Qwest Gets Mixed Rulings on Contract Arbitration Issue—Grosvenor v. Qwest & Vernon v. Qwest

[Post by Venkat Balasubramani]

I recently blogged about Kwan v. Clearwire, which involved Clearwire’s efforts to force arbitration of a consumer dispute. The court in that case looked at Clearwire’s contracting practices and made an initial ruling that customers could not be forced to arbitrate their disputes because of a failure in the contracting process. (There will probably be additional proceedings around the arbitration issue in that case.) Qwest has been involved in class action litigation over its early termination fees and other practices, and courts recently issued rulings in two cases which address similar contracting issues. Both rulings are interesting and instructive because they tackle fundamental contract law questions.

Grosvenor v. Qwest, 09-cv-02848-MSK-KMT (D. Col.; Feb. 23, 2012) [pdf]:

Grosvenor subscribed to Qwest in 2006 and received a disk containing software to activate the service. The install window contained a link to the applicable terms and contained a check-the-box indicating assent to the terms. Grosvenor had to click on “I Accept” in order to proceed with the installation. The only problem was that the install window did not contain the actual terms. Worse yet, it did not even contain a link to the terms. The terms were two links away.

The court says that requiring a user to click through a couple of links in order to view the terms does not as a matter of law pose a bar to contract formation. However, there is another problem:

the fact that a user must navigate a web page in order to ascertain terms of an offer is particularly difficult where the software being installed is the means by which the internet can be accessed.

D’oh! The court says that the record is bereft of facts indicating that Grosvenor already had internet access at the time he signed up for Qwest and thus he probably had “no way of accessing the terms of Qwest’s agreements until he completed installation of the software, and completion of the software installation would not occur until Mr. Grosvenor manifested his acceptance of the terms or [sic] the agreement.” Because of this flaw, the court says that the check-the-box presentation of the terms at the time of install probably does not create an enforceable contract.

Qwest also argued that after Grosvenor signed up, he received a “Welcome Letter” that Qwest sent to everyone who signed up. The subscriber letter does a better of job of directing Grosvenor to the operative terms, so the court says this solves the problem of Grosvenor having to dig around. Also, because it was a paper letter sent after Grosvenor obtained internet access, it addresses the problem with the issues which undermined the online terms. Additionally, the court says that because the letter advised users that they should cancel their service in 30 days if they did not agree to the terms, users have the comfort of making their decision in a leisurely manner. The court says that Grosvenor entered into a contract with Qwest in 2006 because he assented to the terms in the letter.

Grosvenor’s underlying qualm with Qwest was over Qwest’s alleged failure to honor a “price for life” guarantee and he argued that this was not part of the original deal—this was something Qwest implemented as part of a service upgrade. The court expresses some skepticism as to whether the upgrade constituted a new agreement but in any event says that because Qwest sent Grosvenor a second welcome letter relating to the upgrade, Grosvenor assented to any new terms. Net result: Qwest and Grosvenor entered into a contract and this contract contained an arbitration clause.

Although the court finds that Grosvenor agreed to Qwest’s terms, Grosvenor argued that Qwest’s subscriber agreement was illusory because Qwest included a provision that it could modify terms of the agreement at its discretion. Qwest had a Harris v. Blockbuster problem. (See “Stop Saying “We Can Amend This Agreement Whenever We Want”!–Harris v. Blockbuster.”) In Harris, the court invalidated an agreement because the agreement said Blockbuster could amend it at any time and did not have to provide notice to the customer. In Harris, the modified terms were effective upon use of the service by the customer. Qwest had a similar provision in its subscriber agreement saying that Qwest would “modify the Service and/or any of the terms and conditions of [the] Agreement . . . and [changes became] effective upon posting to www.qwest.com/legal.” Other than some precedent that’s unfavorable to Qwest (and binding on the district court) the court says that there’s one big problem to Qwest’s argument that Grosvenor assented to the modified terms by continuing to use the service: Grosvenor had to access the service in order to view the modified terms, and because he had no opportunity to review the terms without continuing to use the service he had no meaningful right to reject the terms.

