Arbitration is a matter of contract. While courts enforce arbitration provisions absent extraordinary circumstances, four recent cases from different jurisdictions show that courts will not allow a proponent of arbitration to overreach by relying on a limited arbitration clause or one which is unreasonable under the circumstances.
In Sgouros v. TransUnion Corp., 817 F.3d 1029 (7th Cir. 2016), a consumer purchased a “credit score” package from TransUnion using the company’s website. After unsuccessfully using the score he bought to obtain a favorable car loan, Sgouros filed suit alleging that TransUnion violated state and federal consumer protection laws. TransUnion moved to compel arbitration, asserting that terms of sale on its website included an arbitration provision under which Sgouros was required to arbitrate his claims. The federal district court denied the motion and the Seventh Circuit affirmed.
The court’s opinion goes into great detail about the layout of the website and how the purchase transaction was completed. Sgouros first clicked on a large orange “Click Here” button on TransUnion’s homepage under the heading “Get Your Credit Score & Report.” This click routed Sgouros to a page with a heading that said “Your FREE credit score & $1 credit report are only moments away.” Sgouros was then prompted to complete a three-step process. The second step required Sgouros to create an account user name and password. Under bubbles asking whether the home and billing addresses are the same, there was a rectangular scroll window in which the words “Service Agreement” appeared at the top. When Sgouros clicked the “I Accept & Continue to Step 3” button, he was not required to first click on the scroll box to review the Service Agreement and nothing called his attention to an arbitration provision. The provision appeared on the eighth page of a ten-page service agreement, but the website did not require Sgouros to view the agreement.
Under these circumstances, the website did not give Sgouros reasonable notice that a click would be considered assent to an arbitration agreement, so no such agreement existed. The court distinguished this case from other cases involving websites designed to ensure that the consumer would see the critical language before clicking to signify an agreement. Indeed, the court determined that the TransUnion website actively misleads the consumer, in part because some of the text referring to the service agreement appeared below what was visible on the website.
For different reasons, two recent Michigan cases reversed lower court decisions finding that disputes were arbitrable.
Beck v. Park West Galleries, Inc., 499 Mich. 40, - N.W.2d - , 2016 WL 1162807 (2016) arose from a dispute between a buyer and seller of artwork as to whether some of the artwork was fraudulently represented. Some of the purchases were subject to an invoice including an arbitration clause stating that, “All disputes or claims of any kind, including but not limited to the display, promotion, auction, purchase, sale, or delivery of art, items, or appraisals shall be brought solely in non-binding arbitration and not in any court or to any jury….All decisions respecting the arbitrability of any dispute shall be decided by the arbitrator(s)…..” The plaintiffs sued in court, asserting that their entire agreements with the gallery were void because of fraud, but not that the arbitration provisions themselves were procured through fraud.
The trial court ruled that the arbitration provisions are enforceable but refused to extend the arbitration clause included in some invoices to earlier transactions which did not involve invoices or other agreements containing arbitration provisions. Adopting an unpublished decision from April 2012, involving the same defendant-gallery, the Michigan Court of Appeals reversed, finding that the very broad arbitration clause covered all claims, not just those arising under invoices which included an arbitration provision. The Michigan Supreme Court reversed, holding that the arbitration provisions did not apply to the earlier transactions. The court determined that each transaction was a separate and distinct contract, which must be treated separately. Applying traditional contract principles because arbitration is a matter of contract, the court held that the facts did not reasonably support a conclusion that the parties intended the arbitration provision to apply retroactively.
In Nexteer Automotive Corp. v. Mando America Corp., - N.W.2d - , 2016 WL 545601 (Mich. Ct. App. February 11, 2016), the Michigan Court of Appeals reversed a trial court’s order dismissing a case for arbitration after the parties stipulated that an arbitration provision was “not applicable.”
Nexteer and Mando are both steering system manufacturers. Though they are competitors, in 2013 they considered operating jointly to sell steering products. They each signed a nondisclosure agreement which included a provision stating that any conflicts would be arbitrated in Switzerland. A month after these discussions concluded, a group of high-level employees left Nexteer and went to work for Mando. The employees were subject to employment agreements which included restrictions against disclosing trade secrets but did include arbitration provisions. Nexteer filed a lawsuit in early November 2013, and later that month, the parties agreed to a case management order stating that, “[a]n agreement to arbitrate this controversy exists…” but “is not applicable.” In May 2014, after the court granted summary disposition in favor of Mando on some of Nexteer’s claims, Mando moved to compel arbitration of the remaining claims. Nexteer opposed arbitration, contending that Mando waived arbitration by agreeing to the case management order. The trial court concluded that the claims were arbitrable, and further determined that stating that arbitration was “not applicable” did not waive the provision, and that Nexteer was not significantly prejudiced by the late demand.
The court of appeals reversed, agreeing with Nexteer that agreement to the case management order was an express waiver of the arbitration provision, rather than an implied waiver which required a showing of prejudice. The case management order showed knowledge of the arbitration provision, and a clear expression of intent not to pursue arbitration. The court was not persuaded by Mando’s argument that holding parties to agreements made early in the case leads to harsh results.
These four recent cases underscore the importance of making online arbitration provisions conspicuous and affirmatively requiring consent, crafting an arbitration provision which is given attention comparable to other provisions of a contract at the time of drafting and not waiving rights under an otherwise valid arbitration provision.