Reasonable Notice to Consumer Required for Enforcement of Arbitration Clause

Advertisement

Addressing an important contract-formation issue that has divided federal courts, the U.S. District Court for the Western District of Pennsylvania recently denied a company’s motion to compel arbitration because the consumer was not given “reasonable notice” of the arbitration clause.

The court in Jones v. Samsung Electronics America, Inc. declined to enforce the arbitration clause because it was located in the “Manufacturer’s Warranty” section of a 64-page “Important Information Booklet” contained in the phone’s sales box. None of the Booklet’s section headings referred to arbitration.

Advertisement

In Jones, the plaintiff, Brittany Jones, filed a class action against Samsung after her cell phone allegedly exploded and caught fire. Samsung moved to compel arbitration, relying in part on the U.S. Court of Appeals for the Seventh Circuit’s 1997 decision in Hill v. Gateway 2000, Inc., which enforced an arbitration clause contained in the shipping box that stated purchasers had 30 days to return the computer if they did not want to arbitrate.

According to the Seventh Circuit, “[a] contract need not be read to be effective.” Ms. Jones said she was unaware of the arbitration clause and its 30-day opt-out period at the time she bought the phone because the arbitration clause was inconspicuous and contained in a section of the Booklet dealing with warranties. She relied on the U.S. Court of Appeals for the Ninth Circuit’s 2017 decision in Norcia v. Samsung Telecommunications America, Inc., which held that Samsung’s arbitration clause was ineffective because the plaintiff did not receive adequate notice of its existence.

Advertisement

After reviewing these decisions and precedent of the U.S. Court of Appeals for the Third Circuit, the Jones court concluded that “[p]urchasers may be bound by what they have not read, but they may not be bound by what they cannot find, or what has been (negligently or by connivance) buried in the verbal underbrush.”

Advertisement

The court emphasized that the arbitration agreement was never cited in the Booklet’s section headings and was “tucked away in the section misleadingly titled ‘Manufacturer’s Warranty.'” According to the court, “[i]f Samsung had actually desired to make its customers aware of the Arbitration Agreement, it would have been simple to bring the point home more clearly.”

The Jones court found the Seventh Circuit’s Gateway decision was no longer the leading authority in this area, having been eclipsed by more recent decisions that “focus not on whether consumers had read waiver language, but on whether they received reasonable notice of the existence of the language.”

Jones illustrates that even the best-drafted arbitration clause will not be enforced if the court perceives it to have been presented in a manner that would make it unlikely consumers would actually notice it.

Advertisement
Copyright © by Ballard Spahr LLP
This article was written by Alan S. Kaplinsky and Mark J. Levin of Ballard Spahr LLP

Published by

National Law Forum

A group of in-house attorneys developed the National Law Review on-line edition to create an easy to use resource to capture legal trends and news as they first start to emerge. We were looking for a better way to organize, vet and easily retrieve all the updates that were being sent to us on a daily basis.In the process, we’ve become one of the highest volume business law websites in the U.S. Today, the National Law Review’s seasoned editors screen and classify breaking news and analysis authored by recognized legal professionals and our own journalists. There is no log in to access the database and new articles are added hourly. The National Law Review revolutionized legal publication in 1888 and this cutting-edge tradition continues today.