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April 24, 2017 Practice Points

Shrink-Wrap Arbitration Clauses Must Be Conspicuously Displayed: Ninth Circuit

The court ruled that receipt of a warranty brochure accompanying a device does not mean a contract has been formed.

By Adam E. Polk

On January 19, 2017, in Norcia v. Samsung Telecommunications Am., LLC, 845 F.3d 1279 (9th Cir. 2017), the Ninth Circuit held that no agreement to arbitrate had been formed when Samsung placed a warranty brochure containing an arbitration clause within a product box, but neither the box nor the cover of the brochure prominently disclosed the clause.

A customer filed a class action complaint against Samsung, asserting that Samsung made certain misrepresentations regarding its Galaxy S4 phone. Samsung moved to compel arbitration based on an arbitration clause contained in a 101-page warranty brochure that came in the phone’s box.  The district court denied Samsung’s motion to compel, holding that even though the customer was deemed to have received the brochure, mere receipt does not form an agreement to arbitrate all claims. The customer appealed.

Applying basic principles of contract law, the Ninth Circuit affirmed, holding that “no contract is formed ‘when the writing does not appear to be a contract and the terms are not called to the attention of the recipient.’” The court explained that “Samsung has not pointed to any principle of California law that imposed a duty on [plaintiff] to act in response to receiving the Product Safety & Warranty Information brochure,” and that “the outside of the Galaxy S4 box did not notify the consumer that opening the box would be considered agreement to the terms set forth in the brochure.”

In a companion case also involving Samsung, the Ninth Circuit applied the same reasoning to reverse an order compelling arbitration. Dang v. Samsung Elecs. Co., Ltd., No. 15-16768, — F. App’x —, 2017 WL 218896 (9th Cir. Jan. 19, 2017).

Adam E. Polk is a partner with Girard Gibbs LLP in San Francisco, California.

Adam E. Polk – April 24, 2017