Friday, December 20, 2019

U.S. Court of Appeals for the Ninth Circuit, Sean Wilson, v. Huuuge, Inc., a Delaware corp., Docket No. 18-36017


E-Commerce
Clickwrap Agreements
Browsewrap Agreements
Smartphone App User
Reasonable Notice of its Terms of Use
Constructive Notice
Contract Drafting
Motion to Compel Arbitration
Online Commerce: Traditional Principles of Contract Still Apply
Washington State Law

Argued and Submitted August 29, 2019 Seattle, Washington

The question of first impression for our court is under what circumstances does the download or use of a mobile application (“app”) by a smartphone user establish constructive notice of the app’s terms and conditions?

The panel affirmed the district court’s denial of HUUUGE Inc.’s motion to compel arbitration against a smartphone app user.

Under Washington law, the panel held that because Huuuge did not provide reasonable notice of its Terms of Use, the app user did not unambiguously manifest assent to the terms and conditions or the imbedded arbitration provision. The panel held that the app user had neither actual notice nor constructive notice of the Terms of Use, and thus was not bound by Huuuge’s arbitration clause in the Terms.

Wilson downloaded the app from Apple’s App Store in early 2017 and played Huuuge Casino for over a year.

Huuuge does not require users to affirmatively acknowledge or agree to the Terms before downloading or while using the app. Users can access Huuuge’s Terms in two ways: 1) reading the Terms before downloading the app, although the user is not required to do so; or 2) viewing the Terms during game play, which is similarly not necessary to play the game. Either way, the user would need Sherlock Holmes’s instincts to discover the Terms.

Typically, a user would first search for the app in a smartphone app store. One option is to download the app directly from the search results, in which case the user does not view anything that alerts him to the existence of the Terms. Alternatively, instead of a direct download, the user would need to click through to Huuuge Casino’s landing page. Next, the user must click on the small blue text stating “more” in the app’s description, which reveals the app’s full profile. The user would then need to scroll through several screen-lengths of text to encounter a paragraph that starts with “Read our Terms of Use,” and includes the text of a link to the Terms. The link, however, doesn’t magically conjure the Terms. Instead, the user must copy and paste or manually enter the URL into a web browser to access the Terms.

Once a user has downloaded the app, the user can play games immediately. During gameplay, a user can view the Terms by accessing the settings menu. The settings menu can be accessed by clicking on a three dot “kebob” menu button in the upper right-hand corner of the home page. If a user clicks on the button, a pop-up menu of seven options appears. The fifth option is titled “Terms & Policy” and reveals the Terms, including the arbitration agreement.

It is not necessary for a user to open the settings menu while playing the app. Nor is there a requirement to acknowledge or agree to the Terms when opening the app, creating an account, playing the game, or at any other point.

The FAA requires district courts to stay judicial proceedings and compel arbitration of claims covered by a written and enforceable arbitration agreement. 9 U.S.C. § 3.

Huuuge, as the party seeking to compel arbitration, must prove the existence of a valid agreement by a preponderance of the evidence. Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1283 (9th Cir. 2017). To determine whether such an agreement exists, “federal courts ‘apply ordinary state-law principles that govern the formation of contracts.’” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014) (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)).

The parties agree that Washington state law governs the validity of the arbitration agreement since there is no choice of law provision in the agreement and the district court has diversity jurisdiction. See First Options of Chi., Inc., 514 U.S. at 944.

As we have acknowledged many times, although online commerce has presented courts with new challenges, traditional principles of contract still apply. See, e.g., In re Holl, 925 F.3d 1076, 1084 (9th Cir. 2019).

In the context of online agreements, the existence of mutual assent turns on whether the consumer had reasonable notice of the terms of service agreement. Nguyen, 763 F.3d at 1177; Wilson v. Playtika, Ltd., 349 F. Supp. 3d 1028, 1037 (W.D. Wash. 2018).

(…) We now move to the issue of constructive notice. Just as we have applied traditional contract principles to online contracts, we do so here too. Online contracts fall into two broad categories. Nguyen, 763 F.3d at 1175-76. Clickwrap agreements require users to affirmatively assent to the terms of use before they can access the website and its services. Browsewrap agreements do not require the user to take any affirmative action to assent to the website terms. Id. In some situations, a user may not even know a website has a user agreement.

Huuuge’s agreement is unambiguously a browsewrap agreement. Wilson was not required to assent to Huuuge’s Terms before downloading or using the app—or at any point at all. Huuuge did not notify users that the app had terms and conditions, let alone put them in a place the user would necessarily see. Instead, a user would need to seek out or stumble upon Huuuge’s Terms, either by scrolling through multiple screens of text before downloading the app or clicking the settings menu within the app during gameplay.

In the absence of actual knowledge, a reasonably prudent user must be on constructive notice of the terms of the contract for a browsewrap agreement to be valid.

In Nguyen v. Barnes & Noble, we stressed that “the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers.” Id. at 1179. The burden similarly falls on app operators.

Users are put on constructive notice based on the conspicuousness and placement of the terms and conditions, as well as the content and overall design of the app. For example, courts will not enforce agreements where the terms are “buried at the bottom of the page or tucked away in obscure corners of the website,” especially when such scrolling is not required to use the site. Id. (citing to Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 23 (2d Cir. 2002)). Similarly, courts decline to enforce agreements where the terms are available only if users scroll to a different screen, Hines v. Overstock.com, Inc., 668 F. Supp. 2d 362, 367 (E.D.N.Y. 2009), complete a multiple-step process of clicking non-obvious links, Van Tassell v. United Mktg. Grp., 795 F. Supp. 2d 770, 792-93 (N.D. Ill. 2011), or parse through confusing or distracting content and advertisements, Starke v. SquareTrade, Inc., 913 F.3d 279, 293 (2d Cir. 2019); Nicosia v. Amazon.com, Inc., 834 F.3d 220, 237 (2d Cir. 2016). Even where the terms are accessible via a conspicuous hyperlink in close proximity to a button necessary to the function of the website, courts have declined to enforce such agreements. Nguyen, 763 F.3d at 1178-79.

Huuuge’s app is littered with these flaws. When downloading the app, the Terms are not just submerged— they are buried twenty thousand leagues under the sea. (…) This is the equivalent to admonishing a child to “please eat your peas” only to then hide the peas. A reasonably prudent user cannot be expected to scrutinize the app’s profile page with a fine-tooth comb for the Terms.

Huuuge argues Wilson’s repeated use of the app places him on constructive notice since it was likely he would stumble upon the Terms during that time period. However, just as “there is no reason to assume that users will scroll down to subsequent screens simply because screens are there,” there is no reason to assume the users will click on the settings menu simply because it exists. Specht, 306 F.3d at 32. The user can play the game unencumbered by any of the settings.

Nothing points the user to the settings tab and nowhere does the user encounter a click box or other notification before proceeding. Only curiosity or dumb luck might bring a user to discover the Terms.

Instead of requiring a user to affirmatively assent, Huuuge chose to gamble on whether its users would have notice of its Terms. The odds are not in its favor.


(U.S. Court of Appeals for the Ninth Circuit, December 20, 2019, Sean Wilson, v. Huuuge, Inc., a Delaware corp., Docket No. 18-36017, For Publication)

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