Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: Samsung Galaxy S4’s consumer arbitration agreement held invalid, (Sep 23, 2014)

By Greg Hammond, J.D.

Samsung Telecommunications America, LLC’s inconspicuous arbitration agreement, which was placed in a 101 page “Product Safety & Warranty Information” booklet for the Galaxy S4 phone, was deemed invalid by the federal district court in San Francisco. Samsung’s motion to compel arbitration was thus denied, and the consumer was able to move forward with his misrepresentations and manipulative acts claims over the Galaxy S4’s speed, performance, and memory capacity (Norcia v. Samsung Telecommunications America, LLC, September 18, 2014, Donato, J.).

Background. Daniel Norcia purchased the Samsung Galaxy S4 phone in 2013. At the time of his purchase, a Verizon employee unpacked the phone from the box, and Norcia picked up the charger, the headphones, and the earbuds that came with the product. Although the employee offered to give Norcia the box the phone had come in, which contained the 101 page safety and warranty booklet, Norcia declined. The booklet contained an arbitration provision on page 76, under the frequently asked question, “What is the procedure for resolving disputes?”

Norcia later filed suit against Samsung, alleging the company engaged in manipulative acts and misrepresentations relating to the Galaxy S4’s speed, performance, and memory capacity. Samsung moved to compel arbitration.

Insufficient notice of arbitration provision. The court first found that Norcia did not have actual notice of the arbitration terms, as he testified, and Samsung did not refute, that he did not see or read the warranty booklet containing the arbitration provision. However, because Norcia voluntarily declined the Galaxy S4 box, the court determined that he should be treated as if he received the box and the warranty booklet.

Nevertheless, the warranty booklet was insufficient to give rise to inquiry notice of the arbitration agreement itself. Specifically, the court determined that the arbitration provision—located on page 76 of the booklet, and inconspicuously answering the question “What is the procedure for resolving disputes?”—did not present an offer which Norcia could accept or reject, but was rather presumed to apply automatically. “[S]tuffing an inconspicuous ‘Q&A’ about the ‘procedure for resolving disputes’ into a statement about the scope of the warranty” was deemed a “stealth tactic” that could not support contract formation. “Without any words alerting consumers that Samsung’s arbitration term was a ‘contract’ or ‘agreement,’ and without anywhere requiring consumers like Mr. Norcia to sign in order to accept the arbitration provision or at least to acknowledge having received it, the conclusion must be that no reasonable person would know that a proposal has been made to him.’” Because Norcia had insufficient notice of Samsung’s arbitration provision, the court concluded that he did not enter into an agreement to arbitrate his claims, and Samsung’s motion to compel arbitration was therefore denied.

The case number is 14-cv-00582-JD.

Attorneys: John R. Hurley (Prometheus Partners LLP) for Daniel Norcia. John Paul Phillips (Paul Hastings LLP) for Samsung Telecommunications America, LLC, and Samsung Electronics America, Inc.

Companies: Samsung Telecommunications America, LLC; Samsung Electronics America, Inc.

Cases: Advertising CaliforniaNews