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Financial Services Law Insights and Observations


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  • District Court orders evidence showing customer agreed to arbitration clause in clickwrap agreement


    On April 15, the U.S. District Court for the Northern District of California ordered a defendant “teledentristry” practice to file a declaration evidencing a clickwrap agreement that shows that the plaintiff assented to an arbitration agreement in an addendum to a retail installment contract. The plaintiff filed a putative class action claiming the defendant failed to comply with consumer protection licensing requirements and made misleading and false representations to consumers about the scope of its services and the provided dental care. The defendant moved to compel arbitration, stating that when customers create an account on the defendant’s website, they are required to affirmatively check a clickwrap checkbox to provide informed consent and must agree to the defendant’s terms and conditions before finalizing the registration process. The checkbox is not pre-checked, the defendant stated, and customers can view the full terms and conditions when clicking on the hyperlinks for each policy. The defendant maintained that if the plaintiff had clicked on the “Informed Consent” hyperlink, he would have been presented with the arbitration clause. The defendant also claimed that its servers log customers’ electronic assent to the terms and conditions and provided evidence purportedly showing that the plaintiff accepted the terms and conditions. The plaintiff countered that he did not assent to the arbitration agreement.

    The arbitration dispute concerns whether the plaintiff assented to the arbitration agreement, whether the agreement is valid and enforceable, and whether the agreement delegates questions of arbitrability to the arbitrator and not the court. According to the court, the defendant failed to show sufficient evidence that the plaintiff agreed to the arbitration agreement and stated it will issue a ruling once the defendant provides additional evidence showing what the plaintiff would have seen when he allegedly assented to the clickwrap agreement, as well as “the circumstances under which [plaintiff] received and allegedly assented to the addendum to the retail installment contract.” The court’s order also granted plaintiff’s motion to further amend the complaint but denied plaintiff’s motion to remand on the grounds that the Class Action Fairness Act of 2005 conferred subject-matter jurisdiction upon the court.

    Courts Arbitration Clickwrap Agreement Class Action California

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  • 9th Circuit affirms district court’s ruling in TCPA case


    On April 5, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s decision denying a defendants’ motion to compel arbitration in a putative class action under the TCPA. The defendants were a digital marketing company and a debt-relief service company. According to the opinion, the plaintiffs visited the defendants’ websites, but allegedly did not see a notice in fine print stating, “I understand and agree to the Terms & Conditions which includes mandatory arbitration.” The underlined phrases “Terms & Conditions” and “Privacy Policy” were hyperlinks, but they appeared in the same gray font as the rest of the sentence. The marketing company and one of the defendants allegedly used the consumer’s contact information to conduct a telemarketing campaign on behalf of the debt relief companies by allegedly placing unsolicited telephone calls and text messaging consumers. The plaintiffs filed a putative class action, alleging that the calls and text messages were made without their consent, and therefore violated the TCPA. The defendants moved to compel arbitration, arguing that, by clicking on the “continue” buttons, the plaintiffs had agreed to the mandatory arbitration provision hyperlinked in the terms and conditions. The district court denied the defendants’ motion, concluding “that the content and design of the webpages did not conspicuously indicate to users that, by clicking on the ‘continue’ button, they were agreeing to [the service company’s] terms and conditions.”

    On appeal, the 9th Circuit agreed with the district court, finding that the digital marketing company’s website did not contain a reasonably conspicuous notice of its terms and conditions. The 9th Circuit ruled that such notice must be expressly displayed in a font size and format where it can be deemed that a reasonable Internet visitor saw it and was aware of it. The appellate court noted that, on the websites at issue, “[t]he text disclosing the existence of the terms and conditions … is the antithesis of conspicuous,” and that “is printed in a tiny gray font considerably smaller than the font used in the surrounding website elements, and indeed in a font so small that it is barely legible to the naked eye. The comparatively larger font used in all of the surrounding text naturally directs the user's attention everywhere else.” The 9th Circuit also held that, “while it is permissible to disclose terms and conditions through a hyperlink, the fact that a hyperlink is present must be readily apparent. …[T]he design of the hyperlinks must put such a user on notice of their existence.”

