Antitrust Law Daily Wrap Up, PRIVACY—9th Cir.: Sirius XM Radio arbitration provision deemed unenforceable, (Nov 12, 2014)

By Greg Hammond, J.D.

Sirius XM Radio Inc. could not enforce an arbitration provision in a customer agreement sent to a consumer over a month after he purchased a vehicle and received a Sirius satellite radio 90-day trial subscription. The U.S. Court of Appeals in Pasadena determined that the consumer never assented to the customer agreement and therefore reversed and remanded the lower court’s decision, dismissing the customer’s Telephone Consumer Protection Act (TCPA) claim and compelling arbitration (Knutson v. Sirius XM Radio Inc., November 10, 2014, Pregerson, H.).

Erik Knutson received a 90-day trial subscription to Sirius XM satellite radio in November 2011, when he purchased a Toyota vehicle. In mid-December, 2011, Knutson received a “Welcome Kit” from Sirius that contained its Customer Agreement with an arbitration clause. Thereafter, Knutson allegedly received three unauthorized and unsolicited telemarketing calls from Sirius, and he filed a class action against the satellite radio company, alleging violations of the TCPA. The federal district court in San Diego granted Sirius’ motion to dismiss and to compel arbitration, and Knutson timely appealed.

On appeal, Knutson argued that the Customer Agreement was not binding because: (1) there was never any mutual assent to the terms of the agreement; and (2) the agreement was an unconscionable adhesion contract.

With regard to mutual assent, the court noted that there were two issues: (1) whether a reasonable person in Knutson’s position would understand that he had assented to the arbitration provision in the Customer Agreement when he purchased the vehicle from Toyota; and (2) whether failure to cancel the trial subscription to Sirius XM after he received the Customer Agreement constituted an objective manifestation of his assent to the arbitration provision.

First, the court noted that Knutson did not receive any documents from Sirius at the time of his vehicle purchase; he did not know he was entering into a contractual relationship with Sirius when he purchased his Toyota; and believed that the trial subscription was a complimentary service for marketing purposes. Under those circumstances, the court determined that a reasonable person in Knutson’s position could not be expected to understand that purchasing a vehicle from Toyota would simultaneously bind him to any contract with Sirius.

Second, the court determined that Knutson’s continued use of the satellite radio service after his receipt of the Customer Agreement did not manifest his assent to the provisions in the agreement, noting that he never affirmatively enrolled in a subscription service with Sirius; he did not separately provide his personal information to Sirius; he did not indicate that he had read the terms of the Customer Agreement; and he did not pay Sirius at any point during the subscription period. Consequently, the arbitration clause was found unenforceable, and the issue of whether the Customer Agreement was unconscionable did not need to be decided. The lower court’s decision was therefore reversed and remanded.

The case number is 12-56120.

Attorneys: Abbas Kazerounian (Kazerouni Law Group, APC) for Knutson. Chad S. Hummel (Manatt Phelps & Phillips, LLP) for Sirius XM Radio Inc.

Companies: Sirius XM Radio Inc.

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