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December 1, 2016Download PDF

Internet Agreements to Arbitrate: Know the Four "Wraps"

As any lawyer practicing in the field of consumer litigation knows, arbitration clauses have become commonplace in consumer agreements. Arbitration shuts the courthouse door and effectively prevents people from pursuing class actions and vindicating their rights for small injuries. The plaintiffs’ bar has been fighting against forced arbitration for years, with limited success. The most successful attacks are where, applying traditional contract principles, plaintiffs can show that no valid agreement to arbitrate was formed.

In the age of e-commerce, where so many consumer transactions happen online, website terms and conditions are the vehicle that companies use to foist arbitration upon consumers. Whether a consumer is actually forced to arbitrate, however, depends on the facts of each case and the unique circumstances surrounding the presentation of the arbitration agreement. The fact that an internet transaction is involved does not alter traditional contract principles of mutual assent.

The relevant inquiry is: did the consumers know (or should the consumers have known) that they agreed to arbitrate their claims? Courts have answered this question in varying ways depending on the manner in which the agreement is presented, and have recognized four general fact patterns of presentation: (1) click-wrap; (2) scroll-wrap; (3) browse-wrap; and (4) sign-in-wrap. For practitioners, the more you can convince a court that your agreement is a browse-wrap or sign-in-wrap, the better off you’ll be.

So, how do you know what kind of agreement you’re dealing with? Both click-wrap and scroll-wrap agreements require the consumer to click on an “I agree” box that references the website’s terms and conditions. A scroll-wrap is slightly different than a click-wrap because the agreement actually appears in a pop-up window and requires the user to scroll to the bottom of the agreement before they click the “I agree” box (a click-wrap does not display the terms automatically but will usually hyperlink the reference to the terms). Because click-wraps and scroll-wraps require the user to acknowledge the website terms (even though the consumer may not have read and understood them), courts generally find these agreements enforceable.

Browse-wrap agreements, however, are much more passive. In these cases, the consumer does not give actual assent to the terms and conditions. Rather, the terms exist somewhere on the site and the user can use the site without ever knowing that those terms exist. Courts are traditionally reluctant to enforce browse-wraps, finding that consumers could not have had reasonable notice of these terms and conditions.

Sign-in wraps are the new kid on the block, recognized only recently by the courts. As the name implies, these kinds of agreements are designed so that the user is notified of the existence of terms and conditions when signing or logging in. Courts are split on the enforceability of sign-in-wraps.

Any lawyer facing an internet-based agreement to arbitrate should become familiar with the Eastern District of New York’s ruling in Berkson v. Gogo LLC, 97 F. Supp. 3d 359 (E.D.N.Y. 2015). Berkson contains a comprehensive and useful analysis that emphasizes guiding principles used by courts in determining whether to find a valid agreement to arbitrate.

Plaintiffs’ lawyers should craft their arguments in keeping with the Berkson framework that: (1) terms of use “will not be enforced where there is no evidence that the website user had notice of the agreement”; (2) terms of use “will be enforced when a user is encouraged by the design and content of the website and the agreement's webpage to examine the terms clearly available through hyperlinkage.”; (3) “terms of use” will not be enforced where the link to a website's terms is buried at the bottom of a webpage or tucked away in obscure corners of the website where users are unlikely to see it.

In applying this analytical framework to the sign-in-wraps at issue, the Berkson court ultimately found that the design and content of the website did not make the “terms of use” readily and obviously available for various reasons. The court thus refused to bind the consumer to arbitration. Berkson is a valuable tool in the plaintiffs’ anti-arbitration arsenal, and it will be interesting to see how other courts apply its analytical framework.