The US Second Circuit Court of Appeals last week added an instructive new chapter to the ongoing tug-of-war, in Congress and the courts, over the use of arbitration clauses by consumer products companies avoid liability to consumers. (Hines v. Overstock.com, Inc., 2010 U.S. App. LEXIS 11265 (2d Cir. June 3, 2010)).
Overstock.com is a well-known internet discount home furnishings merchant. Plaintiffs alleged that Overstock had sold them a vacuum cleaner, as new, which was in fact “refurbished,” and that when they returned the item they were charged a $30 restocking fee even though Overstock had given assurances they could return the item for a full refund. They brought suit in US District Court in New York, seeking to proceed on behalf of a class. Overstock petitioned under Section 4 of the Federal Arbitration Act to compel the named plaintiffs to arbitrate under AAA Rules in Salt Lake City, Utah, as provided in an arbitration clause in Overstock’s Terms and Conditions of Use for its website.
Overstock’s website included its “Terms and Conditions of Use,” according to the evidence accepted by the District Court, only on a link to be found if the consumer scrolled down to the bottom of a web page that was not necessary to read in full to effectuate an online purchase. In addition, only by scrolling to the end of the Terms and Conditions would the consumer see the notice advising that by using the Overstock.com website, the consumer was deemed to have agreed to arbitrate all disputes concerning the use of the site.
The District Court granted summary judgment denying Overstock’s petiition to compel arbitration, and here the Second Circuit affirmed. Overstock cited the language in FAA Section 4 directing the district courts to proceed to try the issue of whether an agreement to arbitrate was made, when that matter is put in issue, as it was here. But Plaintiffs argued, and the Second Circuit agreed, that no trial on the issue of the making of the agreement to arbitrate is required, and summary judgment denying the motion is proper, unless the moving party shows at least prima facie the existence of such an agreement. Here, the Court held, there was insufficient evidence of even constructive knowledge of the agreement to arbitrate, where there was nothing directing the consumer to find, much less to read the arbitration clause, and nothing requiring the consumer specifically to express agreement with the arbitration clause or, for that matter, the terms and conditions more generally.