On 26 July 2018, the United States District Court for the District of Columbia (‘the Court’) ruled that eBay could not compel a user of its services to arbitrate a dispute, even though the user had agreed to and was therefore bound by eBay’s User Agreement1 . That User Agreement stated that the company had a right to modify the terms, and eBay had later modified those terms to include an arbitration clause for the purposes of dispute resolution. Specifically, the Court held that eBay’s act of posting the updated terms did not constitute sufcient notice, and that the company had not presented proof sufcient to show that it had notified the user via email. Although the result is troubling for many companies who approach changes to website terms in the same manner that eBay did, the decision does provide some hints for what companies can do to provide support for arguments that their changes are enforceable. Gonzalo Mon and Geofrey Castello, of Kelley Drye & Warren LLP, dissect the case and comment on the lessons learned.
Background
On 9 July 2015, Patrick Daniel purchased what he thought was an authentic Audemars Piguet Royal Ofshore Watch from Jack Ly via eBay’s online marketplace, thinking that the watch was worth $75,000. On 14 July 2015, Daniel learned that the watch was counterfeit, not ‘authentic,’ as marketed, and thus worth less than what he thought. Shortly afterwards, Daniel contacted Ly and arranged a meeting to return the watch. Ly never showed up to the meeting. Daniel then notified eBay, but the company allegedly refused to refund his money or to provide Ly’s contact information. In August 2015, Daniel sued eBay for breach of contract, fraud, and unjust enrichment, among several other charges.
eBay argued that Daniel is required to arbitrate his claims against the company pursuant to its User Agreement. When Daniel registered as an eBay user in 1999, he was required to accept the User Agreement by clicking ‘I accept’ on an online form. Notably, eBay’s User Agreement in 1999 did not include an arbitration clause. However, like many other companies, eBay included a standard clause stating that the company could ‘amend this Agreement at any time by posting the amended terms on our site.
Pursuant to that provision, eBay amended its User Agreement in 2012 to include an arbitration clause. That clause stated that users and eBay agree that ‘any and all disputes or claims that have arisen or may arise between you and eBay shall be resolved exclusively through final and binding arbitration, rather than in court.’ The User Agreement allowed users to ‘opt out’ of the arbitration provision by mailing eBay a written opt-out notice within a certain amount of time. Daniel did not take advantage of his right to ‘opt out.’
In June 2015, eBay amended its User Agreement again, and that version was in efect at the time Daniel purchased the watch from Ly a month later. The 2015 User Agreement contained an arbitration provision that is nearly identical to the 2012 version:
‘You and eBay each agree that any and all disputes or claims that have arisen or may arise between you and eBay relating in any way to or arising out of this or previous versions of the User Agreement, your use of or access to eBay’s Services shall be resolved exclusively through final and binding arbitration, rather than in court [...] The Federal Arbitration Act [1926] governs the interpretation and enforcement of this Agreement to Arbitrate.’
eBay sent an email to registered users notifying them about the change to the User Agreement. Daniel, however, claimed that he neither received the 2012 email notification nor the 2015 email notification.
Magistrate report and recommendation
Based on the User Agreement, eBay filed a motion to compel arbitration. The company argued that in 1999, Daniel afrmatively agreed to the User Agreement that allowed eBay to ‘amend this Agreement at any time by posting the amended terms on our site.’ When eBay modified the terms in 2012, not only did the company post the amended terms on its site, it also notified registered users and gave them a chance to opt-out. Because Daniel did not do that, eBay argued that he agreed to the changes and, thus, that Daniel is required to submit his claim to arbitration.
Daniel’s primary argument in response to eBay’s motion was that he never agreed to the 2012 and 2015 arbitration clauses because he never received notification of the amended terms. eBay, he argued, “cannot ofer credible evidence of [his] intent to be bound to arbitration2.” Alternatively, Daniel argued that the arbitration agreement, if any, was unenforceable and does not encompass his claims against eBay over the watch.
The magistrate judge issued a report and recommendation recommending that the Court grant eBay’s motion to compel arbitration for three key reasons: (1) the parties entered into a valid arbitration agreement; (2) the arbitration agreement is enforceable; and (3) the arbitration clause encompasses Daniel’s claims3. Notably, the magistrate opined that by failing to opt out of the arbitration provision when eBay gave him the opportunity to do so, Daniel “manifested his assent to the terms of eBay’s User Agreement and the arbitration clause therein4 .” The magistrate did not consider whether “Daniel could consent to the later-added arbitration provisions without personal notice of the changes or whether posting the amended User Agreements on eBay’s website was sufcient notice5.”
Although the parties disagreed about which state’s law applied - eBay
