The Superior Court of New Jersey recently revisited the enforceability of online contracts and the importance of how terms and conditions are displayed on websites, in Hoffman v. Supplements Togo Management LLC, et al. In so doing, the court addressed a line of cases reaching back to the Second Circuit’s 2002 landmark decision in Specht v. Netscape, where Circuit Judge (now Justice) Sotomayor wrote that, unless a reasonably prudent Internet user would have learned of and unambiguously assented to terms governing an online commercial transaction, an online contract cannot be formed.  In Hoffman, the court seized the opportunity to clarify how the law’s view of a “reasonably prudent Internet user” has evolved over the intervening nine years in light of the rapid growth in Internet use and online transactions.  As it turns out, the answer is . . . not by much.

The plaintiff in Hoffman, an attorney with an alleged history of suing online retailers for deceptive practices, purchased a dietary supplement called “Erection MD” through a website operated by defendant Supplements Togo Management LLC (“Togo”).  The product in question was advertised on Togo’s site with a variety of claims, such as, “Enhances Sex Drive,” “Maximum Performance,” “Instantly Boost Testosterone Levels,” and “Ultimate Stamina.” Four days after receiving his shipment, the plaintiff filed a lawsuit in the Superior Court of New Jersey alleging violations of New Jersey’s Consumer Fraud Act (“CFA”) and claiming that Togo made false and exaggerated representations about the product that allegedly lacked scientific and objective support.  (New Jersey’s CFA essentially requires advertisers to substantiate with written proof any claims made concerning “the safety, performance, availability, efficiency, quality or price of the advertised merchandise,” and to keep such written proof on file for at least 90 days after the effective date of the advertisement.) In lieu of filing an answer to the complaint, Togo moved to dismiss Hoffman’s suit, arguing that Hoffman failed to state a claim under the CFA and was barred from suing Togo in New Jersey in light of the forum selection clause contained in Togo’s “website disclaimer,” which only permitted actions to be brought in Nevada.  The lower court, in addressing whether the clause was enforceable, dismissed Hoffman’s suit on the grounds of improper forum.

On appeal, the Hoffman court focused on the same key principles of notice and assent discussed in Specht, and in particular, on whether “a reasonably prudent [person] in these circumstances would have known of the existence of [the] license terms.” In this case, the disclaimer containing the forum selection clause was displayed “below the fold” (that is, on a “submerged” portion of the website to which a visitor needed to scroll down in order to see).  Hoffman stated that when he visited Togo’s website, Erection MD was the first product displayed, listed among other Togo products and supplements and appearing next to a box that read “ADD TO SHOPPING CART,” and that when he clicked to add the product to his cart, he was taken directly to the site’s checkout page.  Hoffman argued that because subsequent pages—including the one on which he consummated his purchase—did not contain the same disclaimer, he was never put on notice of those additional terms and, therefore, that Togo’s forum selection clause was unenforceable.  Applying New Jersey precedent, the court agreed with Hoffman and overturned the lower court’s dismissal.  The forum selection clause was ruled “presumptively unenforceable,” on the grounds that it was “proffered unfairly, or with a design to conceal or de-emphasize its provisions.” Persuaded by Hoffman’s argument, the judge emphasized that because the forum selection clause was “submerged” on the web page that listed Togo’s products, it was “unreasonably masked from the view of the prospective purchasers because of its circuitous mode of presentation,” which prevented Hoffman (or any customer) from being put on notice.

The analysis in Hoffman mirrors Specht where Justice Sotomayor noted that the fact that an unexplored portion of a web page could contain additional terms and conditions, does not mean that a reasonably prudent Internet user should assume the existence of—or be compelled to look for—those terms.  Rather, it should be the website operator’s responsibility to put Internet users on notice of applicable terms and to obtain their assent, in order to preserve the integrity and credibility of electronic “bargaining” and mutual assent necessary to establish a contract.  In applying the same logic, the court in Hoffman signaled that the view of what an Internet user (whether or not he or she is an attorney) should be responsible for today has not changed much since Specht, despite the fact that the majority of Internet  users have made purchases online.

