After-the-Fact Email Notification of Online Contract Terms Insufficient

Trilegiant Corp. markets and sells online membership fee programs offering discounts on goods and services.  Brian Schnabel became enrolled in Great Fun, one of Trilegiant’s services, when he made a purchase through, an online travel site.  Edward Schnabel, Brian’s father, became enrolled in Great Fun when he made a purchase through, a sports memorabilia site.  Both Brian and Edward discovered that their credit cards were being billed a monthly fee from Great Fun.  They sought refunds from Trilegiant for every month that they were charged for Great Fun, a service which neither used.  When Trilegiant failed to issue full refunds, Brian and Edward brought suit against Trilegiant on behalf of a class of themselves and similarly situated plaintiffs.

Trilegiant moved to compel arbitration under the Federal Arbitration Act (FAA), asserting that Brian and Edward agreed to an arbitration provision.  The district court denied Trilegiant’s motion.  The Second Circuit Court of Appeals affirmed.  The Second Circuit ruled that Brian and Edward did not assent to an arbitration provision in an email Trilegiant sent to them after they enrolled in the Great Fun program.

The FAA (9 USC §1 et seq.) was enacted in 1925 to promote arbitration and to allow litigants to enforce arbitration clauses when that is what they agreed to.  However, the parties will not be required to arbitrate unless they have agreed to do so.  In this case, Brian and Edward argued that they did not agree to the arbitration clause asserted by Trilegiant.  State contract law determines whether the parties have agreed to arbitrate.

Brian and Edward disputed that they agreed to become members of the Great Fun program.  The Second Circuit accepted for the purpose of the appeal that they did agree to become members.  This case could have involved a complicated choice of law discussion, as Brian and Edward are California residents and Trilegiant’s principal place of business is Connecticut.  The Second Circuit did not address the choice of law issue, but instead examined whether the parties mutually assented to the arbitration term asserted by Trilegiant.  Mutual assent is required under contract law for both California and Connecticut.  In particular, the Second Circuit analyzed whether Brian and Edward assented to the arbitration clause.

Conduct does not manifest assent unless the actor intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.

(Opinion pdf page 18).

Brian and Edward became members of Great Fun when they made online purchases.  At the completion of the online purchase, a link appeared offering “cash back” on the purchase.  By clicking on that link and providing some addition information, Brian and Edward became enrolled in Great Fun.  They were not required to re-enter their credit card information.  They both failed to cancel their Great Fun memberships before the end of the one month free trial period.

The Great Fun enrollment page did not plainly indicate that it was from a third party.  Some of the general terms of the agreement appeared in a two paragraph description of the service, but the arbitration clause did not.  The enrollment page included links to “Terms & Conditions” and a “Privacy Policy.”  Trilegiant also sent new enrollees an email explaining the benefits of Great Fun, which included the terms and conditions.  The arbitration clause was included in the terms and conditions.  Because Trilegiant did not, in the district court, raise the argument that the arbitration clause was available through the terms and conditions link on the enrollment page, the Second Circuit ruled that Trilegiant waived that argument on appeal.  Therefore, the only issue on appeal was whether Brian and Edward assented to the arbitration clause in the enrollment email they received from Trilegiant.

Where there is no actual notice of the term, an offeree is still bound by the provision if he or she is on inquiry notice of the term and assents to it through the conduct that a reasonable person would understand to constitute assent.  Inquiry notice is actual notice of circumstances sufficient to put a prudent man upon inquiry.  In making this determination, the clarity and conspicuousness of the term is important.

(Opinion pdf page 20).

Inquiry notice means that a reasonable person would ask questions.

The Second Circuit determined that it did not need to decide when the agreement was formed.  Whether the agreement was formed at the time of purchase and later modified or formed at the time the email was received made no difference in the court’s analysis.  The court ruled that the later-emailed terms were not accepted by either Brian or Edward.

The arbitration provision here was both temporally and spatially decoupled from the plaintiffs’ enrollment in and use of Great Fun; the term was delivered after initial enrollment and Great Fun members such as the plaintiffs would not be forced to confront the terms while enrolling in or using the service or maintaining their memberships.  In this way, the transmission of the arbitration provision lacks a critical element of shrinkwrap contracting – the connection of the terms to the goods (in this case the services) to which they apply.

(Opinion pdf page 34.)

Shrinkwrap contracting occurs when the terms of use are wrapped up with consumer goods.  The consumer has an opportunity to review and reject the contract offered by the manufacturer before using the goods.  Shrinkwrap licenses are enforceable.  Trilegiant argued that its email containing contract terms sent to Brian and Edward was analogous to a shrinkwrap license.  The Second Circuit disagreed.  “Here, Trilegiant effectively obscured the details of the terms and conditions and the passive manner in which they could be accepted.”  (Opinion pdf page 36).

The Second Circuit noted that the agreement in this case is also neither a browsewrap nor a clickwrap agreement.  Browsewrap refers to the consumer having to scroll down multiple screens before finding the terms at issue.  Browsewrap agreements are not enforceable because they do not put the consumer on inquiry notice of the agreement terms.  Clickwrap agreements require that the consumer agree to the terms of the license by clicking on an icon.  The consumer’s acceptance or rejection of the terms of a clickwrap agreement is unambiguous.  “Unlike the paradigmatic browsewrap agreement, in this case there is some indication near the button that a user must “click” in order to subscribe to the service, that the service includes additional terms and that the user assents to these terms by clicking the button.”  (Opinion pdf page 41).  This agreement differs from a clickwrap agreement because the button itself does not require the consumer to assent to the terms.

This case is Schnabel v. Trilegiant Corp., No. 11-1311, Second Circuit Court of Appeals.

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