Terms of Use Not to Disclosed to Consumers, on a Website That They Never Visited, Do Not Require Them to Take Grievances to Arbitration

James v. Global Tellink Corp., 852 F.3d 262 (3d Cir. 2017).  In this putative class action, plaintiffs were inmates at New Jersey correctional facilities.  They signed up with defendants for a service that would allow plaintiffs to telephone loved ones, attorneys, and others outside of the prisons. One plaintiff signed up via defendants’ website, while the others did so through an automated telephone service that used scripts and prompts.  Those who signed up by phone were told, in the course of that process, that the service was governed by terms available at the website.  Unlike the plaintiff who subscribed on the website, the telephone subscribers were not, however, required to assent to those terms.

Among the terms on the website were an arbitration clause and a class action waiver.  When plaintiffs found defendants’ charges excessive, they filed a lawsuit under the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., and on other theories.  Defendants moved to compel arbitration.  The District Court granted that motion as to the plaintiff who had subscribed on the internet, since she had been presented with the terms and had clicked “Accept.”  The court denied the motion as to the other plaintiffs.  Defendants appealed, but the Third Circuit, applying de novo review, affirmed in an opinion by Judge Hardiman.

Judge Hardiman began from the fundamental principle that arbitration cannot be compelled unless the parties have agreed to arbitrate.  Whether an arbitration agreement exists is controlled by “ordinary state-law principles that govern the formation of contracts.”  Among those principles of New Jersey law is that mutual assent is required, and that “the parties have an understanding of the terms to which they have agreed.”

Here, “users were not required to visit the website or demonstrate acceptance of the terms of use through any affirmative act.  Nor were they notified by the automated telephone service that their use of [defendants’] service would constitute assent to the terms of use.”  Since plaintiffs had not received the terms and were not told that use of the service constituted assent to those terms, there was no mutual assent to arbitration.

The fact that the terms of service on the website stated that use of the service would signify consent to the terms of use did not save defendants.  “[T[hose terms were neither conspicuous nor readily accessible by Appellees, and we cannot say that by their actions they manifested assent to terms contained on a website they never visited.”

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