Edmundson v. Klarna, Inc.

85 F.4th 695

Najah EDMUNDSON, individually and on behalf of all others similarly situated, Plaintiff-Appellee, v. KLARNA, INC., Defendant-Appellant.

Docket No. 22-557-cv

August Term 2022

United States Court of Appeals, Second Circuit

Argued: April 10, 2023

Decided: November 3, 2023

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT (Nagala, J.)

Linnet Davis-Stermitz (Matthew W.H. Wessler, on the brief), Gupta Wessler PLLC, Washington, DC, and Sophia Goren Gold, KalielGold, Berkeley, CA, for Plaintiff-Appellee.

Anton Metlitsky (Leah Godesky and Kendall Turner, on the brief), O'Melveny & Myers LLP, New York, NY and Washington, DC, for Defendant-Appellant.

Before: Leval, Chin, and Sullivan, Circuit Judges.

Chin, Circuit Judge:

Defendant-appellant Klarna, Inc. ("Klarna") provides a "buy now, pay later" service that allows shoppers to buy a product and pay for it in four equal installments over time without incurring any interest or fees. App'x at 10-11. In 2021, plaintiff-appellee Najah Edmundson paid for two online purchases using Klarna. Shortly thereafter, Klarna automatically deducted partial repayments for these purchases from Edmundson's checking account. Because her account lacked sufficient funds to cover Klarna's deductions, Edmundson incurred $70 in overdraft fees — which were assessed not by Klarna, but by the financial institution associated with her bank account.

Edmundson brought this action on behalf of herself and a class of similarly situated consumers, alleging that Klarna misrepresents and conceals the risk of bank-overdraft fees that consumers face when using its pay-over-time service and asserting claims for common-law fraud and violations of the Connecticut Unfair Trade Practice Act ("CUTPA"). Klarna moved to compel arbitration on the grounds that Edmundson was presented with and assented to its Services Terms, which include a mandatory arbitration provision, when she (1) selected Klarna as her payment method for an online purchase; (2) used a Klarna checkout "widget" to finalize this purchase; and (3) created an account and logged into Klarna's software application for smartphones (the "Klarna App"). The district court (Nagala, J.) denied Klarna's motion, concluding that at no point did Edmundson have reasonably conspicuous notice of and unambiguously manifest assent to Klarna's terms. See Edmundson v. Klarna, Inc., 642 F. Supp. 3d 256, 260 (D. Conn. 2022). The district court held that Edmundson therefore was not bound by the mandatory arbitration provision contained in Klarna's terms. Id. at 274.

For the reasons set forth below, we REVERSE the district court's order and REMAND with instructions to grant Klarna's motion to compel arbitration.

STATEMENT OF THE CASE

I. The Facts

The facts are undisputed and are summarized as follows:

Klarna is one of the largest "buy now, pay later" services, reaching 90 million active customers across 17 countries. Klarna offers "point-of-sale loans for online and in-store purchases" that allow shoppers to purchase products in four installments without incurring any interest or fees. When making a purchase from a merchant that offers Klarna's services, customers are asked at checkout whether they would rather use a traditional upfront payment method or Klarna's "Pay in 4" service. If the customer chooses to use Klarna, the customer provides her name, address, date of birth, and debit card information to Klarna, either through its checkout widget on a merchant's website or through the Klarna App. Klarna then divides the total purchase price into four equal installments. The first installment is charged to the customer at checkout. The remaining three payments are automatically deducted from the customer's checking account every two weeks until the balance is paid in full.

Edmundson is a former Klarna customer who resides in Connecticut. In support of its motion to compel arbitration, Klarna submitted a declaration from Senior Product Manager Erin Riffe, in which Riffe represented that Klarna maintains records of each customer's transaction history, and identified from those records the dates and methods by which Edmundson made purchases using Klarna and logged into the Klarna App. Attached to the declaration were screenshots of the three interfaces that Edmundson would have seen when she first used Klarna to make a purchase and when she first logged into the Klarna App.

