Forming an Online Contract May Be Harder Than Tough Mudder’s Salmon Ladder

This case reaches a relatively non-controversial outcome. It rejects an arbitration clause in an online TOS. Still, how the court reaches that conclusion should set off warning bells for everyone trying to impose arbitration in an online TOS. The bar keeps going up, up, up!

Tough Mudder runs challenging obstacle courses. The plaintiffs injured themselves on the “salmon ladder” obstacle. They claim that Tough Mudder was negligent. Tough Mudder invoked the arbitration clause in its TOS (the “Participant Waiver and Course Rules” or PWCR).

The court characterizes the TOS as a “click-wrap”:

the clickable box is located directly below the scrollable text box that allegedly contained the full text of the agreement. Only by scrolling down in the text box would the user see all of the terms of the PWCR, including the arbitration clause at issue. However, the user could proceed to complete the registration process without necessarily scrolling down through the text box to view the full document, thereby rendering it a click-wrap agreement.

Following in the footsteps of the awful 2015 Berkson v. Go Go ruling, the court says “clickwraps” are enforceable so “long as the party is given a ‘sufficient opportunity to read the … agreement, and assents thereto after being provided with an unambiguous method of accepting or declining the offer.'” That sounds like a favorable legal standard for Tough Mudder, but not so fast. Citing Applebaum v. Lyft, the court says “a valid agreement to arbitrate exists where the notice of the arbitration provision was reasonably conspicuous, and manifestation of assent is unambiguous as a matter of law”–which requires a “fact-intensive inquiry.” Notice the judge’s corner-cut here: the court expects that the arbitration clause gets extra attention during the formation process or it may fail. General disclosure of all terms doesn’t satisfy this standard.

Tough Mudder didn’t reference the arbitration clause in the formation process:

the initially visible portion of the on-line text box containing the scrollable PWCR has an all-caps header stating: “ASSUMPTION OF RISK, WAIVER OF LIABILITY, AND INDEMNITY AGREEMENT PARTICIPANTS: READ THIS DOCUMENT CAREFULLY BEFORE ACCEPTING. THIS DOCUMENT HAS LEGAL CONSEQUENCES AND WILL AFFECT YOUR LEGAL RIGHTS AND WILL ELIMINATE YOUR ABILITY TO BRING FUTURE LEGAL ACTIONS.” However, while this header specifically draws the user’s attention to certain specified provisions (i.e., Assumption of Risk, Waiver of Liability and Indemnity) which appear at the beginning of the document (on pages one and three), it makes no reference to the arbitration provision, which appears on page four of the seven-page PWCR document

Furthermore, the arbitration provisions within the terms were not highlighted with underlining or bolding. A mandatory venue provision appeared before the arbitration clause, and the court thinks that readers might have stopped there and not continued to the arbitration provisions.

The court also trashes Tough Mudder’s evidence about the PWCR:

Tough Mudder has failed to set forth sufficiently detailed evidence as to how its on-line registration webpage appeared to the plaintiffs, or other users/registrants, during the relevant time period. In this regard, the court finds that the affidavit by Ms. Best holds little evidentiary value, as she does not set forth the basis of her personal knowledge of Tough Mudder’s on-line registration process at the time the plaintiffs registered, or of her familiarity with the applicable computer generated documents. Additionally, absent from her affidavit is any indication that she was even employed by Tough Mudder at the relevant time period….

Tough Mudder has not proffered any color copies of any screen shots depicting its on-line registration process. In addition, the full text of the PWCR, as provided by Tough Mudder, is not a screen shot but a black and white document, consisting of seven pages of single-spaced language, all in the same font and size, with no underlined, hyperlinked or bolded terms.

So Tough Mudder’s arbitration clause fails. As a bonus, Tough Mudder’s waiver of negligence liability violates a New York statute on point, so that too gets tossed. I smell settlement.

Implications

Clicking vs. Scrolling. Simply put, this contract formation process should have worked. Tough Mudder appears to have required two clicks (first to the TOS, then to proceed), which Venkat and I have reluctantly embraced as the new legal standard. Nevertheless, influenced by the Berkson trainwreck, this court appears to expect “scrollwraps,” i.e., users may not proceed until they scroll through the entire TOS. I can’t bring myself to recommend mandatory scrolling because it’s so awful for users. Unfortunately, until courts denigrate the Berkson case, the Berkson taxonomy implicitly positions “scrollwraps” as the gold standard of formation. If you’re looking for state-of-the-art bulletproof online contract formation, the bar has raised to mandatory scrolling PLUS two clicks. UGH.

Highlighting Arbitration Clauses. Since Concepcion, imposing arbitration clauses in TOSes has become industry-standard (for better or worse). If you’re going that route, you need to jump through a LOT of hoops to make the arbitration clause actually work. For example, you need to give users the ability to opt-out of just the arbitration clause, and you need to cover the arbitration expenses in many/most cases. Also, as this case highlights, you need to shine a spotlight on the arbitration clause early and often, including calling attention to it in whatever the user sees at click-time PLUS bolding, underlining, all caps, and GeoCities-style blinking and rotating letters when presenting the provision in your TOS.

The court doesn’t wrestle with the obvious problem that you can’t highlight all of the important terms at a TOS’s beginning, or else it becomes so lengthy and crowded that it becomes as long and undifferentiated as the entire contract (a general problem with all “layered notices”). While I can’t solve that problem. I think there are enough cases rejecting online arbitration clauses that you need to treat that provision as special enough to highlight early, even if other important terms get marginalized in comparison. I don’t really like this solution, but if you’re seeking the incredibly powerful remedy of arbitration, you’ll have to accept this as the price of admission.

Admitting Evidence of TOS Terms. The court appears to have some pretty exacting requirements for getting the TOS and formation process into evidence. It’s particularly damning that the court expects the affidavit to come from someone still employed with the company. What does the court expect companies to do if that employee has moved on?

Here’s what I say in my Internet Law casebook:

when implementing an online contract, it’s essential to maintain a chain of evidence that can convincingly show (1) the agreement’s terms on any specific date, and (2) what user interactions were technologically required to manifest assent on that date. You should also consider how to maintain the integrity and credibility of this evidence even if all of the relevant employees have left the company by the time the matter reaches litigation.

I’ve now added a reference to keeping color screenshots.

Case citation: Scotti v. Tough Mudder Inc., 2019 WL 1511142 (N.Y. Sup. Ct. March 29, 2019)