Second Circuit Says Post-Litigation Notice of Arbitration Clause Sufficient to Bind Plaintiff

In a putative class action against Amazon, Nicosia v. Amazon.com, Inc., the Second Circuit recently issued a ruling (“Nicosia II”) sending the named plaintiff’s claims to arbitration based on an arbitration clause contained in Amazon’s conditions of use. The Second Circuit rejected plaintiff’s arguments that he did not have notice of, or agree to, the arbitration clause. Applying ordinary principles of notice and assent, the Second Circuit held that the plaintiff was bound by the clause, deeming as “irrelevant” plaintiff’s assertion that he never read the terms and conditions that included the arbitration clause. Amazon’s conditions had included some form of arbitration clause since before the plaintiff’s subject transaction; early in the lawsuit, Amazon had raised the clause as possible grounds for dismissal; and the plaintiff had continued to make purchases on Amazon’s platform thereafter.

A Long Road to This Arbitration Ruling

The plaintiff, Dean Nicosia, brought the lawsuit based on his 2013 Amazon purchase of a diet drug that contained sibutramine, an ingredient the Food and Drug Administration had removed from the market in 2010. Nicosia sought to represent a class and asserted claims against Amazon under the Consumer Product Safety Act, 15 U.S.C. § 2051 et seq., and state law. Nicosia II was the parties’ second time litigating arbitration clause issues at the Second Circuit.

First Nicosia Appeal and Remand

The issue of whether the plaintiff was bound to arbitrate his claims first reached the Second Circuit in 2016, following a district court order granting Amazon’s motion to compel arbitration.

At that time, the Second Circuit focused on whether the plaintiff had received adequate notice of the arbitration clause through Amazon’s standard “checkout” page. Amazon purchasers were not required to actually view the terms and conditions or click an “I agree” box (as in “clickwrap” agreements), although they did receive notice on the checkout page that “By placing your order, you agree to Amazon.com’s privacy notice and conditions of use”—with the latter phrase hyperlinked to the conditions. In Nicosia I, the Second Circuit vacated dismissal and remanded, concluding that “reasonable minds could disagree” on the sufficiency of notice provided by Amazon, given that the hyperlink was one of many on the webpage, and consumers were not required to affirmatively consent to the conditions.

On remand, the parties litigated the notice issue and developed a record regarding the existence of an agreement to arbitrate. Complicating that issue was the fact that the plaintiff had used his wife’s Amazon Prime account to complete his subject transaction. The district court had no difficulty finding that Mrs. Nicosia had agreed to Amazon’s terms and conditions at the time she signed up for the account, which contained the following arbitration clause:

Any dispute or claim relating in any way to your visit to Amazon.com or to products or services sold or distributed by Amazon or through Amazon.com will be resolved by binding arbitration . . . .

The district court concluded that this broad language reflected an intent that all future disputes between the parties would be resolved in arbitration.

The district court further held that Mr. Nicosia was bound to the contract between his wife and Amazon. Noting the frequency of password sharing, the court reasoned that it would defy common sense if consumers could circumvent websites’ terms and conditions in this manner. The court applied principles of equitable estoppel to hold that, by using someone else’s account, customers like Mr. Nicosia implicitly represent that they are the true account holder and, in benefiting from these representations, are estopped from arguing that they are exempt from contractual terms (including the arbitration provision). This result accords with several other district court decisions finding that third-party users are bound by conditions previously agreed to by account owners.

Nicosia appealed the district court’s order compelling him to arbitrate.

Second Circuit, Round Two

In Nicosia II, the Second Circuit did not reach the district court’s agency and estoppel analysis, but instead affirmed on an independent ground—based on “notice and assent.”

The Second Circuit noted that Amazon had raised the arbitration provision in its filings throughout the lawsuit, including as early as September 2014, such that the plaintiff was on inquiry notice of the provision. Further, Mr. Nicosia continued to make purchases on Amazon’s website, including at least 27 purchases after September 2014. The Second Circuit concluded that Nicosia thus engaged in conduct that a “reasonable person would understand to constitute assent” to the arbitration provision. This is the case even though Nicosia denied ever reading the terms and conditions containing the arbitration clause, because “an internet user need not actually read the terms or conditions . . . as long as [the user] has notice of their existence.”

The court explained in a footnote that it assumed Amazon’s post-2014 iteration of the arbitration clause, which had broader language, applied retroactively to Nicosia’s 2013 purchase of the diet drug because he did not object to such a construction and thus waived any arguments to the contrary. Courts generally hold that broadly worded arbitration clauses, including “any dispute” language, apply retroactively. See, e.g., Levin v. Alms & Assocs., Inc., 634 F.3d 260, 267 (4th Cir. 2011). Courts have generally been less willing, however, to apply clauses retroactively when litigation has already commenced.

Conclusion

As Foley has written before, there can be many benefits to implementing a good, defensible arbitration clause in existing consumer agreements, including to reduce class action risk. As the Nicosia case illustrates, however, plaintiffs’ counsel may be willing to expend great effort to challenge arbitration clauses in hopes of avoiding the parties’ prior bargain so that they can pursue claims on a class basis. Businesses can improve their ability to withstand such attacks by shoring up their practices surrounding arbitration clause implementation. At a minimum, businesses should carefully vet the language of the clause itself, being mindful of the choices embedded therein (e.g., which arbitration venue/rules apply, or whether an arbitrator or court will interpret a given challenge to the clause); ensure that consumers receive clear and conspicuous notice of it; and review the clause periodically to ensure the language employed reflects recent developments in the law.

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