Court Rules That Website Did not Bind Consumers To Arbitrate Their Claims

On August 25, 2016, the United States Court of Appeals for the Second Circuit ruled that a consumer class action lawsuit against Amazon.com brought under the Consumer Product Safety Act arising from the sale of a diet pill that contained a banned stimulant would be allowed to proceed in the federal court, rejecting Amazon’s contention that the suit was barred by the website’s conditions of use, which required arbitration of such disputes.

The plaintiff in this case, Dean Nicosia, allegedly began using the Amazon website in 2008, at which time there was no condition of use requiring arbitration of claims against Amazon. Amazon added a provision requiring arbitration in 2012. Plaintiff denied that he had ever registered for an account, and also pointed out that as of 2008 the website contained a choice of forum clause that required customer disputes to be resolved in the Washington state and federal courts, not in arbitration.

Plaintiff had filed suit in the Eastern District of New York. The district judge granted Amazon’s motion to dismiss based on her conclusion that plaintiff had bound himself to arbitrate the claim and further denied his motion for a preliminary injunction based on lack of standing. The Second Circuit overturned the first ruling, but upheld the second.

The Second Circuit’s lengthy opinion focuses in large part on the Amazon order page as it appeared during the relevant time period. The page did not require a consumer to state whether he or she agrees to the website’s conditions of use as a condition for placing an order, and the conditions were not set forth in bold type or capitalized. Further, the fact that the page contains multiple links of various colors and sizes obscures the terms of use provision. The Court concluded that Amazon did not provide reasonably conspicuous notice of the arbitration provision as was required under the applicable Washington State law to render the provision enforceable. The Court did not finally resolve the issue of whether the provision was enforceable, however, as the decision in the motion to dismiss context addressed only whether Amazon could prove that plaintiff had agreed to mandatory arbitration as a matter of law. But the end result is that Amazon has to litigate in court at least in the first instance concerning a dispute it had hoped would be arbitrated.

Turning to the merits, the Court concluded that plaintiff was not entitled to the injunction he sought to bar sales of the offending product. The product in question, sibutramine, is classified as a Schedule IV stimulant. The FDA withdrew it from the market in 2010 after revelations that the product was associated with increased risk of heart attack and stroke. Amazon stopped selling the product, but it did not issue a notice to past purchasers such as plaintiff that the product contained a banned substance and it did not offer any refunds to consumers. Plaintiff could not show that he was under real or immediate threat of injury because Amazon had ceased selling the product and plaintiff did not allege his intent to use Amazon in the future for any purchases. Nevertheless, plaintiff’s putative class action seeking damages will proceed.

The law applicable to mandatory arbitration in the class action context continues to be the source of endless litigation and new rulings seemingly every week. The takeaway for businesses from this decision is the need to focus on ensuring that the terms of use for the company’s website or those set forth in other contexts are as clear and conspicuous as possible such that proof of assent can be adduced if a dispute arises. This is truly a challenge, as the website will generally invite purchases from residents of states with a myriad of requirements for the enforceability of arbitration provisions which might be held applicable in a particular dispute. Hence, it should also be a priority to alert consumers to the applicability of the law of the jurisdiction in which the retailer is headquartered, and to adhere to that state’s guidelines for consent to arbitration in consumer transactions.

A link to the decision is here.

[About the Author: Peter Shapiro practices in our New York and New Jersey offices; he is Northeast Regional Vice-Chair of the firm’s Employment & Labor Practice and is actively involved in the defense of consumer and other class actions.]