures are always problematic and require adherence to relevant statutes and regulations. Having your computer "self-populate" information, as happened here, almost cries out for an error.

Second, although the U.S. Supreme Court, followed by the 2019 Goffe case in the New Jersey Supreme Court, reiterate the severability of arbitration clauses from the contracts in which they may be found, allowing delegation to the arbitrator (rather than the court) to determine his or her jurisdiction, that may be circumvented where a party properly raises the formation of the arbitration clause as a separate issue. In Knight, the contract contained a computerized check box—just above the sole signature block at the end of the contract—saying that the customer agreed to arbitrate in accordance with the extensive terms set out earlier in the contract. While this may have been a belt and suspenders effort to confirm an agreement to arbitrate, the customer's denying that she checked the box raised the possibility of a separate challenge to arbitration, which otherwise might have gone to the arbitrator to decide pursuant to the delegation clause in the arbitration agreement itself. Her saying that the page she signed was blank” compounded the problem.

In the Knight case, including a second method of indicating assent to arbitration allowed the customer to avoid the general rule by which formation issues can be delegated to the arbitrator. By indicating a separate way to assent to arbitration, it avoided the severability question—the court had to decide arbitrability. The “belt-and-suspenders” reference to a check box thus defeated the drafter’s intent to arbitrate all disputes including arbitrability. The lesson: Keep it simple, understand arbitration law, and avoid potential duplication and confusion by saying it “well” the first and only time.

Third, repeating a lesson already taught by Moore v. Woman To Woman Obstetrics & Gynecology, L.L.C., always provide a copy of any agreement to the other party. In certain transactions, the customer has a statutory right to the copy; indeed, failing to provide the copy may be grounds to avoid the contract. This requirement is no less important in electronic contracts, where one can push a button to print the document, or it can be forwarded by email. We are not talking about the checkout counter at the super-market or a big-box retail/hardware outfit, but for significant transactions that may raise warranty or other issues down the road. Apple stores always provide a copy—electronic or otherwise. Others should follow suit.

There is of course a corollary to this lesson: the customer or employee should always ask for and obtain a copy of the contract, even if the merchant or employer does not automatically provide one. The statutes and case law provide extensive protections to customers (whether individual or business to business) and employees, but one can best protect oneself by personal vigilance. 

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Robert E. Bartkus is of counsel to McCusker, Anselmi, Rosen & Carvelli, P.C. in Florham Park, New Jersey.

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