On or about December 23, 2020, Edmundson arrived at the first interface (hereinafter, the "Pay-with-Klarna Screen") when she was choosing from six payment methods to make an online purchase on GameStop's website. See Addendum A. Because GameStop is one of Klarna's merchant partners, all consumers shopping on GameStop's website are offered the option of paying with Klarna during the online checkout process. Once Edmundson selected to pay with Klarna from a list of payment methods entitled "BUY NOW PAY LATER," the interface displayed a schedule of four interest-free payments in the amount of approximately $81 each. App'x at 23. Under the schedule, in a smaller gray font were the words: "By continuing, I accept Klarna Services terms, Privacy Policy, Pay Later in 4 terms and request electronic communication." Id. These underlined phrases — which were also bolded and in black font on a white background — were hyperlinks that, when clicked, displayed the then-current versions of Klarna's Services Terms, Privacy Policy, and "Pay Later in 4 Agreement," respectively. To continue purchasing the GameStop item with Klarna, Edmundson selected the button marked "Pay with Klarna." Addendum A.

Edmundson was thereafter prompted to enter her debit card information. See Addendum B. After she clicked the button marked "Continue," Edmundson arrived at the second interface (hereinafter, the "Klarna Widget"), where she was to finalize her purchase from GameStop. See Addendum C. From top to bottom, the Klarna Widget instructed the user to "Review your plan" and listed details about the "Payment plan," including the amount of the four equal payments, the amount "Due today," and the total cost of the transaction. The Widget then set forth the statement "I agree to the payment terms" and provided a button marked "Confirm and continue." Id. The phrase "payment terms" was underlined, bolded, and served as a hyperlink, which, when clicked, would display the same "Pay Later in 4 Agreement" that was hyperlinked on the Pay-with-Klarna Screen. Until the purchaser clicked on "Confirm and continue," she was "free to exit the Klarna widget at any time ... without incurring any fee or penalty." App'x at 24. When Edmundson clicked on "Confirm and continue," she completed her purchase of the GameStop product. Addendum C.

On or about December 27, 2020, Edmundson interacted with the third interface (hereinafter, the "App Login Screen") when she downloaded and used the Klarna App for the first time. See Addendum D. This interface presented Edmundson with the options to "Sign up," "Log in," or "Pay in-store." Id. Below those options, in white text on a black background were two disclaimers: (1) "Message and data rates may apply"; and (2) "By clicking 'Sign in' I approve Klarna's User Terms and confirm that I have read Klarna's Privacy Notice. Links in the app are sponsored." Id. The phrase "Klarna's User Terms" was a hyperlink that, if selected, displayed the same Services Terms that were hyperlinked on the Pay-with-Klarna Screen. To continue into the Klarna App from this interface, Edmundson had to select "Sign up," "even though she had already created an account with Klarna ... in connection with her December 23, 2020 [GameStop] purchase." App'x at 25. For each subsequent use of the Klarna App, Edmundson selected "Log in" on the App Login Screen.

Edmundson interacted with these three interfaces on subsequent occasions. On January 22, 2021, when completing another purchase on GameStop's website using Klarna, Edmundson again viewed the contents of the Pay-with-Klarna Screen and the Klarna Widget. And from February 4 through April 22, 2021, Edmundson viewed the App Login Screen before initiating several transactions in the Klarna App.

At all times that Edmundson used Klarna's "Pay in 4" service, Klarna's Services Terms included the following mandatory arbitration provision and prohibition on representative litigation:

You agree that any and all disputes or claims, including without limitation federal and state regulatory and statutory claims, common law claims, and those based in contract, tort, fraud, misrepresentation or any other legal theory, arising out of or relating to these Terms or the relationship between you and Klarna... shall be resolved exclusively through final and binding arbitration ... rather than in court....

....

YOU AGREE THAT EACH PARTY MAY BRING CLAIMS AGAINST THE OTHER ONLY ON AN INDIVIDUAL BASIS AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS, CONSOLIDATED OR REPRESENTATIVE ACTION[.]

App'x at 49-50. This provision was also incorporated by reference in Klarna's "Pay Later in 4 Agreement," which provided that users were, inter alia, subject to the "Mandatory Arbitration of Disputes" and included a hyperlink to the arbitration provision in Klarna's Services Terms. Id. at 28.

According to Klarna's records, Edmundson timely satisfied all her installment payments and Klarna never charged Edmundson any interest or fees. But Edmundson incurred other fees in connection with her use of Klarna's "Pay in 4" service. On March 6 and March 7, 2021, Klarna deducted $15.83 and $9.31 from Edmundson's checking account at Nutmeg State Financial Credit Union as partial repayments for Edmundson's earlier purchases with Klarna. But because Edmundson lacked sufficient funds in her checking account to satisfy these deductions, Nutmeg State Financial Credit Union assessed her two overdraft fees, amounting to a total of $70.

II. The District Court Proceedings

On June 6, 2021, Edmundson brought...