    Courts Appellate Ninth Circuit TCPA Arbitration Class Action

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  • California Court of Appeal: Plaintiffs bound to arbitration in online license agreement


    On March 29, the California Court of Appeal for the Fourth Appellate District held that plaintiffs are bound to the terms of an arbitration agreement contained in a defendant video game company’s online license agreement, reversing a trial court’s finding that there was no conspicuous notice of an arbitration agreement and that a reasonably prudent user would not have had notice. According to the opinion, the plaintiff minor used “real money” to make in-game purchases of “loot boxes,” which offered players “randomized chances” to obtain desirable or helpful items. The minor and his father (collectively, “plaintiffs”) sued the defendant, alleging the sale of these loot boxes constituted unlawful gambling, and, thus, violated the California Unfair Competition Law. The defendant moved to compel arbitration based on a dispute resolution policy incorporated into various iterations of the online license agreement that users were presented when they signed up for, downloaded, and used the defendant’s service. The trial court denied the defendant’s motion for the reasons stated above, which the defendant appealed. In addition to agreeing to an end-user license agreement containing an arbitration provision when the plaintiff initially registered and downloaded the game, the defendant maintained that the plaintiff agreed to arbitration several times when the license agreement was updated.

    Reviewing whether the defendant’s various notices sent to the plaintiff minor before the purchase of the loot boxes were sufficient to compel arbitration, the Court of Appeal concluded that the pop-up presenting an updated license agreement, which was the operative agreement when the plaintiff minor purchased the loot boxes, “provided sufficiently conspicuous notice.” The court also determined that the notice of arbitration itself appeared in a scrollable text box that included a section clearly titled dispute resolution, and that by clicking the “Continue” button the user was agreeing to all the terms of the license agreement. Specifically, the Court of Appeal held that the plaintiff minor could not have continued to use the defendant’s service if he did not click the “Continue” button. “In the context of the transaction at issue, we conclude [defendant’s] pop-up notice provided sufficiently conspicuous notice of the arbitration agreement such that Plaintiffs are bound by it,” the Court of Appeal wrote.

    Courts State Issues California Arbitration Agreement

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  • Maine Supreme Judicial Court affirms denial of arbitration in online contract formation case


    Earlier this year, the Maine Supreme Judicial Court affirmed a lower court’s decision to deny a ride-sharing company’s motion to compel arbitration in case concerning the enforceability of contracts formed through a smart phone application. In agreeing with the plaintiff that the terms and conditions were not binding under the circumstances, the Court concluded that the plaintiff was not provided reasonable notice of, nor manifested her assent to, binding arbitration when she clicked “DONE” after setting up her account and entering payment information. The Court characterized the company’s rider registration process as a “sign-in wrap agreement,” in which the plaintiff was informed she was assenting to the terms by creating an account, instead of having to affirmatively signify agreement with the terms. The Court stated that while it has not yet considered the enforceability of online contracts, “other courts have held that the formation of online contracts is governed by the same principles as traditional contracts.” The Court analyzed the enforceability of a sign-in wrap agreement using the following three components: (i) “Conspicuous terms or access to terms: The more likely that the user must at least view, if not read, the terms themselves as a condition of utilizing the website or the product, the more likely that a court will hold that the terms are binding”; (ii) “Uncluttered screen: Where notice or the hyperlink to agreement terms appears on an interface that is cluttered with other features and therefore is not easily spotted, an agreement is less likely to be binding on the user”; and (iii) “Explicit manner of expressing assent: The more obvious the user’s assent to terms, the more likely the terms will be binding.”

    The Court determined that the plaintiff did not have reasonable notice because the hyperlink containing the terms was presented in muted gray coloring, was “not obviously identifiable as a hyperlink,” and the sequence in which it appeared during the registration process “render[ed] it relatively inconspicuous” and made it less likely to draw the user’s attention, particularly because the focus of the registration process was on entering payment information rather than on the terms. The Court distinguished its conclusion from a decision issued by the U.S. Court of Appeals for the Second Circuit in Meyer v. Uber Technologies Inc., et al. (covered by InfoBytes here), which the company heavily relied upon. In Meyer, the 2nd Circuit upheld contract formation on the grounds that a “reasonably prudent smartphone user” would have been on “reasonably conspicuous notice” of the terms and conditions of service and that the text beneath the registration button put the plaintiff on notice that clicking “REGISTER” meant acceptance of those terms—regardless of whether he actually reviewed them. “The interface in Meyer increased the likelihood that the terms would come to the user’s attention—the hyperlink text to the terms in Meyer was underlined and in blue, and the hyperlink itself appeared in close proximity to the “REGISTER” button,” the Court wrote.

    The Court further concluded that the plaintiff did not manifest her assent to the terms because a reasonably prudent user would conclude that by clicking “DONE” she was only entering her payment information given the heading of the window read “LINK PAYMENT.” While the court acknowledged that the hyperlink containing the terms was on the same page as the “DONE” button, the notice did not state that “By clicking DONE, you agree to the Terms.” 

