Arbitration Provisions – If You Don’t Have Notice, You May Not Be Bound

James Madison said that: “In suits at common law, trial by jury in civil cases is as essential to secure the liberty of the people as any one of the pre-existent rights of nature.” The drafters of the California Constitution shared this view and expressly provided that “Trial by jury is an inviolate right and shall be secured to all . . . .”   Cal. Const., Art. 1, §16.   As a result, California courts scrutinize contracts that purport to waive the parties’ right to a jury trial. Indeed, the California Supreme Court has held that a pre-dispute agreement waiving the right to a jury trial is unenforceable in California. Grafton Partners L.P. v. Superior Court, 36 Cal.4th 944 (2005).

An important exception to the rule against pre-dispute jury trial waivers is the right to agree to arbitration. In arbitration, a private judge resolves the parties’ disputes, and there is no jury. According to the Grafton Partners Court, pre-dispute arbitration agreements are enforceable because they are expressly permitted by the California Code of Civil Procedure (§ 1280, et seq.).  However, because of the importance given to the right to trial by jury, arbitration agreements will only be enforced if parties knowingly agree to them.

Bookseller Barnes and Noble learned these principles the hard way this week when the Ninth Circuit Court of Appeals refused to enforce an arbitration agreement contained on the company’s website. Nguyen v. Barnes & Noble Inc., 2014 DJDAR 11191.   The Nguyen case involved Barnes & Noble’s efforts to liquidate its inventory of Hewlett-Packard Touchpads in 2011 by advertising them at low prices. Mr. Nguyen purchased two Touchpads through the company website and received an email confirming the transaction. But, a day later, Barnes and Noble informed him that his order could not be processed due to the high demand generated by the promotion. Mr. Nguyen then sued Barnes & Noble, asserting that the company engaged in deceptive business practices and false advertising. In response, Barnes & Noble sought to compel the case to arbitration based on an arbitration agreement in the website’s Terms of Use, which were contained in a hyperlink located at the bottom corner of the website. Mr. Nguyen opposed the motion to compel arbitration, asserting that the hyperlink did not provide him with notice of the arbitration provision.

The district court agreed with Mr. Nguyen, and the Ninth Circuit affirmed the decision. The court described the kind of Internet contract at issue as a “browsewrap” agreement in which a website’s terms and conditions are set forth via a hyperlink. Such contracts are only enforceable if users have actual or constructive knowledge of their terms. The court found that there was no evidence that Barnes & Noble’s website provided actual or constructive notice of the arbitration agreement. The mere placement of a hyperlink on a website is not noticed – especially where there is no prompting to take action or other procedures to show that the user agrees with the linked text.   In contract, enforceable “clickwrap” agreements specifically require users to manifest their assent by clicking a button on a dialog box or pop-up window.

This case provides an important reminder to always clearly set forth any arbitration provision in commercial contracts. This is one of the reasons that many real estate contracts expressly require the parties to initial arbitration provisions rather than merely checking a box. While such initialing is not required to enforce an arbitration provision, there must be evidence that the parties were aware of the provision and agreed to it.

Additionally, for separation agreements involving the division of assets and custody rights, the services of notary public Mississauga are imperative. Only through proper procedures, it can be ensured that arbitration provisions are enforced.

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