By Michael Heller
The First U.S. Circuit Court of Appeals in Boston recently declined to enforce an arbitration clause in the Container Store’s loyalty program against blind customers. The ruling followed a trend of other circuits requiring a minimum level of notice for arbitration agreements to be binding.
In the case, Nat’l Fed’n of the Blind v. Container Store, Inc., No. 16-2112, 2018 U.S. App. LEXIS 26122 (1st Cir. Sept. 14, 2018)(available at https://bit.ly/2xVaxUY), a unanimous circuit panel that included retired U.S. Supreme Court Justice David Souter, sitting by designation, examined whether an arbitration clause in the retailer’s loyalty program agreement was binding to blind customers.
The plaintiffs alleged that the Container Store’s sign-up process wasn’t handicap accessible. The retailer’s in-store touch screen interface required the customers to announce their private account information to clerks, creating privacy concerns. The complaint alleged violations of the Americans with Disabilities Acts and under the state laws where the plaintiffs joined the loyalty program, Massachusetts, California, Texas and New York.
Three of the plaintiffs signed up for the loyalty program in-store, and one registered online. The in-store customers signed up on a touch-screen device with the aid of an employee, but there was no evidence that they were notified by that they were agreeing to waive any rights to court by signing up for the program, which included an arbitration clause.
The plaintiff who signed up on her home computer said she didn’t recall being presented with the arbitration agreement.
The court held that no valid agreement to arbitrate was formed with the in-store customers because they did not receive a “minimum level of notice,” pursuant to the Americans with Disabilities Act that they were waiving any rights to pursue future ADA claims in court. The court held that an agreement was formed with the online customer, but that it was void as illusory under Texas state law.
The Container Store contended the suit was an attack on the validity of the entire agreement, but the appeals panel agreed with the plaintiffs that the problem was that there was no valid contract formed for arbitration.
Traditionally, courts have upheld the rule that an inability to read a contract is not a defense to contract formation. But “at the same time,” the opinion noted, “a party cannot enter into a contract to arbitrate when it does not know or have reason to know the basic terms of the offer.”
The unanimous opinion authored by First Circuit Judge O. Rogeriee Thompson, and joined by Senior Circuit Judge Bruce M. Selya, as well as retired Supreme Court Associate Justice Souter, cited recent case law that has begun to carve out an exception where a party is not made aware that they are entering into an agreement in the first place.
In Noble v. Samsung Elecs. Am., Inc., 682 Fed. App’x. 113 (3d. Cir. 2017), the Third Circuit examined an agreement to arbitrate that was buried deep within a lengthy smartwatch operation manual. The court held that no agreement to arbitrate was formed because a customer cannot be deemed to have consented to a writing that does not even appear to be a contract.
In Sgouros v. TransUnion Corp., 817 F.3d 1029 (7th Cir. 2016), the Seventh Circuit held that a link to a service agreement on a credit-score website did not properly identify itself as an agreement containing an arbitration clause and therefore did not create a valid agreement to arbitrate.
In Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279 (9th Cir. 2017), the Ninth Circuit acknowledged a rule that, “an offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he was unaware, contained in a document whose contractual nature is not obvious.”
And in Nicosia v. Amazon.com Inc., 834 F.3d 220, (2d Cir. 2016), a Second Circuit panel held that where a customer was not required to manifest assent to conditions of use containing an arbitration provision, they were not bound to those terms.
These cases, the Nat’l Fed’n of the Blind opinion noted, demonstrated that courts recognize that parties cannot be bound by an agreement to arbitrate that they are not given notice of.
But the opinion noted that parties can be bound to an agreement to arbitrate that they were not made aware of in situations where it is clear that parties are entering into a contractual relationship. The court referenced obtaining a loan, employment and being admitted into a nursing home as situations where a contractual relationship could be presumed.
Companies seeking to ensure the enforceability of their arbitration clauses should take these recent developments into account. The burden imposed by these cases are seemingly minimal: only that parties are made aware that they are entering into a contractual relationship.
In addition, as this case shows, special considerations have to be taken into account for people with disabilities.
The author is a Brooklyn Law School student who is a CPR Institute Fall 2018 Intern.