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Courts continue to grapple with the enforceability of online agreements. While courts generally enforce clickwrap agreements—online agreements where users affirmatively show their acceptance after being presented with the terms, usually by clicking “I agree”—browsewrap agreements have stood on shakier enforceability grounds. Browsewrap agreements are online terms that, unlike a clickwrap agreement, do not require any affirmative indication of consent. Indeed, users can often continue using a website without ever viewing the terms of a browsewrap agreement, or possibly even knowing they exist. As the Northern District of California’s decision in Alejandro Gutierrez v. FriendFinder Networks Inc. demonstrates, browsewrap agreements are not always unenforceable, but reaching such a determination can be a highly fact-specific inquiry requiring significant discovery—including discovery of offline activities, such as phonecalls between the user and the online service provider.
Continue Reading Just Browsing: District Court Finds Browsewrap Agreement Enforceable
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Companies that offer services, whether online or offline, to consumers on a subscription or other automatic renewal basis should be aware that such offers are heavily regulated at both the federal and state levels. A recent amendment to Section 17602 of California’s Business and Professions Code provides a good opportunity for businesses that make subscription offers to review their practices. As of July 1, 2018, the obligations under California law will expand in two ways that may require businesses to update those practices.
The first change relates to the information that businesses must provide to consumers regarding the terms of a subscription offer. The current law already requires a business to provide certain information about the renewal process—such as the amount of the recurring charges, the length of the renewal period, and the cancellation policy—both before the consumer accepts the agreement, and afterwards in an acknowledgement. The amendment provides that, as of July 1, 2018, if the offer includes any free trial or gift component, the information provided to consumers must also include a “clear and conspicuous explanation of the price that will be charged after the trial ends or the manner in which the subscription or purchasing agreement pricing will change upon conclusion of the trial.”…
Continue Reading Amended California Law Expands Requirements for Consumer Subscriptions
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If your company is involved in selling products or services to consumers in New Jersey over the web or through mobile apps, you’ll want to read this blog post.
In what amounts to a feeding frenzy, plaintiffs’ lawyers are working overtime bringing class action suits against e-commerce companies, alleging that their online terms and conditions violate New Jersey’s unusual Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”). Some of the online retailers to have been sued include Victoria’s Secret, Bed Bath & Beyond and TOYS ‘R’ US, with more suits being filed every day.
Unlike most consumer protection laws, the TCCWNA focuses specifically on the contractual terms governing certain transactions with consumers, imposing limitations on such terms even if such contractual terms are governed by the law of a state other than New Jersey—creating a potential gotcha for e-tailers who are based outside of New Jersey and who traditionally have their online terms and conditions reviewed only by lawyers admitted to practice in the state whose laws govern such terms and conditions.
Although the TCCWNA was enacted in 1981, it has only recently achieved notoriety, as more and more plaintiffs’ lawyers have embraced the statute due to its broad scope and its statutory penalty of not less than $100 per violation without the need to prove actual harm.
Overview of the TCCWNA
New Jersey adopted the TCCWNA over 30 years ago not to create new rights for consumers, but rather to “bolster rights and responsibilities established by other laws,” particularly those established by New Jersey’s Consumer Fraud Act (“CFA”). Observers have noted that the number of TCCWNA cases has been increasing in the last few years, particularly since 2013 when the Supreme Court of New Jersey in Shelton v. Restaurant.com, Inc. found that online certificates or coupons were subject to TCCWNA rules and opened the door to TCCWNA class actions stemming from e-commerce.
The TCCWNA applies where a company is a “seller, lessor, creditor, lender or bailee,” offering its services to a “consumer” or “prospective consumer” in New Jersey. A “consumer,” under the TCCWNA, is defined as “any individual who buys, leases, borrows, or bails any money, property or service which is primarily for personal, family or household purposes.” Indeed, courts have emphasized that the TCCWNA is inapplicable unless the plaintiffs are consumers.
The text of the TCCWNA prohibits three types of provisions in consumer contracts, warranties, notices and signs.
First, it prohibits provisions violating “clearly established” legal rights of a consumer or responsibilities of a seller, lessor, creditor, lender or bailee. These rights and responsibilities may arise from federal or state law. For example, one court found that provisions restricting limitations periods for initiating lawsuits, asserting counterclaims or raising affirmative defenses violate consumers’ rights under federal and New Jersey procedural rules.