The court says that the arbitration clause is illusory and unenforceable.

Vernon v. Qwest, 09-cv-01840-RBJ-CBS (D. Col.; Mar. 8, 2012):

Vernor is a companion case but heard by a different judge in the same district. Plaintiffs asserted claims on behalf of a putative class, alleging that Qwest’s imposition of Early Termination Fees was improper. The named plaintiffs all signed up for slightly different offerings from Qwest.

The first question was whether plaintiffs had entered into enforceable agreements with Qwest. The court runs through the “browsewrap” / “clickwrap” taxonomy, and also mentions “hybrid arrangements,” where the terms presented to the customer do not appear in the same screen as the accept button—i.e., the customer must click through a hyperlink to read the terms (citing Fteja v. Facebook and Swift v. Zynga). (See Judge Can’t Decide if Facebook’s User Agreement is a Browsewrap, But He Enforces It Anyways–Fteja v. Facebook and Zynga Wins Arbitration Ruling on “Special Offer” Class Claims Based on Concepcion — Swift v. Zynga for posts on these cases.) The court says that assent may be gleaned “from the totality of the circumstances,” and in this case plaintiffs had “reasonable notice” of the terms, so the terms are enforceable. As in Grosvenor, the court looks to the “welcome letter” sent by Qwest and says that this is enough to put customers on notice of the terms.

As a backup argument, plaintiffs also asserted that the arbitration clause was illusory because (as in Grosvenor) Qwest reserved the right to revise the agreement at any time. This court comes to a different conclusion than Gorsvenor and finds that the agreement is not illusory. The agreement said that Qwest can revise the terms at any time and revised terms were effective on posting. However, the agreement contained an exception for when a revision “results in a material and adverse economic impact” to the customer. Where there is a “material adverse economic impact,” the agreement required 30 days notice. Based on this, the court says that the agreement does not give Qwest “the unfettered right” to make changes to it and therefore there is no illusory agreement problem. (See the Dow Jones case I blogged about for a similar result: “No Breach of Contract Claim from Mid-Stream Change of WSJ Online Pricing – Lebowitz v. Dow Jones.”)

Plaintiffs made two other arguments that didn’t get much traction with the court: (1) that the agreement was unsoncsionable and (2) that Qwest waived its right to insist on arbitration.

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It’s depressing to see companies not tie up loose ends on their online contracting processes. It immediately makes the customer’s claims seem more sympathetic–if the company can’t get the contract right, chances are it’s going to botch the customer service. It’s possible that Qwest had some reason for not presenting the subscriber agreement in the box itself at the time of install, but it better have a compelling reason for not doing so. As a result, the court has to go through judicial contortions to enforce the agreement. The court enforces the agreement due to the fact that the terms were communicated via a letter to the customer. Courts continue to see mail as a legally sufficient form of notice and I wonder whether people in the modern era are likely to read mailings they receive from company’s like Qwest. (I know I would recycle it immediately.) Also, there’s an FTC rule that governs mailings for free products or services, perhaps it wasn’t enough of a colorable issue for plaintiffs to have raised, but I was surprised to not see a footnote from the court on this issue. If there’s no agreement as a result of the online terms, Qwest’s mailer is ostensibly an offer and I wondered whether offers via mail had to comply with certain requirements.

The illusory agreement issue is one to watch as well. Contracts will continue to come under fire because they include a provision saying one party can change the terms at will. It’s an understandable lawyerly instinct to include this in an agreement, but I would resist this impulse! In one of the two cases, Qwest skated past the illusory agreement challenge, but the fact that one of the two judges was willing to strike down the agreement illustrates how risky it can be to include this provision in an agreement.

Previous posts:

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

Zynga Wins Arbitration Ruling on “Special Offer” Class Claims Based on Concepcion — Swift v. Zynga

Judge Can’t Decide if Facebook’s User Agreement is a Browsewrap, But He Enforces It Anyways–Fteja v. Facebook

Stop Saying “We Can Amend This Agreement Whenever We Want”!–Harris v. Blockbuster

Facebook’s “Browsewrap” Enforced Against Kids–EKD v. Facebook

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