Ninth Circuit Holds Hyperlink to Terms of Use Including an Arbitration Provision Provides Sufficient Notice to Compel Arbitration
The United States Court of Appeals for the Ninth Circuit recently held that plaintiffs who purchased products through defendants’ sporting goods websites were put on notice of arbitration provisions because the plaintiffs were presented with a conspicuous hyperlink to defendants’ terms of use containing those provisions.
The Ninth Circuit’s opinion in Patrick, et al. v. Running Warehouse, LLC, et al., No. 22-56087 (9th Cir. Feb. 12, 2024), reached two other noteworthy conclusions. First, it reaffirmed the principle that a unilateral modification clause in a contract, without more, does not render a separate arbitration provision “at all substantively unconscionable.” And second, for the first time in a published opinion, the Ninth Circuit held an arbitration provision’s incorporation of JAMS Rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate the threshold question of arbitrability.
A Hyperlink to the Defendants’ Terms of Use Provided Plaintiffs Sufficient Notice of the Arbitration Provision
In Patrick, six plaintiffs filed putative class actions against Running Warehouse and other e-commerce sporting goods websites over an October 2021 data breach. The defendants moved to compel each plaintiff to arbitration based on an arbitration provision in their terms of use. The district court granted each motion and dismissed the six related actions without prejudice.
The Ninth Circuit affirmed in a published opinion. Much of the Court’s opinion focused on whether the plaintiffs had sufficient notice of defendants’ arbitration provisions. The parties did not dispute that, during the checkout process on each website, defendants provided an option for consumers—like the plaintiffs—to either proceed straight to checkout or to create an account. If consumers chose to create an account during checkout, they were required check a box next to the words “Create an Account.” On each website, the statement “[b]y creating an account, you agree to our privacy policy and terms of use” appeared immediately adjacent to the account-creation checkbox. The phrase “terms of use” was a hyperlink leading to the respective defendant’s terms of use.
If the consumer chose not to create an account, they were still presented with a hyperlink to the defendants’ terms of use. To confirm an order on the websites, the consumer was required to click a final button to “Place Order” or “Submit Order.” Immediately adjacent to that final button on each website was language stating that “[b]y submitting your order you . . . agree to our privacy policy and terms of use.” Again, the phrase “terms of use” was a hyperlink to the respective defendant’s terms of use.
Each of the defendants’ terms of use contained a “Choice of Law, Arbitration, and Venue” provision.
Five of the plaintiffs in Patrick acknowledged seeing the hyperlink to the defendants’ terms of use, and thus the district court determined those plaintiffs had inquiry notice of the arbitration provisions. Because those plaintiffs did not challenge that finding on appeal, the Ninth Circuit found no error in the district court’s reasoning.
The remaining plaintiff did not acknowledge seeing the hyperlinked terms of use, but the district court nevertheless concluded the websites provided sufficient information to put him on inquiry notice of the arbitration provision. The Ninth Circuit agreed:
Here, Running Warehouse includes explicit notice on the final order review page, directly below key information such as the purchase total, and directly below the button Arcilla tapped to complete his purchase. The notice is on an uncluttered page and is not hidden or obscured. The notice is clear and legible, and the hyperlinked phrase “terms of use” is colored bright green—contrasted against the surrounding white background and adjacent black text. Moreover, the “terms of use” hyperlink is the same color as other clickable links on the page, suggesting clearly that it is a hyperlink.
The Ninth Circuit contrasted these facts with those of Berman v. Freedom Fin. Network, LLC, 30 F.4th 849 (9th Cir. 2022), where the text disclosing the existence of terms and conditions was printed in small gray font “barely legible to the naked eye,” and thus was not sufficiently conspicuous.
A Unilateral Modification Provision in the Defendants’ Terms of Use Did Not Render a Separate Arbitration Provision “At All Substantively Unconscionable”
The Patrick plaintiffs next claimed that a unilateral modification clause in the defendants’ terms of use—that is, a clause allowing the defendants to modify their terms of use with or without notice to consumers—rendered the arbitration provisions substantively unconscionable. But the Ninth Circuit rejected this argument, emphasizing that the arbitration provision is separate from the terms of use, and Supreme Court and Ninth Circuit precedent dictates that challenges to the unconscionability of other provisions in a contract do not prevent enforcement of a separate agreement to arbitrate. In so doing, the Ninth Circuit reinforced Tompkins v. 23andMe, Inc., 840 F.3d 1016 (9th Cir. 2016), which held that the presence of a unilateral modification provision, without more, does not render a separate arbitration clause at all substantively unconscionable.
Incorporation of JAMS Rules in an Arbitration Provision Delegates the Threshold Question of Arbitrability to the Arbitrator
The Ninth Circuit last broke new ground by concluding that defendants’ arbitration provisions, by expressly incorporating JAMS Rules, delegated the issue of arbitrability to the arbitrator. This represents an extension of the Ninth Circuit’s decisions in Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069 (9th Cir. 2013), and Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015), which held that incorporation of the AAA Rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.
Notably, the court declined to decide whether the plaintiffs’ contention that they were unsophisticated parties required a different result—an unresolved question in the Ninth Circuit. Because the plaintiffs offered no evidence of their sophistication in the district court, the panel concluded it need not resolve this issue.
Key Takeaways
The Ninth Circuit’s Patrick decision offers a few insights for parties hoping to enforce arbitration provisions. First, the presence of a hyperlink to terms of use containing an arbitration provision may alone be enough to provide sufficient notice of an arbitration provision, but defendants should ensure those hyperlinks are conspicuous—for example, displayed on an uncluttered page, displayed in the same color as other clickable links on the page, displayed in a contrasting color from body text, and displayed in the same font and at least the same size as other text on the page. Second, when moving to compel arbitration, parties should be aware that the presence of a unilateral modification provision in the terms of use does not render a separate arbitration provision at all substantively unconscionable. A unilateral modification provision in the arbitration provision itself, however, would likely be viewed differently by courts. And third, incorporation of either AAA Rules or JAMS Rules is now enough in the Ninth Circuit to expressly delegate the threshold issue of arbitrability to the arbitrator.