    The Court concluded that the company “could have designed its rider app to incorporate scrollwrap or clickwrap contracts that provided adequate notice of [the company’s] original and updated Terms and required consumers to express actual assent” but “apparently decided not to do so.” Furthermore, the Court found that a subsequent email notifying users of updates to the terms (which also required arbitration) did not obligate the plaintiff to arbitrate her dispute because the email did not require users to read or acknowledge the updated terms to remain registered as rider.

    Courts Maine Arbitration Online Contract

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  • District Court rules apps’ terms of service hyperlinks were clear and conspicuous


    On February 23, the U.S. District Court for the Eastern District of New York ruled that parties must arbitrate class claims concerning alleged fraudulent transactions on app users’ accounts. Plaintiffs—users of the defendants’ mobile payment platform who claimed that third parties fraudulently withdrew funds from their app accounts—alleged that the defendants’ inadequate dispute resolution process “improperly places the burden on the user to prove that a disputed transaction was unauthorized” in violation of the EFTA and N.Y. Gen. Bus. Law § 349. Defendants, however, countered that the plaintiffs agreed to arbitrate any disputes related to their app accounts, and moved to compel arbitration and dismiss the complaint. The court analyzed the applicable sign-up flows and ruled that in signing up for the apps, users agreed to unambiguous terms of service, which included an arbitration agreement presented in a clickable hyperlinked URL. The court rejected plaintiffs’ assertion that a reasonably prudent smartphone user would not think to click on the terms of service hyperlink, stating that the hyperlink for both apps provided reasonably clear and conspicuous interfaces. The court further found that the claims were subject to arbitration because plaintiffs’ specifically assented to the arbitration provisions and that the parties’ agreed to present any question of arbitrability to an arbitrator.

    Courts Arbitration Class Action Consumer Finance Mobile Payments EFTA State Issues New York

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  • 6th Circuit affirms decision compelling arbitration in data breach case


    On December 2, the U.S. Court of Appeals for the Sixth Circuit affirmed a district court’s decision dismissing a nationwide putative class action against an e-commerce provider, holding that challenges raised to the validity of an agreement to arbitrate were for the arbitrator to decide, not the court. According to the opinion, the plaintiff class, including four minor individuals, filed suit after the defendant allegedly failed to protect millions of customers’ personal account information that was then obtained in a 2019 data breach. The opinion noted that the defendant’s Terms of Service contained an arbitration agreement, a delegation provision, a class action waiver, and instructions regarding how to opt-out of the arbitration agreement. The district court granted the defendant’s motion to dismiss and compel arbitration after rejecting the plaintiffs’ arguments that the arbitration clause is “invalid” and “unenforceable” as to the minor plaintiffs under the infancy doctrine.

    On appeal, the plaintiffs argued that there was an issue of fact regarding whether four of the plaintiffs had agreed to the Terms of Service, and that the defenses of infancy and unconscionability rendered the Terms of Service invalid. According to the appellate court, though “a contract exists and . . . the delegation provision itself is valid, the arbitrator must decide in the first instance whether the defenses of infancy and unconscionability allow plaintiffs to avoid arbitrating the merits of their claims.” The appellate court further agreed with the district court that “[i]t’s not about the merits of the case. It’s not even about whether the parties have to arbitrate the merits. Instead, it’s about who should decide whether the parties have to arbitrate the merits.”

    Courts Privacy/Cyber Risk & Data Security Class Action Arbitration Data Breach Appellate Sixth Circuit

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  • District Court says bank’s arbitration clauses apply to PPP loans


    On November 23, the U.S. District Court for the District of New Jersey granted a national bank’s motion to compel arbitration in an action concerning the bank’s alleged mishandling of Paycheck Protection Plan (PPP) loan applications. The plaintiff filed a lawsuit claiming the bank’s PPP loan disbursement process allegedly favored wealthy clients over smaller, less wealthy clients to maximize the bank’s origination fees. The plaintiff alleged that because the bank did not process applications on a “first-come, first-served” basis, the plaintiff did not receive its PPP loan in a timely manner. The bank moved to compel arbitration, “arguing that questions of arbitrability are for the arbitrator to decide in the first instance.” The plaintiff argued that the arbitration clauses in the bank’s agreements applied only to disputes regarding bank deposit accounts, and not to other financial products such as PPP loans. The court stayed the case and granted the bank’s motion to compel arbitration, noting that the bank’s deposit account agreement and online services agreement both include arbitration clauses. These clauses, the court stated, are “clear evidence” that the bank intended an arbitrator to decide questions related to scope. “Accordingly, Plaintiff must bring its claim before the arbitrator in the first instance, even if it contests the scope of arbitrability,” the court wrote.

