Contract Formed Even If Customer Never Received It–Schwartz v. Comcast

By Eric Goldman

Schwartz v. Comcast Corp., 2007 WL 4212693 (3d Cir. Nov. 30, 2007)

This case just crossed my desk, and I’m surprised it hasn’t gotten more attention. (Declan at News.com wrote about it with a misdirected headline, and other coverage has been thin). The opinion provides a surprising answer to the thorny existential question of how to form a contract without forming a contract.

Schwartz is a disgruntled Comcast customer (is there any other type?) because he thinks Comcast has overpromised and underdelivered (Comcast claimed that it was “always on,” except for the 10 days it was off for Schwartz). Schwartz wants his day in court. Comcast prefers that he have his day in arbitration per the terms of its subscriber agreement–which, not incidentally, also handily says that there are no class actions in arbitration. Comcast says that it included a copy of the subscriber agreement in its welcome kit for all new customers and posted a copy on its website, but Schwartz claims he never saw the subscriber agreement. The court’s response to this factual dispute is rather amazing:

Comcast’s evidence of its consistent practice regarding delivery of subscription agreements and of the conduct of the parties in this case constitute prima facie evidence that Schwartz was aware that the services he accepted were being offered pursuant to a subscription agreement

Isn’t this a complete non sequitur? Sure, Comcast can enter evidence that it spams its new customers with the subscriber agreement, but it’s also likely that this process is not 100% effective–surely, some errors in the system cause some customers not to receive the agreement. The court cites a Federal Rule of Evidence that says a corporate routine is relevant to prove that the routine was followed in this case. So when Comcast claims it has a pattern of spamming its users with the subscriber agreement, the court says that it will treat all customers as having agreed to those terms–even if they never saw those terms, let alone actually manifested assent to them.

That’s a pretty neat parlor trick. Too bad it’s not contract law. There’s no question that Schwartz and Comcast have a contract for services. Most likely, it formed when Schwartz placed his order and Comcast accepted (or, less likely, when Comcast made its offer and Schwartz accepted by ordering). All we’re haggling about is what terms were included in that contract when it formed. [Note: because this contract is for services, the UCC-based contract cases saying "pay now, terms later" do not automatically apply here...not that any of them were cited by this court.] This court says that Schwartz is bound to terms that were sent post-formation (a dicey proposition) even if Comcast can’t prove that Schwartz received the terms (let alone assented to them) (a doubly dicey proposition). How in the world can those terms become part of the bargain?

The court bolsters its shaky conclusion with two other facts:

* Schwartz signed a piece of paper when he disconnected his cable service (but not his Internet connectivity) that said “If other non-installation work was provided, I agree to continue to be bound by the current Comcast Subscriber Agreement” and contained the cryptic reference “O/L PRO SERV” which stood for “Online Pro Internet Service.” I’m not sure what to make of this language because (1) I don’t know what the term “if other non-installation work was provided” refers to, (2) we’re haggling over the terms of the original subscriber agreement, so this language doesn’t clarify the terms, and (3) the cryptic reference makes no sense to anyone other than a Comcast employee.

* the subscriber agreement was on the web. Noting this, the court makes this remarkable statement: “the terms of the contract were available to Schwartz via the web site, and thus they are binding, despite the fact that he was unaware of them.” I don’t think the court could possibly mean what it says.

Even though the court went out of its way to form the contract, it did remand the case to consider if the arbitration clause is unconscionable. (According to PACER, nothing has happened since the remand). There’s good reason to consider the unconscionability question given that a primary goal of Comcast’s arbitration clause was to destroy class actions. Courts have been striking down arbitration clauses for this reason with some frequency, so perhaps the district court will do so here.

The court designates the opinion non-precedential and otherwise clearly communicates its hope that no one other than the litigants will read the opinion. Given the opinion’s sloppiness, that is an appropriate desire. Accordingly, I’m not sure how much wisdom we can salvage from this case. A couple of points:

* the case seems to reinforce that a mandatory clickthrough process (i.e., every user has to go through the same process) should be well-received by a court because it reflects the kind of corporate routine the court lauds here.

* even though the court bailed it out here, it looks like Comcast (and, I suspect, many other telecommunications, cable and Internet providers) have a lot of work to improve their contract formation process so they don’t have to rely on parlor tricks to form their contracts.