August 26, 2019 / 8:08 PM / 6 months ago

New Juul ruling is reminder: Companies can’t impose arbitration by stealth

(Reuters) -

On Friday, U.S. District Judge William Orrick of San Francisco ruled (2019 WL 3997459) that Juul users can move forward with most of their claims in a class action alleging that the e-cigarette maker Juul Labs deceptively advertised and marketed its products. The judge tossed plaintiffs’ claims of negligence per se, negligent marketing and breach of express warranty, but otherwise rejected arguments by Juul’s lawyers at Gibson, Dunn & Crutcher that (among other things) class representatives’ claims were preempted by Food and Drug Administration regulations or were not adequately pleaded.

Plaintiffs lawyers from Migliaccio & Rathod, Gutride Safier, Berger Montague and the Zimmerman Law Offices still have a long way to go, of course. Juul said in an email statement about Judge Orrick’s ruling that it believes the purported class claims that it misrepresented its products’ nicotine content “are based on a fundamentally inaccurate premise.” Juul noted that the judge agreed plaintiffs’ product liability claims may not be suitable for class action treatment and also said it believes the judge’s ruling substantially narrowed the case.

Juul unquestionably struck out, however, in an attempt to push some e-cigarette users out of the class. The company moved to compel individual arbitration of claims by e-cigarette consumers who registered at the Juul website. Its motion argued that when those customers – including at least five of the 42 named plaintiffs in the case – agreed to accept Juul’s terms of service, they assented to resolve any dispute with the company through binding arbitration. Judge Orrick denied the motion, holding that Juul failed to provide online customers with adequate notice of the arbitration provision.

As you know, it’s become standard operating procedure for companies to require online or mobile customers to agree to mandatory arbitration by clicking their assent to terms of service. But there’s still a roaring debate about exactly how companies can bind their customers (and employees, for that matter) to arbitration. Do customers assent to arbitration merely by visiting a website or downloading a mobile app that provides a link to service terms mandating arbitration? Or must consumers specifically acknowledge that they’ve surrendered their right to litigate?

These questions are heated enough that last spring, state AGs and consumer advocates rose up in opposition to a proposed American Law Institute restatement of the law of consumer contracts that, in their view, would have done away with the requirement that consumers assent to arbitration. Opposition to the ALI draft restatement was so vigorous that the group did not reach a vote on its proposed black-letter rules on consumer assent, postponing a final ALI restatement until next spring, at the earliest.

In the meantime, as Judge Orrick wrote in Friday’s opinion, courts have had to scrutinize websites and apps to decide whether they provide consumers with enough information to allow informed assent. Judges have come to be generally skeptical of so-called browse-wrap agreements, in which companies merely post mandatory arbitration conditions and contend that customers have consented by continuing to use their services. Click-wrap agreements – in which companies present consumers with their terms of service and specifically require assent – are generally deemed to be enforceable.

Juul’s arbitration provision fell into an in-between category known as a sign-in wrap. Beginning in February 2018, when customers registered at the company’s website, they were required to click their assent to Juul’s terms of service, which prominently mentioned mandatory arbitration. But to see those terms of service, consumers had to click on a separate link.

Juul argued that courts have held arbitration agreements to be enforceable when they’re contained in hyperlinked terms of service, citing the 2nd U.S. Circuit Court of Appeals’ 2017 decision in Meyer v. Uber (868 F.3d 66) and a 2017 decision by Judge Orrick’s colleague U.S. District Judge Richard Seeborg in Cordas v. Uber (228 F. Supp. 3d 985). Juul contended that every time consumers logged on to its website after February 2018, they were reminded that by registering with Juul, consumers had agreed to the company’s terms and conditions.

Judge Orrick, however, said that unlike Uber in the Meyer and Cordas cases, Juul did not prominently highlight the hyperlink to its terms of service. The link, he said, was basically indistinguishable from the surrounding text – no color change, underlining, capitalization or italicization signaled to consumers that they could click to read Juul’s specific terms and conditions. One of the name plaintiffs registered via a subsequent log-in iteration in which Juul underlined the hyperlink to its service terms, but Judge Orrick found even that notice to be inadequate.

Juul said in its email that the company disagrees with Judge Orrick’s decision on the enforceability of its arbitration provision and is considering an appeal of that holding.

Plaintiffs lawyer Esfand Nafisi of Migliaccio & Rathod said in an email statement that Juul had tried to “evade liability” by claiming consumers had agreed to arbitrate their claims. “We are very pleased that Judge Orrick agreed with us that Juul’s arbitration clause is unenforceable because it was hidden in a hyperlink that was ‘wholly indistinguishable’ from plain text,” Nafisi’s email said.

If there’s a message for other companies in the Juul decision, it’s that they may have the unilateral power to impose arbitration on consumers – but they must give customers fair notice that they’re doing it.

The views expressed in this article are not those of Reuters News.

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