Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—C.D. Cal.: Customer not bound by arbitration agreement buried on marketer’s website, (Mar 2, 2015)

By Dan Selcke, J.D.

A customer who bought a hair-care product through a marketer’s website was not bound by the arbitration provision contained in the Terms and Conditions for completing her purchase, the federal district court in Los Angeles, California held, because the website’s layout would not have put a reasonably prudent person on notice that agreeing to those terms was a condition of buying the product (Friedman v. Guthy-Renker LLC, February 27, 2015, Wright, O).

Background. Amy Friedman, Judi Miller, and Krystal Henry-McArthur each purchased hair-care products marketed by defendant Guthy-Renker. The products were advertised as “a revolutionary new concept in hair care” that “t[ook] the place of…shampoo, conditioner, deep conditioner, detangler and leave-in conditioner.” Miller purchased the product over the phone, while Friedman and Henry-McArthur purchased it through Guthy-Renker’s website. All three alleged that it made their hair fall out.

The three women filed suit on behalf of themselves and all other consumers who had purchased the hair-care products since August 1, 2009. They brought claims for breach of implied warranty; breach of express warranty under the Magnuson-Moss Warranty Act (MMWA); common law assumpsit; failure to warn negligence; failure to test negligence; and strict products liability. They also alleged violations of California’s Unfair Competition Law and False Advertising Law. Guthy-Renker filed a motion to dismiss their claims.

Online arbitration agreement. Guthy-Renker argued that the court must dismiss Friedman’s and Miller’s claims because, at the time they purchased the product through Guthy-Renker’s website, both women clicked the interactive checkbox indicating that they assented to Guthy-Renker’s Terms and Conditions. Those Terms and Conditions waived class-action lawsuits and required arbitration for all disputes between customers and Guthy-Renker.

Friedman and Miller did not dispute that they clicked on the interactive checkbox, but argued that they did not have to abide by the arbitration agreement because the design of Guthy-Renker’s website did not give them proper inquiry notice of the Terms and Conditions. he court agreed and denied Guthy-Renker’s motion to dismiss.

When Friedman purchased the product online, she clicked an interactive checkbox placed below two lines of text that read: “By checking this box you are electronically signing your order and authorizing us to charge payments against credit card provided above.” The box was labeled “Agree to terms,” and contained an asterisk indicating that clicking it was required to complete the purchase. Along the bottom of the screen, there was an offset frame that included numerous other links, including one to the Terms and Conditions.

This layout clearly was not a “clickwrap” agreement, which were generally enforceable, because website visitors were not presented with a list of terms and conditions they had to acknowledge having read before completing their purchase. Rather, Guthy-Renker’s website was a “browsewrap” agreement, since its terms and conditions were only posted on a hyperlink near the bottom of the screen. Browsewrap agreements could still be found to be enforceable if they made website visitors affirmatively acknowledge the terms of use before proceeding. In this case, the interactive checkbox gave no indication that clicking it authorized anything but credit card charges. Further, a reasonably prudent person would not believe that the word ‘terms’ in the “Agree to terms” label referred to the word “Terms” in the Terms and Conditions hyperlink, since the former was not capitalized and the latter was. Rather, that person would think the word “terms” referred to the lines of text describing credit card charges.

The combination of the common noun “terms,” the preceding text regarding credit card authorization, and the buried “Terms and Conditions” hyperlink was misleading and failed to put Friedman on inquiry notice. Therefore, she was not bound by Guthy-Renker’s arbitration agreement.

However, when Henry-McArthur bought the hair-care product, Guthy-Renker had updated its website in a way that put reasonably prudent customers on notice that clicking the interactive checkbox represented assent to the Terms and Conditions. Specifically, the label directly next to the checkbox was updated to read “Agree to Terms and Conditions.” The “Terms and Conditions” language was bolded, underlined, and hyperlinked. Also, the credit card authorization language was amended to read, in relevant part: “By checking this box you are agreeing to the Terms and Conditions…”

Therefore, Henry-McArthur was put on notice of the Terms and Conditions and was bound by the arbitration clause and class-action waiver. Guthy-Renker’s motion to dismiss her claims was granted.

Magnuson-Moss Warranty Act claim. Guthy-Renker argued that no written warranty for its products existed, and that the court must therefore dismiss the plaintiffs’ claim for breach of an express warranty under the MMWA. In response, the plaintiffs pointed to numerous statements Guthy-Renker made about the product on its website, including that it was “gentle enough to use every day,” and that “The more you use, the better the results.” Guthy-Renker argued that these written statements were merely descriptions of the product and therefore not within the purview of the MMWA. The court, however, sided with the plaintiffs, and held that the representations were written statements that implied the product was defect-free. This made them actionable as written warranties under the MMWA, and the court accordingly denied Guthy-Renker’s motion to dismiss the plaintiffs’ express warranty claim.

The case number is: 2:14-cv-06009

Attorneys: Brian Tate Shippen-Murray (Johnson and Johnson LLP) and Brian W. Warwick (Varnell and Warwick PA ) for Amy Friedman. David J. Schindler (Latham and Watkins LLP) for Guthy-Renker LLC.

Companies: Guthy-Renker LLC

Cases: Advertising StateUnfairTradePractices CaliforniaNews