The U.S. Court of Appeals for the Seventh Circuit recently held that, under Illinois law, a website must provide a user reasonable notice that use of the website and a click on a button constitutes assent to the terms of an agreement, in order for the agreement to be binding.

In so ruling, the Seventh Circuit adopted a two-part “reasonable communicativeness” test for the enforceability of online agreements: (1) whether the web pages presented to the customer adequately communicated all of the terms and conditions of the agreement; and (2) whether the circumstances support the reasonable assumption that the customer received reasonable notice of the terms.

A copy of the opinion is available at:  Link to Opinion.

A customer purchased a “credit score” package from a credit reporting agency’s (CRA) website.  When the customer went to purchase a car with the credit score he obtained from the CRA, he discovered that the score he obtained from the CRA was 100 points lower than the score obtained by the car dealership.

The customer filed suit under the federal Fair Credit Reporting Act, 15 U.S.C. §1681g(f)(7)(A), the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, et seq., and the Missouri Merchandising Practices Act, MO. REV. STAT. § 407.010.

The customer alleged that the CRA supposedly misled customers by failing to disclose that the formula it used to calculate credit scores was materially different from the formula used by lenders.  The CRA filed a motion to compel arbitration based on the arbitration agreement on the website that the customer used to purchase the credit score package.  The district court denied the CRA’s motion and held that a binding contract had not been formed.  The CRA appealed.

On appeal, the Seventh Circuit determined that it had jurisdiction to hear the suit under the Federal Arbitration Act, 9 U.S.C. § 16(a)(1)(B).  The Court noted that because arbitration is a creature of contract, the issue presented was whether an arbitration agreement existed.

The Court first examined the layout of the CRA’s website and the transaction at issue.   The customer had to complete three steps to obtain his “free credit score & $1 credit report.”  The first step required the customer to provide identifying information and select “Yes” or “No” prompts regarding tips and news about the service and special offers.  Upon clicking the submit button, the customer was brought to the second step.  Step 2 required the customer to create an account user name and password and submit his credit card information.

A service agreement was located at the bottom of the screen for the second step in a scrollable window. To view the service agreement, the customer had to click on the box and scroll down, though there was no requirement to do so.  The service agreement contained a hyperlink to a “printable version.”  The arbitration agreement at issue was located on the eighth page of the 10-page “printable version” of the service agreement.

Above a button stating “I Accept & Continue to Step 3” and beneath the scrollable service agreement window was a statement that read:

You understand that by clicking on the ‘I Accept & Continue to Step 3’ button below, you are providing ‘written instructions’ to TransUnion Interactive, Inc. authorizing TransUnion Interactive, Inc. to obtain information from your personal credit profile from Experian, Equifax and/or TransUnion. You authorize TransUnion Interactive, Inc. to obtain such information solely to confirm your identity and display your credit data to you.

The CRA claimed that the customer consented to the arbitration agreement by clicking on the “I Accept & Continue to Step 3” button.  The Court noted that, although other jurisdictions have found express consent and a binding agreement in similar circumstances, it was instead required to apply Illinois contract principles in its analysis.

The Seventh Circuit explained that Illinois uses an objective approach to evaluate the mutual assent required to form a contract.  Under Illinois law, the intent to manifest assent can be revealed by outward expressions such as words or acts.  Parties must have mutual assent as to the terms, but need not share the same subjective understanding of the terms.

The Court adopted a two-part “reasonable communicativeness” test originally developed to evaluate contracts involving cruise ship tickets.  The questions posed are: (1) whether the web pages presented to the customer adequately communicated all of the terms and conditions of the agreement; and (2) whether the circumstances support the reasonable assumption that the customer received reasonable notice of the terms.

Applying this “reasonable communicativeness” test, the Seventh Circuit found that the CRA’s website did not properly disclose the arbitration agreement to the customer.   The Court noted that the CRA’s website did not indicate that the purchase was subject to any terms and conditions, and the “service agreement” said nothing about what it governed.   In addition, the Court noted that the hyperlink only stated “printable version” and did not have any prompt to read the terms of the service agreement.

The Seventh Circuit also found that the words above the “I Accept & Continue to Step 3” button appeared to distract from the service agreement.

Thus, the Court held that Illinois law requires a website to provide a user reasonable notice that his use of the site and click on a button constitutes assent to an agreement.  More specifically, the Seventh Circuit held, a website must position a box or hyperlink containing an agreement unambiguously next to an “I Accept” button.

Therefore, the Court found that there was not mutual assent to the arbitration agreement.  Accordingly, the Seventh Circuit affirmed the district court’s denial of the agency’s motion to compel arbitration and remanded for further proceedings.