Can someone be required to arbitrate—and waive any right to proceed as a class action in arbitration—merely by using a web site?  No, according to the Ninth Circuit in Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (Aug. 18, 2014).

Barnes & Noble launched an online “firesale” of discontinued Hewlett Packard tablet computers.  Kevin Nyugen ordered two through the Barnes & Noble web site and received an e-mail confirmation of his transaction.  After Barnes & Noble realized it had sold far more of the tablets that it had available, it sent e-mails to purchasers, including Nyugen, informing them that their orders had been cancelled.  Nyugen filed suit in California under various state law theories on behalf of himself and a putative class of others whose orders were canceled.  Barnes & Noble removed the case to federal court and moved to compel arbitration and to enforce a purported class action waiver.

The Barnes & Noble web site contained a hyperlink in the lower left-hand corner of each page entitled “Terms of Use.”  If a user clicked on this hyperlink, he would learn that the terms purported to bind the user merely through use of the web site, purported to require arbitration of any disputes, and purported to waive class action procedures.  In internet lingo, this type of web-based contract is called a “browsewrap” agreement.  The other main type of internet agreement—a “clickwrap” or “click-through” agreement—requires the user to check an “I agree” box or otherwise make some sort of affirmative indication of assent to the terms.  Nyugen completed his transaction without noticing, let alone reviewing, the Barnes & Noble terms.

The Ninth Circuit held that this was not sufficient to bind Nyugen to the arbitration agreement or the class action waiver.  The court of appeals noted that courts typically enforce clickwrap agreements, and even browsewrap agreements when the user had actual notice of the terms.  The court of appeals also noted that browsewrap agreements may be enforced when the website puts a reasonably prudent user on inquiry notice of the terms.  In the case, however, it was undisputed that Nyugen did not have actual notice of the terms, and the Ninth Circuit held that the Barnes & Noble did not do enough to put users of its web site on notice of its terms.  Barnes & Noble argued that the hyperlink was on every web page, that it was reasonably conspicuous, and that it was in close proximity to the buttons users had to click to complete transactions.  All of that was insufficient for the court of appeals.  “[W]here a website makes it terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant button users must click on—without more—is insufficient to give rise to constructive notice.”

The Ninth Circuit summed up its view with this common-sense principle: “the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers.”

One of the fairly remarkable aspects of the Nyugen case is the acknowledgment of the Ninth Circuit that the outcome might have been different if Nyugen had actual notice of the terms or if Barnes & Noble had done enough to put Nyugen on inquiry notice of the terms.  In other words, Barnes & Noble could have forced Nyugen to arbitrate and could have procured a class action waiver merely by using a clickwrap agreement—or even, perhaps, by using a browsewrap agreement coupled with explicit notice that the user would be bound by the terms. 

The lesson here is that it may not take much for companies engaged in internet commerce to obtain a potentially big benefit. Obtaining a web site user’s affirmative, active consent to terms may allow companies to steer disputes into arbitration and keep out of court, while avoiding class actions.  One mouse click could make a huge difference.