Adam J. Starke, Individually and On Behalf of All Others Similarly Situated, Plaintiff-Appellee,
v.
SquareTrade, Inc., Defendant-Appellant,
Argued: April 30, 2018
Solomon N. Klein (Bradley J. Nash, Schlam Stone & Dolan
LLP, New York, NY; Mark Schlachet, Law Offices of Mark
Schlachet, Cleveland, OH, on the brief) for
Plaintiff-Appellee.
Douglas A. Winthrop, Arnold & Porter Kaye Scholer LLP,
San Francisco, CA (Michael D. Schissel, Arnold & Porter
Kaye Scholer LLP, New York, NY; Elisabeth S. Theodore, Arnold
& Porter Kaye Scholer LLP Washington, DC, on the brief)
for Defendant-Appellant.
Before: Lynch and Droney, Circuit Judges, and Sessions,
District Judge. [*]
Gerard
E. Lynch, Circuit Judge.
Appellant
SquareTrade, Inc., appeals from the district court's
denial of its motion to compel arbitration. SquareTrade
argues that the governing terms of its contract with Appellee
Adam J. Starke includes an arbitration clause. The district
court concluded that the arbitration provision did not become
part of the contract because Starke did not have reasonable
notice of and manifest his assent to it. The order of the
district court is AFFIRMED.
Defendant-Appellant,
SquareTrade, Inc., sells protection plans for consumer
products. Plaintiff-Appellee Adam J. Starke purchased one
such protection plan. Starke filed this putative class
action, seeking to hold SquareTrade accountable for alleged
violations of consumer protection laws. SquareTrade moved to
compel arbitration, contending that its contract with Starke
included an arbitration clause. Starke opposed the motion,
arguing that the purported arbitration clause had not become
part of the contract because he did not have reasonable
notice of the clause and did not manifest assent to it. The
United States District Court for the Eastern District of New
York (Nicholas G. Garaufis, J.) denied
SquareTrade's motion, and SquareTrade appealed. For the
reasons that follow, we AFFIRM.
BACKGROUND[1]
SquareTrade
sells and administers service contracts called protection
plans, which provide protections against defects and damage
to a variety of consumer products. Unlike warranties, which
are provided by the product's manufacturer and are often
included in the purchase price, SquareTrade protection plans
cover products made by other companies, and are sold for
additional consideration separate from the product price.
SquareTrade markets and sells protection plans on its own
website as well as through retailers including Costco,
Target, Staples, Office Depot, and Amazon.
As
relevant here, Starke purchased the "SquareTrade 2-Year
Electronics Protection Plan ($50-75)" (the
"Protection Plan") for $4.34 plus tax through
Amazon. Starke intended the Protection Plan to cover a CD
player he had purchased from Staples for $61.83. Starke had
previously purchased several SquareTrade protection plans
through Amazon and one through Staples to cover other items.
The
Amazon webpage on which Starke purchased the Protection Plan
looked like this:
(Image Omitted)
(Image Omitted)
App'x at 113-14.[2]
The
portion of the purchase page copied above contains several
sections of information about the Protection Plan. A block of
text towards the top of the purchase page informed Starke
that his "Service Contract [would] be delivered via
email and not mailed to [him]. It [would] come from
SquareTrade Warranty Services . . . within 24 hours of
purchase." App'x at 113. Much further down
in the excerpted portion of the purchase page (which would
likely require scrolling on most computer screens), one
encounters the heading: "Product information."
Under that heading appears a small hyperlink labeled
"Warranty [pdf]." The "Warranty"
hyperlink provided access to a two-page document titled
"Terms & Conditions" stating:
"Congratulations on purchasing this Protection Plan.
Please read these terms and conditions carefully so that you
fully understand your coverage under this Protection
Plan." App'x at 40. The document contains terms
purporting to govern the transaction, in addition to those
terms appearing on the face of the Amazon purchase page.
Notably, this document (the "Pre-Sale T&C") did
not contain an arbitration provision or a class action
waiver.[3] Starke did not click on the
"Warranty" hyperlink and therefore, did not review
the Pre-Sale T&C. The Amazon purchase page did not
contain a hyperlink to anything titled "Service
Contract."
Slightly
above the "Product information" was another
heading, "Things to know." The first bullet point
under this heading warns customers that "SquareTrade
Protection Plans are only valid for new products
purchased at Amazon within the last 30 days."
App'x at 114 (emphasis added). The fifth bullet point
under this heading informs customers that they "may
cancel [their] plan anytime within the first 30 days for a
full refund." Id. Starke did not read that part
of the purchase page and was not aware that the Protection
Plan would not cover items that had not been purchased
through Amazon.
After
his purchase, Starke received a confirmation email from
Amazon which informed him that "[his] protection plan
service agreement [would] be sent via a separate e-mail by
[the] seller." App'x at 81. As the Amazon purchase
page and confirmation email promised, Starke received an
email from SquareTrade later that day. The email looked like
this:
(Image Omitted)
App'x at 83-84.
