Some district courts express skepticism over arbitration provisions in consumer online terms of use agreements. In March 2020, one such court denied a motion to compel arbitration, finding that the online terms of use at issue, which contained a mandatory arbitration provision and class action waiver, was presented in a manner too inconspicuous to give the plaintiffs constructive notice that they were agreeing to be bound by the arbitration agreement.1 A Ninth Circuit panel ultimately reversed the U.S. District Court for the Northern District of California's decision, with the majority concluding that the website provided sufficient notice of the terms of use to a reasonably prudent user.2 The Ninth Circuit recently denied a request by the plaintiff for en banc review of the decision by the full Ninth Circuit.3 In other words, the defendant prevailed in the long run, and the individual plaintiff's claims will now be decided in arbitration, thereby eliminating the potential for a class action. But it took well over a year and undoubtedly significant legal fees to reach that result. The defendant likely could have avoided litigation over the enforceability of its terms of use by using a different online presentation.
Background
Intuit owns TurboTax, an online tax-preparation service. In 2019, the plaintiffs filed a class action lawsuit against Intuit alleging that Intuit fooled a class of consumers into paying for its tax-preparation services when they were entitled to use its free filing option.
Intuit moved to compel arbitration, arguing that the plaintiffs were bound by the arbitration agreement in the Intuit Terms of Service for TurboTax Online Tax Preparation Services - Tax Year 2018 (the Terms), which Intuit argued plaintiffs agreed to every time they signed in to use Intuit's tax preparation software. The Terms were presented on the applicable sign-in page as follows:
A consumer who clicked on the "TurboTax Terms of Use" hyperlink and read the Terms would have seen a mandatory arbitration provision. This presentation is similar to that used by many internet companies and app providers.
United States District Court for the Northern District of California's Analysis
The main question that the district court grappled with was whether there was a valid agreement to arbitrate. Under California contract law, a valid agreement requires the parties' "mutual manifestation of assent" to be bound by the terms of the contract.4 Further, an offeree cannot be bound by the terms of a contract if the offeree does not know that a proposal has been made.5
Specifically, "sign-in wrap" agreements (similar to those employed by Intuit, where a sign-up screen states that acceptance of a separate agreement is required before the user can access the service) are valid and enforceable when the existence of the terms was reasonably communicated to the user.6 If the plaintiffs "were on inquiry notice of the arbitration provision by virtue of the hyperlink to the Terms on the sign-in page and manifested their assent to the agreement by clicking 'sign-in,'" then there was a valid arbitration agreement.7
The district court held that there was not a valid arbitration agreement because the plaintiffs lacked adequate notice...