Second, the TCCWNA prohibits provisions waiving a consumer’s rights under the TCCWNA. In Johnson v. Wynn’s Extended Care, Inc., for example, the U.S Court of Appeals for the Third Circuit held that a provision in a service contract that prevented the recovery of attorneys’ fees and costs constituted a waiver of a consumer’s rights under the TCCWNA, and was therefore prohibited.
Note, however, that at least two cases have found that a claim under the TCCWNA cannot be based merely upon an omission. As one court noted, the statute’s use of the term “includes” suggests that only a statement affirmatively “included” in the consumer contract, warranty, notice or sign should give rise to liability; in addition, the legislative history does not include any examples of an omission triggering liability.
Third, the TCCWNA prohibits blanket “inapplicable in some jurisdictions” savings clauses (e.g., phrased “void where prohibited”)—though, notably, it does not prohibit such savings clauses in any warranty. In order for a savings clause to be acceptable under the TCCWNA, the statute requires the clause to specify which provisions, if any, are unenforceable in New Jersey.
In one recent case, Martinez-Santiago v. Public Storage, the following language was found to be in violation of the TCCWNA’s prohibition against overly broad savings clauses: “If any provision of this [agreement] shall be invalid or prohibited under [the law of the state where the applicable premises are located], such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions.”
Certain courts, however, have refused to find such a violation of the TCCWNA when the consumer contract, notice or sign is only available within New Jersey, or when the clause uses the alternative “to the extent permitted by law” phrasing, as discussed below.
TCCWNA’s Potential Danger to Online Companies
The TCCWNA is potentially dangerous for companies operating online for at least three reasons.
First, plaintiffs’ lawyers are pushing for an extremely broad application of the statute. They argue that the TCCWNA applies to almost every company providing consumer products online that are available to New Jersey residents, and to any “written consumer contract” and “written consumer warranty, notice or sign” made available to these residents—presumably encompassing nearly all material displayed or offered by a company online.
Third, the TCCWNA is potentially dangerous for companies because it provides an “aggrieved consumer” with the option to seek recovery of a civil penalty of not less than $100. This means the penalties in class actions—especially the penalties in class actions over online terms and conditions—could add up quickly. The text of the statute also allows for actual damages, reasonable attorneys’ fees and court costs in addition to the civil penalty, and further states that such remedies are cumulative and do not preclude recovery available under other laws.
Some Guidance for Online Companies From Emerging TCCWNA Case Law
Because claims arguing that online terms and conditions violate the TCCWNA have been filed only recently, there is only sparse guidance from the courts on how online companies selling into New Jersey can protect against these lawsuits.
Moreover, any such company, if it has not already done so, should promptly contact New Jersey counsel for advice on how to ensure its online terms and conditions are compliant with the TCCWNA.
With those important caveats in mind, recent court decisions applying the TCCWNA do highlight some potential precautionary measures for website operators.
For example, as a first line of defense, it may be prudent for companies to include, and seek to bolster the enforceability of, an arbitration provision and a related class action waiver clause in their online terms and conditions. As an example, in one TCCWNA case, the Supreme Court of New Jersey indicated that an arbitration provision would have been enforceable if it had clearly and unambiguously notified the consumer that she was waiving her statutory right to seek relief in the court of law. While there is no prescribed wording for a valid arbitration provision, one New Jersey court found the following arbitration notice to be acceptable:
The parties to this agreement agree to arbitrate any claim, dispute, or controversy, including all statutory claims and any state or federal claims, that may arise out of or relating to the [subject matter of the agreement]. By agreeing to arbitration, the parties understand and agree that they are waiving their rights to maintain other available resolution processes, such as a court action or administrative proceeding, to settle their disputes.
As a second line of defense, it may be prudent for companies, working with New Jersey counsel, to review and potentially revise their online contracts, warranties and notices in light of TCCWNA cases to date. One approach suggested by existing TCCWNA case law is that businesses can avoid violating the TCCWNA’s prohibition on blanket “inapplicable in some jurisdictions” savings clauses by using different language in their savings clauses to achieve the same result. As noted above, the text of the TCCWNA prohibits savings clauses that state that certain terms “may be void, unenforceable or inapplicable in some jurisdictions” if such clauses do not identify which terms are or are not void, unenforceable or inapplicable in New Jersey. In Kendall v. CubeSmart L.P., however, the United States District Court for the District of New Jersey found that companies could use savings clauses that “attempt…to conform to New Jersey law.” Citing several cases, it held that the phrases “to the extent permitted by law,” “in the manner permitted by applicable law,” “allowed by applicable law” and “or as otherwise permitted by applicable law” were acceptable in savings clauses under the TCCWNA.
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