ADR AND THE INTERNET: “CLICKWRAP” AND THE ARBITRATION AGREEMENT

By: Richard Brodsky, Esq.
November, 2015

The internet has opened new pathways for alternative dispute resolution. While care must be exercised in how a business creates and implements arbitration policies, courts continue to favor arbitration of claims arising out of the use of computers and e-commerce. The shorthand for computer acceptance of arbitration clauses is “clickwrap,” an arbitration agreement that arises from a consumer “clicking” a computer-screen box which directly or indirectly sets forth an arbitration agreement.

In Whitt v. Prosper Marketplace, 1:15-cv-136-GHW, 2015 WL 4254062 (S.D.N.Y. July 14, 2015), United States District Court Judge Gregory Woods upheld a mandatory arbitration clause which had been agreed to by plaintiff, Larry Whitt, when he clicked a screen box containing a “hyperlink” to a lengthy “registration agreement.” The agreement itself did not appear on the computer screen.

Mr. Whitt, who is deaf, had brought a claim in Federal Court under the Americans With Disability Act alleging that Prosper had refused to accommodate his disability by refusing to let him use a Video Relay Service, which allows the hearing impaired to communicate by telephone using a sign language interpreter. Prosper operates a peer-to-peer lending service website to which Whitt had applied.

Prosper brought a Motion To Dismiss the suit and to compel arbitration under the terms of the Federal Arbitration Act. Prosper asserted that, in the course of applying for the loan, Whitt had clicked on a screen box labeled “Clicking the box below constitutes your acceptance of the …borrower registration agreement” and led to a hyperlink to the full registration agreement. The agreement contain's a binding arbitration clause. The loan application could not be completed if the box was not clicked. Mr. Whitt clicked and completed his application.

Mr. Whitt argued that, under New York law, he had not agreed to arbitrate because the hyperlink to the registration agreement made it too remote and inaccessible for him to fully understand its terms and conditions. In other words, he had neither actual nor constructive knowledge of the arbitration clause.

The Court placed the burden of showing that the arbitration clause was invalid on Mr. Whitt. “The party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration.” citing Green Tree Fin. Corp v. Randolph, 531 U.S. 79, 91 (2000). The Court held that Mr. Whitt had not offered sufficient facts to meet that burden, and that by clicking the box, he had assented to the arbitration clause. It went beyond the factual findings and cited what it called “an abundance of persuasive authority” that a sufficiently conspicuous hyperlink means that “a reasonably prudent offeree would have noticed the link and reviewed the terms before clicking on the acknowledgment icon” citing Zaltz v. JDATE, 952 F. Supp 2d. 439, 454 (E.D.N.Y. 2013). Such hyperlinks create “actual or constructive notice” of the arbitration clause.

It remains the law that “In New York, clickwrap agreements are valid and enforceable contracts.” Centrifugal Force, Inc. v. Softnet Comm., Inc. 2011 WL 744732 at 7, (S.D.N.Y March 1, 2011)

Mr. Whitt, an indigent, also claimed that the cost of arbitration made it prohibitive and “unconscionable” for him to be forced into its use. The Court held that he had not offered factual support for that claim, and that the arbitration rules governing his case provided protections which limited his economic exposure. In light of these holdings, the Court chose to dismiss rather than stay the case, as there were no justiciable claims that survived the court decision.

The lessons for proponents of arbitration clauses in internet commerce are clear. While use of hyperlinks to the text of binding agreements remains permissible, the physical layout of the hyperlink and its accessibility can be the basis for a successful challenge to the validity of such agreements including arbitration clauses. There remains an undercurrent of concern that the reality of e-commerce makes it unlikely that consumers can be assumed to have constructive notice of terms they in fact do not read. Practitioners and website operators who make arbitration clauses accessible and easy to understand will avoid any such challenges to current law.

_________________________________________________________________________________

Richard Brodsky, Esq., a former New York State Assemblyman, is a member of NAM's (National Arbitration and Mediation) Hearing Officer Panel and is available to arbitrate and mediate cases throughout the New York Metro area.

For any questions or comments, please contact Jacqueline I. Silvey, Esq. / NAM General Counsel, via email at jsilvey@namadr.com or direct dial telephone at 516-941-3228.