November 30, 2014 Practice Points

Mutual Assent to Arbitrate Not Found in Mass-Market Transaction

By D.C. Toedt III

In Knutson v. Sirius XM Radio, a class-action case, the Ninth Circuit reversed a district court's order compelling arbitration. The opinion provides an instructive discussion, with extensive review of case law, concerning the requirements for forming a binding contract in a mass-market transaction. The following is an excerpt from the summary by court personnel:

The plaintiff purchased a vehicle from Toyota that included a 90-day trial subscription to Sirius XM satellite radio. 

About a month after his trial subscription was activated, plaintiff received a “welcome kit” from Sirius XM that contained a Customer Agreement with an arbitration clause.

The panel held that Sirius XM failed to prove by a preponderance of the evidence the existence of an agreement to arbitrate. The panel held that a reasonable person in plaintiff’s position could not be expected to understand that purchasing a vehicle from Toyota would simultaneously bind him or her to any contract with Sirius XM. The panel further held that plaintiff’s continued use of the satellite radio service after his receipt of the Customer Agreement did not manifest his assent to the provisions in the Customer Agreement.

Because the arbitration clause in the Customer Agreement was unenforceable for lack of mutual assent, the panel held it need not decide whether the arbitration provision in the Customer Agreement was unconscionable.

Keywords: alternative dispute resolution, litigation, mass-market, lack of mutual assent, class action, continued use

D.C. Toedt III is an attorney at the Law Office of D.C. Toedt III in Houston, Texas.

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