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New Media and Technology Law Blog

Arbitration Provision Unenforceable, Where Online Retailer’s Link to Browsewrap Terms and Conditions Was Not “Prominently Displayed”

Posted in Contracts

When Cynthia Hines returned a vacuum cleaner to online retailer Overstock.com, she was reimbursed for the full amount of her purchase, but Overstock deducted a $30 restocking fee, citing a provision in its Web site Terms and Conditions. Hines filed a purported class action in federal court in the Eastern District of New York asserting that she had been advised that she could return the vacuum without incurring any charge, and that she was not aware that a restocking fee would be charged.

When Overstock moved to dismiss or stay the action, citing the arbitration provision in the same Terms and Conditions, Hines similarly argued that she was not aware of the arbitration provision. According to Hines, she was not on either actual or constructive notice of the Terms and Conditions because they were referenced only in a hyperlink in small type at the bottom of the page of the Overstock Web site, between the link to the privacy policy and the Overstock.com registered trademark. She argued: "I did not scroll down to the end of the page(s) because it was not necessary to do so, as I was directed each step of the way to click on to a bar to take me to the next step to complete the purchase."

In Hines v. Overstock.com, Inc., 2009 U.S. Dist. LEXIS 81204 (E.D. N.Y. Sept. 4, 2009), Judge Sterling Johnson, Jr., agreed with Hines, finding that under the law of New York (where Hines resides), or under the law of Utah (where Overstock.com is located), Overstock.com had not carried its burden of providing the existence of a valid arbitration agreement. There was no meeting of the minds sufficient to form a contract, Judge Johnson ruled, because Hines had neither actual nor constructive notice of the Terms and Conditions, as required by the Second Circuit ruling in Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002):

Notably, unlike in other cases where courts have upheld browsewrap agreements, the notice that "Entering this Site will constitute your acceptance of these Terms and Conditions," … was only available within the Terms and Conditions. Hines therefore lacked notice of the Terms and Conditions because the website did not prompt her to review the Terms and Conditions and because the link to the Terms and Conditions was not prominently displayed so as to provide reasonable notice of the Terms and conditions. Very little is required to form a contract nowadays – but this alone does not suffice."

Compare the result in Hines v. Overstock.com with the result in another recent ruling, PDC Laboratories, Inc. v. Hach Co., 2009 U.S. Dist. LEXIS 75378 (C.D. Ill. Aug. 25, 2009), a case involving a transaction between commercial parties. The court ruled that the incorporation of a limitation of damages clause in terms and conditions of sale available via a hyperlink displayed during an online ordering process was not procedurally unconscionable. Relying on Hubbert v. Dell Corp., 359 Ill. App. 3D 976, 835 N.E. 2D 113 (5th Dist. 2005), an opinion involving a consumer transaction, the court concluded that the terms and conditions were conspicuous within the meaning of the Uniform Commercial Code where the hyperlink leading to them was in underlined, blue, contrasting text and was displayed three times during the ordering process. The court further noted that attention was specifically brought to the terms and conditions by a reference in the directions for the "final order step" of the ordering process.