United States: Another Invalidated Clickwrap Agreement

Richard Raysman is a Partner in Holland & Knight's New York office.

The foremost case dealing with whether "wrap agreements" (e.g. clickwrap, shrinkwrap and browsewrap) are legal is almost 13 years old. See Specht v. Netscape Commc'ns Corp., 306 F.3d 17 (2d Cir. 2002). And yet, a new case confronting the same questions seems to materialize almost weekly. With some regularity, those cases invalidate the wrap agreement, even though one would think that the companies writing them would have learned from all of the precedents that discuss how to construct a valid agreement. Yet confusion seems to reign for some defendants. In the recent past, one of these defendants could conceivably argue that the presiding court simply does not have the requisite technological knowledge to understand how wrap agreements function. This argument has become less probative over time, as some variation of a wrap agreement is now ubiquitous in the world of online commerce, and therefore courts are likely familiar with them if only because of the frequency with which they arise on the docket. Another example of an invalidated wrap agreement arose recently in the case of Savetsky v. Pre-Paid Legal Services, Inc., 2015 WL 604767 (N.D. Cal. Feb 12, 2015).

Facts/Procedural Background

Michael Savetsky (Savetsky) purchased an online membership from Pre-Paid Legal Services, Inc. (LegalShield). LegalShield sells pre-paid legal service plans allowing its customers to utilize, through its website, a menu of legal services. For a monthly fee of as low as $20, LegalShield gives its members access to legal services from law firms that it contracts with separately. When a prospective customer visits LegalShield's website, he is presented with two options: "Buy Now" or "Learn More." If he chooses "Buy Now," he is given a particularized (depending on his geographic location) overview of available pre-paid legal service plans. Alongside this overview is a link to a page labeled "More Plan Details." However, visiting this page is not a prerequisite to effectuating a purchase of LegalShield's services. Rather, the "More Plan Details" page contains a "general overview" of Legal Shield's services, as well as a link to a sample version of LegalShield's membership contract (Member Contract) if the user desires to learn "more specific information." The Member Contract in force at the time Savetsky purchased his membership included a mandatory arbitration provision.

Once a customer selects his services and enters personal information, the payment screen appears. Such screen informs the customer that he will pay his membership fees by credit until such authorization is revoked in writing. In addition, the payment screen notifies him that his account will be debited each month on or about the effective date of the membership. Finally, to advance to past the payment screen, the customer must check a box adjacent to a statement that stipulates in relevant part that: "I [the customer] ... authorize LegalShield to make direct payment by charge/draft ... (This authority will remain in effect until you notify us in writing to terminate the authorization.)" After his purchase and subsequent enrollment, the Member Contract was mailed to Savetsky.
Thereafter, Savetsky filed a putative class action on behalf of purchasers of LegalShield's membership services in which he alleged that the debiting of recurring payments per the requirements in the LegalShield Member Contract violated various California consumer protection laws. LegalShield moved to compel arbitration pursuant to the Member Contract. Savetsky opposed.

Legal Analysis/Conclusions

The determinative question in the case was whether Savetsky assented to arbitrate his disputes with LegalShield. See generally United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960) ("[A] party cannot be required to submit to arbitration any dispute which he has not agreed to so submit."). Indubitably, assent is a necessary element of contract formation. Arbitration agreements are no exception, and the canon of knowing consent "applies with particular force to provisions for arbitration." See Windsor Mills, Inc. v. Collins & Aikman Corp., 25 Cal. App. 3d 987 (Cal. Ct. App. 1972).

LegalShield argued that its existing process governing the purchase of a membership, which was essentially its website design, communicated the terms of the Member Contract, or alternatively, put Savetsky on inquiry notice. The court rejected each of these arguments. First, the design allowed Savetsky to purchase a membership by clicking the "Buy Now" button, without being aware that the Member Contract exists. Put another way, Savetsky would have needed to click through two optional links to the "Plan Details" page and the page with the Member Contract itself in order to be on actual notice of the mandatory arbitration provision. Moreover, the arbitration provision was on page seven of the agreement under the inconspicuous heading "Settlement of Disputes." Such a complicated process that required a user to scroll through a number of pages of a document containing legalese could not thus put a user on actual notice.

As for inquiry notice, the court held that Savetsky was also bereft of such knowledge with respect to the contested provision of the Member Contract. The "More Plan Details" link appeared after a list of the features of the plan, and therefore a reasonable user could determine that such details are an even fuller list of the features of the plan, and not the Member Contract and/or additional terms and conditions. (emphasis in original). Therefore, even a "reasonably prudent user" would not be on any sort of notice, much less inquiry notice, of the arbitration provision in the Member Contract. The court seems to go further in indicating that the website design utilized by LegalShield is per se unable to create binding consent on the user.

On March 13, LegalShield filed an appeal with the Ninth Circuit. See Savetsky v. Pre-paid Legal Services, No. 15-15481 (9th Cir. Mar 13, 2015).

Conclusion

This case touched on all three types of wrap agreements, although the shrinkwrap argument advanced by Legal Shield, which failed, was not discussed here. The fact that the Member Contract could not be validated as any sort of wrap agreement is indicative of how poorly the website was designed. The circuitous route employed by the design in order for a user to merely read the Member Contract seems inexplicable given that the designers could have simply put the standard clickwrap "I Agree" box on the page immediately antecedent to the user payment screen.

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