Federal Court Upholds Arbitration Agreement Despite Broken Link

On August 9, 2022, the Eastern District of California held that an arbitration clause incorporated by reference in an order form was valid, even though the link to the terms of the clause did not work. Camp 1 Truckee LLC v. Daxko LLC, No. 2:21-cv-02064 (E.D. Cal. 2022).

Facts

Camp 1 Fitness (Camp 1) is a fitness facility in California. Club Automation (Automation) sells management software and is headquartered in Alabama. On June 29, 2020, Automation sent Camp 1 an order form for software management services via a document platform service. The order form was valid until June 30, and Camp 1 was advised that it would receive substantial discounts if the contract were accepted immediately. The order form contained a clause that incorporated by reference terms and conditions found on Automation’s website. Those terms were provided by a URL link that did not work. Amongst the online terms and conditions was an arbitration clause. A few months later, Camp 1 terminated the contract asserting substandard service.

Automation filed a claim for breach of contract in arbitration. Camp 1 brought suit in federal court seeking to enjoin the arbitration on the grounds that the arbitration clause was unenforceable and unconscionable. Camp 1’s argument centered around the non-working link to additional terms. Camp 1 also argued that the order form was a contract of adhesion, especially given that substantial discounts required acceptance within a 24-hour window.

Analysis

The court analyzed the arbitration agreement’s delegation clause which expressly incorporated American Arbitration Association rules, including a rule that stated the “arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the . . . validity of the arbitration agreement.” The court stated that this was a clear and unmistakable delegation of arbitrability questions to the arbitrator. As a result, the court’s role was limited to deciding whether the intertwined arbitration clause was unconscionable, and whether Automation had waived its right to arbitration.

The court rejected Camp 1’s argument that the agreement was unconscionable. It reasoned that even though the link to the arbitration terms did not work, Camp 1 could have easily searched for the arbitration agreement terms online if it had chosen to do so. Regarding the 24-hour time, the court cited emails from Camp 1 asking to be “walked through the contract” at least one day prior to claiming to have received the order form.

Finally, the court held that Automation did not waive its right to compel arbitration by consenting to the Nevada County Superior Court adjudication of the issue of arbitrability. It reasoned that consenting to having a court decide the issue of arbitrability alone did not “convey any intent on the part of Automation to litigate the merits of the arbitrable claims in court.”