Similar to previous clickwrap cases (including Specht), Judge Sabatino also made a point of noting that “if defendants establish on remand that Hoffman had actually read the forum selection clause before purchasing the product,” his ruling on the enforceability of the clause might have been different.  Additionally, on the issue of assent, the Hoffman court stopped short of ruling (as Hoffman had argued) that a website user must be made to expressly click an “I Agree” button or check-box in order to form a binding agreement; although the user’s “unambiguous manifestation of assent” is required, New Jersey’s courts, like others, remain hesitant to prescribe the means or technology that a website operator needs to use to obtain that assent.  (The Hoffman opinion did not address the fact that Togo’s website disclaimer was a browsewrap rather than a clickwrap agreement.) Hoffman is a reminder to website operators everywhere of the continuing importance of highlighting website terms and conditions, and making sure that visitors are on notice that their activities— including purchases—are governed by those terms.  As the line of clickwrap cases from Specht through Hoffman makes clear, this entails, at a minimum, notifying users of the existence of such terms on the site’s home page (for example, through a clearly marked link to such terms), in a manner that is conspicuous and easily viewed by site visitors.  Moreover, when goods and services are available for purchase, it is recommended that website owners require customers to affirmatively acknowledge their acceptance of applicable terms before a purchase is completed.

 

A pair of recent decisions in federal court in Arkansas confirms that nothing about the virtual world changes a core principle of contract formation—that there can be no valid contract without objective manifestation of assent.  The decisions both deal with the efforts of one repeat pro se plaintiff, David Stebbins, to impose upon large institutions binding agreements to arbitrate via email.  These two decisions signal that courts will not relax traditional rules of contract formation merely because of the informality and relative ease of online communication.

The first decision, Stebbins v. Wal-Mart Stores Arkansas, LLC, No. 10-cv-3086, 2011 WL 1519390 (W.D. Ark. Apr. 14, 2011), relates to Stebbins’ interactions with Wal-Mart.  After applying unsuccessfully for a number of jobs at a local store, Stebbins sent an email to the company’s customer service department purporting to extend to Wal-Mart a formal offer to arbitrate any dispute between him and the company through an online arbitration service.  In the email, Stebbins explained that contact by anyone from Wal-Mart, in any form at all, would constitute agreement to be bound by the terms of the email, including submitting to arbitration.  The company responded with generic emails directing Stebbins to another department.  Meanwhile Stebbins, believing that Wal-Mart had accepted his email offer by allowing him to pay by check for a gallon of milk, registered with the online arbitration service, which emailed Wal-Mart that Stebbins intended to arbitrate an employment dispute with the company.  When Wal-Mart did not accept the invitation to arbitrate within 24 hours (a condition imposed by Stebbins under a “forfeit victory” clause in the purported contract), Stebbins claimed that he was entitled to a default arbitration award of over $600 billion, regardless of the merits of the dispute.

In another dispute before the Arkansas federal court, Stebbins v. University of Arkansas, No. 10-cv-5125 (W.D. Ark. May 19, 2011), Stebbins sought a similar agreement with the University of Arkansas relating to his unsuccessful attempts to re-enroll at the university following a suspension in 2007.  Stebbins already had a discrimination suit pending against the university for allegedly failing to accommodate his mental health disability.  While motions to dismiss were being considered, Stebbins emailed the General Counsel’s office a link to a YouTube video containing an offer to arbitrate all legal disputes and specifying that he would deem the offer accepted if the university communicated with Stebbins in any way, allowed him to communicate with university officials, or permitted him on campus.  Stebbins claimed that counsel for the university accepted his offer by fielding a follow-up telephone call and that, by failing to accept the invitation to arbitrate within 24 hours, the university lost the dispute under a “forfeit victory” clause.  Stebbins sought over $50 million and re-enrollment in the university.

Acting pro se, Stebbins moved to confirm both arbitration “awards” in separate actions in Arkansas federal court, a venue in which he had similar actions pending against his landlord and an online arbitration service.  In both cases, the court shut Stebbins down.  In the Wal-Mart case, the court explained that Stebbins could not rely on the concept of unilateral contract—in which a party accepts an offer to contract by performance instead of by express agreement—to prove the existence of a contract.  Stebbins’ emails were merely “self-serving documents that did not form the basis for any conduct or performance on Wal-Mart’s part,” and, indeed, “Wal-Mart performed no act.”

Similarly, in the University of Arkansas case, the court declined to accept Stebbins’ “novel proposition that one party can force a contract on another by sending an offer to contract, and stating therein that conduct entirely unrelated to a showing of agreement to be bound will constitute acceptance.” Distinguishing authority about the enforceability of clickwrap and browsewrap agreements, the court found that Stebbins had failed to demonstrate that the university showed any objective manifestation of assent to the formation of a contract.  The court explained that, if acceptance could be manifested in the ways Stebbins suggested, a contract might be formed if a university employee greeted Stebbins in a grocery store.  But “[t]his, of course, is not how contracts are formed, even on the Internet.”

This pair of cases posed relatively straightforward questions for the courts.  The attempts at contract formation were so one-sided, and the terms of the purported awards so outlandish, that the courts seemed to have little trouble dismissing the claims.  But the cases reinforce a basic notion that might provide comfort to institutions in closer cases—objective manifestation of assent is required no matter what method of communication is used to form a contract.