    Courts Covid-19 SBA Arbitration CARES Act State Issues Small Business Lending

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  • District Court grants tech company’s motion to arbitrate smartphone data monitoring claims


    On November 9, the U.S. District Court for the Northern District of California issued an order granting, among other things, a global technology company defendant’s motion to compel individual arbitration in a privacy class action and dismissing the action without prejudice. As outlined in a May order issued by the court, which granted in part and denied in part defendant’s motion to dismiss plaintiff’s first amended complaint, the plaintiff alleged that the defendant failed to disclose it was (i) monitoring and collecting Android smartphone users’ sensitive personal data while users interacted with apps not owned by the defendant; or (ii) generally collecting “sensitive personal data to obtain an unfair economic advantage.” While the court dismissed the plaintiff’s California Invasion of Privacy Act claims, it allowed claims brought under the California Consumers Legal Remedies Act (which “prohibits ‘unfair methods of competition and unfair or deceptive acts or practices’”) to proceed based on the reasoning that if the defendant had disclosed these material facts, the plaintiff would have acted differently.

    The defendant moved to compel arbitration, claiming the plaintiff was using a smartphone that was bound by an arbitration provision. The plaintiff countered in both the complaint and first amended complaint, as well as in his initial disclosures, that the phone he originally purchased was never subject to an arbitration agreement. However, the court noted that account information later showed that the smartphone used by the plaintiff at the time he filed suit, as well as the smartphone he later switched to, both came with individual arbitration provisions and class waivers, subject to user opt out. The court stated that the plaintiff did not opt out of arbitration for either smartphone, and further denied the plaintiff’s motion for leave to file a second amended complaint, dismissing the action without prejudice.

    Courts Privacy/Cyber Risk & Data Security Arbitration State Issues Class Action California

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  • 8th Circuit says website terms of use are unenforceable


    On October 8, the U.S. Court of Appeals for the Eight Circuit overturned a district court’s ruling that a corporate defendant’s arbitration clause found in its website’s terms of use was unenforceable. The 8th Circuit disagreed holding that a triable issue of material fact existed as to whether the plaintiffs agreed to arbitrate.  Relying on a notation on the back of the gift cards that directed purchasers to its website where the terms of use and arbitration agreement were located, the defendant argued that the plaintiffs had agreed to arbitration. The district court disagreed explaining that plaintiffs “could not assent to it. . .unless they saw it first. For that reason, there was no ‘need’ to hold ‘a trial on the question of arbitrability.’”

    On the appeal, the 8th Circuit explained that the district court’s task was to determine if the defendant and the plaintiffs had an arbitration agreement, and, if so, what it covered; however, the district court improperly addressed the question of mutual consent, which was in dispute and “generally a factual question.” According to the 8th Circuit, where there is a material dispute of fact regarding whether there was an agreement to arbitrate, the Federal Arbitration Act requires the district court to proceed to a trial on the issue.

    Courts Class Action Arbitration Eighth Circuit Appellate

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  • District Court: Arbitration provision is severable from a voided loan contract


    On September 16, the U.S. District Court for the Southern District of Alabama granted a defendant tribal payday lender’s motion to dismiss and compel arbitration, ruling that an arbitration agreement in a loan contract is still valid even if an arbitration panel found the contracts were void. The plaintiff initiated an arbitration proceeding against the defendant alleging that payday loan contracts carrying interest rates between 200 and 830 percent were void because the defendant was not licensed under the Alabama Small Loans Act to extend such loans. An American Arbitration Association panel determined, among other things, that the defendant had waived any tribal sovereign immunity, “the transactions involved off-reservation commercial activities to which sovereign immunity does not apply,” and that the loans were entirely void because each of the loans was extended without a license. The plaintiff filed suit in state court to confirm the arbitration award and pursue a class action on the premise that the loans are usurious and should be declared void. The defendant removed the case to federal court and asked the court to dismiss the proposed class action and compel arbitration. The district court agreed with the defendant that the arbitration agreement in the voided loan contract remained binding despite the arbitrator’s earlier determination in the plaintiff’s favor. Specifically, the court disagreed with the plaintiff’s argument that the arbitrator’s determination meant that “no aspect of the contact survives,” stating that the plaintiff “overlooks a central tenet in binding precedential arbitration law: severability.” According to the court, “‘[a]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.’”

    Courts Arbitration Tribal Lending Usury Payday Lending Class Action State Issues Interest Rate

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