The
subject line of the email says "SquareTrade Protection
Plan on Amazon.com - Contract is Enclosed." The email
contains several prompts and text in various formats. As
relevant to this case, the email contains a hyperlink in the
bottom left corner, labeled "Terms &
Conditions," that links to an eleven-page document
titled "Protection Plan Terms & Conditions."
That document (the "Post-Sale T&C") is a
different document from the Pre-Sale T&C, and contains
several provisions that were absent from the Pre-Sale
T&C. One of the provisions appearing in the Post-Sale
T&C but not the Pre-Sale T&C purports to bind the
parties to arbitration of "[a]ny controversy or claim
arising out of or relating to this Protection Plan, or breach
thereof . . . in accordance with the Commercial Arbitration
Rules of the American Arbitration Association."
App'x at 70. The Post-Sale T&C also contained a class
action waiver and a California choice-of-law clause. Starke
did not click on the "Terms & Conditions"
hyperlink and did not review the Post-Sale T&C. Nothing
in the body of the email referred to arbitration, and the
email did not contain or refer to any
attachments.[4]
After
receiving the email, Starke followed the instructions
directing him to send SquareTrade a copy of the receipt for
his electronics item. Starke alleges that the receipt clearly
stated that his CD player was purchased at Staples. Two days
later, SquareTrade confirmed that it had received a copy of
his receipt.
Some
months later, Starke's CD player required repair or
replacement, and Starke made a claim for coverage under the
Protection Plan. SquareTrade denied the claim, notifying
Starke that since the CD player had not been purchased
through Amazon, it was not covered, and that his Protection
Plan would be cancelled. SquareTrade offered Starke a refund
for the full price of the Protection Plan.
Shortly
thereafter, Starke filed this putative class action against
SquareTrade, alleging fraudulent and deceptive practices by
SquareTrade in the selling and marketing of protection plans.
The complaint seeks damages and injunctive relief for
violations of Sections 349 and 350 of New York's General
Business Law, and the Magnuson-Moss Warranty Act, 15 U.S.C.
§ 2301 et seq., and for unjust enrichment.
Starke alleges that SquareTrade knowingly and deceptively
sells protection plans for items not purchased on Amazon and
therefore, not eligible for coverage, despite knowing that
under the terms of the plan, which are not prominently
disclosed, the products which its customers have sought to
protect are not eligible for coverage. According to the
complaint, SquareTrade's limiting of covered products to
those purchased through Amazon operates as an intentionally
deceptive scheme to take money from unsuspecting customers.
If a SquareTrade customer never makes a claim under her plan,
SquareTrade keeps her premium and retains the policy until
expiration. But if the customer makes a claim that requires
SquareTrade to honor the policy, SquareTrade informs the
customer that her protection plan is void because the
underlying product was not purchased through Amazon.
Starke
also alleges that SquareTrade fails to disclose other
material terms and restrictions prior to the sale, and
hoodwinks customers by providing them with pre-sale terms and
conditions that differ from the more restrictive post-sale
terms and conditions that are disclosed only after the
purchase has been completed and only via a deliberately
obscure hyperlink.
In
response, SquareTrade moved to stay the action and compel
Starke to arbitrate his claims individually, citing the
arbitration clause and class action waiver contained in the
Post-Sale T&C. SquareTrade argued that Starke had
reasonable notice of the Post-Sale T&C because the Amazon
purchase page notified him that he would receive his
"Service Contract" via email, the email he received
from SquareTrade contained a hyperlink to the Post-Sale
T&C, and Starke manifested assent to the Post-Sale
T&C by failing to return the Protection Plan within the
30-day window SquareTrade allowed. SquareTrade also argued
that Starke's prior course of dealing with SquareTrade
put him on notice of the Post-Sale T&C.
The
district court denied SquareTrade's motion. The court
applied New York contract law to determine whether the
parties had bound themselves to an enforceable arbitration
agreement. First, the district court found that Starke did
not have actual knowledge of the arbitration provision in the
Post-Sale T&C because he did not click on the "Terms
& Conditions" hyperlink in the SquareTrade
confirmation email and read the hyperlinked document. Then
the court considered whether Starke (1) had reasonable notice
of the Post-Sale T&C and (2) offered an objective
manifestation of assent to the Post-Sale T&C.
In
determining whether Starke had reasonable notice of the
Post-Sale T&C and manifested assent to such terms and
conditions, the district court applied the test adopted in
Berkson v. Gogo LLC, 97 F.Supp.3d 359, 402-03
(E.D.N.Y. 2015).[5]Under that test, according to the district
court, the court assesses four factors: (1) whether Starke
was aware that he was binding himself to more than an offer
of goods or services in exchange for money; (2) whether the
design and content of the SquareTrade confirmation email made
the Post-Sale T&C readily and obviously available; (3)
whether SquareTrade required any affirmative manifestation of
agreement to the Post-Sale T&C; and (4) whether
SquareTrade clearly drew the consumer's attention to the
Post-Sale T&C in general or the arbitration provision in
particular.
As to
the first factor, the district court concluded that Starke
had reasonable notice that some contractual terms would be
forthcoming because he set out to purchase a service
contract. But, the district court noted,
Starke's knowledge of the existence of some contractual
terms did not necessarily mean that he could reasonably be
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