Vendor Fails to Form Either an Online or Paper Contract With Customers–Kwan v. Clearwire

[Post by Venkat Balasubramani]

Kwan v. Clearwire Corp., C09-1392JLR (W.D.Wash.; Jan. 3, 2012)

Professor Goldman blogged recently about a case involving Facebook where the court enforced Facebook’s terms of use and based on a venue clause in Facebook’s terms transferred a dispute from New York to California. The court delved into (and seemed to get bogged down in) the distinctions between clickwrap and browsewrap agreements while eventually concluding that the plaintiff was apprised of the terms (or should have been) so there was no reason not to enforce the contract. Kwan v. Clearwire doesn’t involve strictly online terms, but Clearwire was not so lucky. It botched its terms of use (judging from the court’s order it also botched its customer service efforts). End result: it can’t summarily move the dispute to arbitration and has to undergo discovery around whether its customers agreed to the terms. The court was fairly skeptical of Clearwire’s position, so its chances of success on the arbitration front don’t seem great.

Background

Kwan brought a lawsuit aginst Clearwire and collection agents for Clearwire alleging that she was harassed by Clearwire and its debt collectors in an effort to reach a Clearwire customer (which wasn’t her). Among other claims, she asserted claims under the TCPA, the Fair Debt Collections Practices Act, and Washington’s Consumer Protection Statute. Her complaint was amended to add Brown and Reasonover, both of whom tried Clearwire services for a short time (or judging by the complaint, attempted to try Clearwire out for a trial period but with little success). The Clearwire terms contained a class action waiver and an arbitration clause, and Clearwire sought to have the dispute arbitrated pursuant to the Clearwire terms.

Brown signed up for a 14 day trial of Clearwire. She received a confirmation email from Clearwire one week prior to receiving her modem. She tried to connect her modem but was unsuccessful, and she alleged that she was not required to click any sort of acknowledgement before trying to connect her modem. She called Clearwire to cancel her service, but was persuaded by Clearwire to renew her trial period. Clearwire had a service technician check on Brown’s modem. The technician arrived while Brown was at work and Brown’s roommate left the technician alone to try to get the modem working. After the technician left, she tried to get the modem working, and it still would not work properly. According to Brown, she discovered that “use of her microwave interfered with her modem signal.” She tried to cancel her service, and after going back and forth with Clewrwire, Clearwire finally agreed that she could cancel her service. Clearwire sent her shipping labels to return the modem, but according to her, by the time she received the shipping labels from Clearwire, the labels had “expired.” This prompted another round of back-and-forth with Clearwire’s customer service. Ultimately, she was able to return the modem to Clewarwire.

Reasonover’s experience with Clearwire wasn’t much better. She signed up for a seven day trial period and, because she was not at home when Clearwire shipped the package, Federal Express held it for her. She was unable to pick up the modem within her trial period, so she was worried about being able to cancel. When she plugged in the mdoem, she was only able to obtain “one green bar,” and this too from an “inconvenient location in her house.” Before connecting to the internet, she was presented with an “I accept” screen for Clearwire’s terms, but she bailed. Apparently, Clearwire told her that she could not cancel her serivce. She had some less-than-friendly exchanges with Clearwire, and she reported Clearwire’s actions to her credit card. Ultimately she alleges she paid for the modem (Clearwire disputes this).

Discussion

The court notes that the Federal Arbitration Act provides for arbitration of disputes that are subject to arbitration clauses. While the FAA sets forth a policy in favor of arbitration, it first requires a determination of whether the parties entered into an agreement to arbitrate their dispute. And that’s the hitch for Clearwire.

The court canvasses the law on browsewrap and clickwrap agreements (citing to Specht, Register v. Verio, Hines v. Overstock, and Southwest Airlines v. Boardfirst, among other cases). While Washington courts have not upheld the enforceability of clickwrap or browsewrap agreements, the court notes that shrinkwrap agreements are enforceable under Washington law. The prevailing case in Washington relied on Hill v. Gateway and ProCD v. Zeidenberg, and in both of these cases, “the terms and conditions at issue were included with the product purchased by the consumer.” This is consistent with the court’s inquiry in Specht as to whether the customer had notice of the contractual terms.

The court holds that, on the record before it, Clearwire is not entitled to enforce its arbitration clause. Clearwire pointed to the email confirmation which it sent to customers, but the court notes that the confirmation email did not contain a direct link to Clearwire’s terms—the link pointed to Clearwire’s home page, and Brown would have to “negotiate her way through two more hyperlinks” in order to arrive at Clearwire terms. Clearwire also argued that Brown was aware of the terms and used the product in question. With respect to this argument, the court says:

The breadcrumbs left by Clearwire to lead Ms. Brown to its TOS did not constitute sufficient or reasonably conspicuous notice of the TOS.

In any event, the court notes that Brown returned the modem.

Clearwire fared no better against Reasonover’s claims. It could not rely on the terms on its website because Reasonover testified that she “abandoned the page.” It also could not rely on the confirmation email which it sent because the email did not contain a readily accessible link to the terms—as with the facts with respect to Brown, Reasonover would have had to click through a couple of different links to arrive at Clearwire’s terms. Finally, Clearwire relied on the material that it had sent with the modem. These materials unfortunately suffered from the same flaws:

At the bottom of one of the pages included in the modem packaging was a reference to the TOS and to where the TOS could be located on [Clearwire’s] website. The statement actually contain[ed] two different hyperlinks. Neither link . . . immediately display[ed] the TOS.

D’oh.

As a final bonus, the court also denied the request to arbitrate filed by the collection agency, finding that there was a dispute as to whether it was an agent (with a close relationship to Clearwire) that could enforce the terms, or an arms-length independent contractor, who would not. (citing Swift v. Zynga)

__

Apart from the numerous alleged customer service debacles detailed in the complaint, Clearwire dropped the ball in several ways.

First, it did not have a ‘leakproof’ clickwrap agreement that users had to agree to before they activated the modem or signed on. Clearwire could have forced its users to scroll through and click on an “I agree” button as a prerequisite to activating the modem. (This may not have helped with respect to Brown’s claims since a technician activated the modem, but I assume this was an aberration. Most users probabaly plugged in the modem and signed on without the help of a technician—Clearwire could have forced them to click through and agree to terms.)

Second, to the extent it tried to rely on paper terms which it sent to customers along with the modems, it could have at least included the terms themselves as part of the package. I get the feeling the judge in this case would have worked hard to find a way around enforcing the terms in this scenario, but it would have been harder. (Again, the fact that the customers returned the modems would have affected the analysis. They could have argued that their acceptance of the terms was premised on them keeping the modems and since they didn’t they should not be bound by the terms.)

Finally, there’s the email debacle. I’m not sure the email would have helped since it came after the fact and would be categorized in the same manner as paper terms (i.e., if the customer returns the item, they can argue they should not be bound by the terms). But the email did not even include the terms!

This decision is largely consistent with previous online contracting cases. If you can’t easily show the court that the terms were readily accessible, you’re going to have a long road to travel down. It also demonstrates that if you can make a compelling case to the court that there’s something inequitable afoot (whether in the form of seriously egregious, one-sided terms, or botched customer service, as was alleged in this case) courts will work to find a way around enforcing terms that they may otherwise enforce.

Category: Product #: Regular price:$ (Sale ends ) Available from: Condition: Good ! Order now!
Reviewed by on. Rating: