In Sgouros v. TransUnion Corp.No. 15-1371 (7th Cir. Mar. 25, 2016), the Seventh Circuit Court of Appeals declined to enforce a website’s arbitration clause because it failed to provide the site’s users with reasonable notice that an online purchase manifested assent to its terms.

Plaintiff, Gary Sgouros, tried to purchase an online credit score from Defendant, TransUnion, in an effort to negotiate a favorable loan and purchase a car. But the score that Plaintiff bought was “useless” because it was 100 points higher than the score reported to the car dealership. Plaintiff, on behalf of himself and a putative class, sued Defendant in the United States District Court for the Northern District of Illinois under various state and federal consumer protection laws, claiming that he (and others) “had been duped into paying money for a worthless number.” Defendant responded with a motion to compel arbitration, claiming that the website through which Plaintiff purchased his credit score included an arbitration agreement. The district court held that no contract, and thus no arbitration agreement, had been consummated by the parties. Defendant appealed to the Seventh Circuit Court of Appeals.

Exercising jurisdiction under section 16(a)(1)(B) of the Federal Arbitration Act, the Seventh Circuit affirmed the district court’s decision that the parties never reached an arbitration agreement. The court began with the black-letter principle that “arbitration is a creature of contract.” The court noted that internet contracts that hinge on an electronic click by the purchaser are not automatically offensive, so long as “the layout and language of the site give the user reasonable notice that a click will manifest assent to an agreement.”

Looking to the law of Illinois and other states, the Seventh Circuit explained that, in the context of internet transactions, a “reasonable communicativeness test” applies as it does in other contexts, including sales of cruise-ship tickets. That is, in evaluating the enforceability of internet contracts, including those with arbitration clauses, courts “might ask whether the web pages presented to the consumer adequately communicate all the terms and conditions of the agreement, and whether the circumstances support the assumption that the purchaser receives reasonable notice of those terms.”

The Seventh Circuit opined that this analysis was “fact-intensive,” as “we cannot presume that a person who clicks a box that appears on a computer screen has notice of all contents not only of that page but of other content that requires further action.” The court emphasized that “a person using the Internet may not realize that she is agreeing to a contract at all, whereas a reasonable person signing a physical contract will rarely be unaware of this fact.”

With this premise established, the court found that Defendant’s online “contract” failed to provide sufficient notice. In the court’s view, the Defendant’s online “agreement” contained no clear statement that Plaintiff’s purchase was subject to any terms and conditions of sale, including an arbitration agreement. Moreover, the court found that the site “actively misleads the consumer” because no reasonable person would think that hidden within a disclosure—contained below the bold text below the scroll box—was also the message that the same click constituted acceptance of the Service Agreement. As the court noted, the “text stating that a purchase was conditioned on accepting the Service Agreement fell below what was visible on the site.” As such, Defendant “cannot manufacture notice where there was none.”

Having ruled that the Defendant’s internet contract was, in fact, no contract at all due to lack of reasonable notice, the Seventh Circuit affirmed the district court’s denial of Defendant’s motion to compel arbitration. The case was thus remanded to the district court for further proceedings.

A version of this post originally appeared in the May 2016 edition of Baker & McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.