Court Says Buried Arbitration Clause Can't Be Enforced
A federal court has ruled that a company can't enforce an arbitration clause and class action waiver if these terms are "buried" inside a warranty document.
The case of Noble v. Samsung Electronics Am., Inc. involved the purchase of a Samsung Galaxy Gear S Smartwatch.
David Noble bought the watch from an AT&T store after seeing ads for it claiming that the watch's battery lasted 24 to 48 hours with typical use.
However, Noble found that his watch battery lasted only about four hours.
He returned the watch to the store and received a new one. But the new watch battery had the same problem. Noble returned the new watch directly to Samsung, which shipped him yet a third watch — which also had poor battery life.
Inside each smartwatch box was a 3.1-inch by 2.5-inch, 143-page document, titled “Health and Safety and Warranty Guide.”
As the court noted,
The table of contents indicates that “Warranty Information” begins on page eighty-six and includes a “Standard Limited Warranty," but nowhere is there mention of an agreement to arbitrate.
On page 97 of the Guide, the following text appeared:
ALL DISPUTES WITH SAMSUNG ARISING IN ANY WAY FROM THIS LIMITED WARRANTY OR THE SALE, CONDITION OR PERFORMANCE OF THE PRODUCTS SHALL BE RESOLVED EXCLUSIVELY THROUGH FINAL AND BINDING ARBITRATION, AND NOT BY A COURT OR JURY.
Any such dispute shall not be combined or consolidated with a dispute involving any other person's or entity's Product or claim, and specifically, without limitation of the foregoing, shall not under any circumstances proceed as part of a class action.
The clause continues on to page 102 of the Guide. It concludes by saying that buyers may opt-out of the “dispute resolution procedure by providing notice to SAMSUNG no later than 30 calendar days from the date of the first consumer purchaser's purchase of the Product.”
Noble sued in federal district court in New Jersey, on behalf of himself and others similarly situated, alleging six causes of action based on fraud, misrepresentation, and breach of warranty.
Samsung tried to compel arbitration and dismiss the class action.
The district court ruled that Samsung had failed to provide reasonable notice of the arbitration provision and thus Noble couldn't be treated as if he'd agreed to it.
The court found that the arbitration clause was "unreasonably hidden" and thus unenforceable.
The circuit court noted that
there was no indication on the outside of the Guide that it was a bilateral contract or included any terms or conditions. In fact, the cover of the Guide referred to itself only as a “manual.”
The court distinguished this case from shrinkwrap and clickwrap agreements, which are often found to be binding, "because those agreements clearly informed consumers that they were agreeing to certain terms."
The court cited another circuit court decision that
an offeree is not bound by inconspicuous contractual provisions of which he was unaware, contained in a document whose contractual nature is not obvious.
This is good news for consumers when companies try to enforce legal terms buried in documents that aren't obvious contracts.