By Doyice Cotten
Ten years ago, electronic waivers were the exception; now, they are the rule. A New York court recently ruled that an arbitration agreement in a Tough Mudder waiver was not enforceable (Scotti v. Tough Mudder Inc., 2019). In the discussion, the court gave an excellent update on the enforceability of electronic waivers and pointed out some “landmines” of which providers need to be aware.
Electronic Waiver Fundamentals
The court provided some fundamentals that one should know about electronic waivers.
- It is well settled that “[a] party to an agreement may not be compelled to arbitrate its dispute with another unless the evidence establishes the parties’ clear, explicit and unequivocal agreement to arbitrate.”
- When one party seeks to compel the other to arbitrate any disputes between them, the court must first determine whether the parties made a valid arbitration agreement.
- The party seeking arbitration bears the burden of establishing that an agreement to arbitrate exists.
- The court must draw all inferences in favor of the non-moving party.
The court pointed out that the existence of online contracts “has not fundamentally changed the principles of contract.” In other words, the same basic rules apply.
- Whether there is agreement to accept the terms of an online contract depends on the particular facts and circumstances.
- As with paper contracts, courts look for evidence that a website user had actual or constructive notice of the terms of the contract.
- Where the person’s alleged consent is solely online, courts seek to determine whether a reasonably prudent person would be put on notice of the provision in the contract and whether the terms of the agreement were reasonably communicated to the user. The court emphasized that “[r]easonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility.”
The court cited Berkson v Gogo LLC (2015), in identifying the four common types of online consumer contracts.
- Browsewrap exists where the online host dictates that assent is given merely by using the site. There is no “I agree” box to check and assent is not manifested. Many websites use this concept, but legally, they are on shaky ground.
- Clickwrap refers to the assent process by which a user must click “I agree,” but the user does not necessarily view the contract to which he/she is assenting – in other words, the user can click “I agree” without scrolling over the whole contract. Waivers using this concept have usually been enforced, but a recent New York case creates some concern about the method. In Applebaum v. Lyft (2017), the court departed from a recent trend of enforcing “clickwrap” agreements when an arbitration provision in Lyft’s “clickwrap” agreement was not enforced. In a later case, the agreement was enforced in a “scrollwrap” agreement.
- Scrollwrap requires users to physically scroll through an internet agreement and click on a separate “I agree” button in order to assent to the terms and conditions of the host website. In other words, the reader cannot check the “I agree” box without at least scrolling through or viewing the entire waiver. This makes it difficult for the user to argue they did not have an opportunity to read the agreement.
- Sign-in-wrap couples assent to the terms of a website with signing up for use of the site’s services. On “sign-in-wrap” sites, there is typically a hyperlink that leads to the terms and conditions. The agreement’s enforceability depends upon whether there is evidence that the user has actual or constructive notice of the site’s terms.
It has been common practice that a party may be bound to a click wrap agreement by clicking a button declaring assent, so long as 1) the party is given a “sufficient opportunity to read the . . . agreement, and 2) assents thereto after being provided with an 3) unambiguous method of accepting or declining the offer” (Serrano v Cablevision Sys. Corp., 2012).
However, Judge Koeltl in Applebaum v Lyft, Inc., (2017) asserted
- [a] court cannot presume that a person who clicks on a box that appears on a . . . screen has notice of all contents not only of that page but of other content that requires further action (scrolling, following a link, etc.) . . .
- The presentation of the online agreement matters: Whether there was notice of the existence of additional contract terms presented on a webpage depends heavily on whether the design and content of that webpage rendered the existence of terms reasonably conspicuous. . . . Clarity and conspicuousness of arbitration terms are important in securing informed assent. (Emphasis added.)
Thus Judge Silber, in Scotti v. Tough Mudder, when considering a motion to compel arbitration, stated
- a valid agreement to arbitrate exists where the notice of the arbitration provision was reasonably conspicuous, and manifestation of assent is unambiguous as a matter of law.
- the issue is whether Tough Mudder’s website registration screen put a reasonably prudent user on inquiry notice of the relevant terms of the PWCR, particularly the arbitration clause at issue.
- Insofar as it turns on the reasonableness of notice, the enforceability of a web-based agreement is clearly a fact-intensive inquiry. (Emphasis added.)
Here, plaintiffs did not have actual notice of the arbitration provision at issue. However, plaintiffs can still be bound by the contractual terms if there is inquiry notice of the terms and plaintiffs “assent[ed] to [the terms] through the conduct that a reasonable person would understand to constitute assent.” A person is on inquiry notice if a “reasonably prudent offeree would be on notice of the terms at issue.”
One Final “Landmine”
Something pointed out in the case was that both online agreements and the registration software may be revised from time to time. This complicates matters because if challenged, the provider may be required to produce not only a copy of the waiver signed, but also may need to be able to show screenshots of the registration process in use at the time of the incident that elicited the lawsuit. This may present a challenge if the registration process has been changed since the incident.
The purpose of this post was not to encourage everyone to go back to paper waivers, but simply to warn providers that there are concerns that you need to address if you use an online agreement. Put simply, if necessary, could you provide evidence to show that a client could not register for your service without seeing the waiver and checking the “I agree” box?
Photo Credit: Thanks to Tim Patterson at Flickr.