On November 10, 2014, the Ninth Circuit reversed a district court’s order dismissing and directing to arbitration a putative nationwide class action alleging Telephone Consumer Protection Act (TCPA) violations, finding that the Customer Agreement containing the arbitration clause was unenforceable for lack of mutual assent. Knutson v. Sirius XM Radio Inc., — F.3d —-, 2014 WL 5802284 (9th Cir. Nov. 10, 2014). The ability to prove an enforceable customer agreement is critical for defending class actions alleging TCPA and Fair Debt Collection Practices Act (FDCPA) violations because often (as here) the customer agreement’s arbitration clause contains a waiver of the right to arbitrate claims on a class action basis.
The Ninth Circuit held that the plaintiff who activated and used a radio service for his new car, without opening or reading the radio service’s customer agreement, was not bound by the agreement or its arbitration clause because the plaintiff only assented to the car purchase agreement with the car-maker, and “could not be expected to understand” he was entering into a separate contract with the radio service provider (for what he thought was a “complimentary” side service).
Although the radio service provider argued that its Customer Agreement was a valid “shrinkwrap” agreement and the Court acknowledged that “a party cannot avoid the terms of a contract by failing to read them,” the Court held that “[a]n exception to this general rule exists when the writing does not appear to be a contract and the terms are not called to the attention of the recipient.” Because the plaintiff had no “awareness of any contractual relationship with the [service provider],” as opposed to the car-maker, the Court determined the customer had no reason to open or read the service provider’s Customer Agreement that he received in the mail a month after purchasing his car.
The Court suggested that the service provider could have avoided this lack of mutual assent if the car purchase agreement (or other car purchase literature provided to the customer) had stated that “[the car-maker] has a relationship with the [radio service provider] to provide [the car-maker’s] customers with a trial service, and that therefore the [car-maker’s] customer is entering into a contractual relationship with [the radio service provider].” The Court further cautioned that even if a customer “affirmatively acknowledges” a second customer agreement such as by clicking “Yes” on a webpage, that would still be insufficient “where ‘there is no evidence that the [customer] had actual knowledge’ or that a reasonably prudent user would have been on inquiry notice that [another customer] agreement existed.”