Second Circuit Determines Arbitration Provision Included in Follow-Up E-mail Not Binding on Online Purchasers

In Schnabel v. Trilegiant Corp., plaintiffs commenced a class action lawsuit in the United States District Court of Connecticut against defendants (Affinion Group, LLC, and its wholly owned subsidiary Trilegiant Corp.) who are in the business of marketing and selling online programs that offer discounts on goods and services in exchange for a membership fee. By paying a monthly membership fee to Trilegiant, a member is eligible to receive discounts on a wide range of products and services including dining, retail shopping, car repair, and travel.

Plaintiffs alleged that without their knowledge and consent were enrolled in one of Trilegiant’s membership programs after making online purchases on Beckett.com (a sports memorabilia website) and Priceline.com (an online travel website). Evidently, after finalizing their purchases, plaintiffs clicked on a hyperlink which invited them to receive “cash back” on their purchases.  Plaintiffs alleged that they were fraudulently induced into entering the membership program when they provided their personal information and a password on a separate enrollment page (but no credit card information). Several months after unknowingly agreeing to the membership program, plaintiffs discovered on their credit card bills that they had been paying $12-$15 per month for this service.

Defendants moved to dismiss the lawsuit and also to compel arbitration pursuant to a provision that mandated binding arbitration and precluded class-wide arbitration.  The arbitration provision was included in the “terms and conditions” section of a hyperlink that was available to plaintiffs when they entered their personal information and password online while enrolling in the program. After plaintiffs signed up for the membership services, defendants also e-mailed the plaintiffs a document with the terms and conditions and therefore argued that they were on notice of the arbitration clause.

On February 24, 2011, the district court (Judge Janet C. Hall) denied the motion to compel arbitration, concluding that the parties had never agreed to arbitrate. Schnabel v. Trilegiant Corp, 10–CV–957, 2011 U.S. Dist. LEXIS 18132 (D. Conn. Feb. 24, 2011).  Recently, a three-judge panel of the Second Circuit (U.S. Circuit Judges Robert D. Sack, Joseph M. McLaughlin and Debra Ann Livingston) affirmed the decision of the lower Court finding that no arbitration agreement was formed. Schnabel v. Trilegiant Corp., No. 11–1311 (2d Cir., Sept. 7, 2012).  A copy of the Order can be found here.  The Second Circuit focused on whether defendants’ terms and conditions that were e-mailed to the plaintiffs after they had enrolled in the program, adequately put them on notice of the arbitration provision. In a detailed holding, the Court determined that the email did not provide sufficient notice to plaintiffs of the arbitration provision, and plaintiffs therefore could not have assented to it solely as a result of their failure to cancel their enrollment in defendants’ service.  In his opinion Judge Sack explained,

[A] reasonable person would not be expected to connect an email that the recipient may not actually see until long after enrolling in a service (if ever) with the contractual relationship he or she may have with the service provider, especially where the enrollment required as little effort as it did for the plaintiffs here.

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The plaintiffs were never put on inquiry notice of the arbitration provision, and their continued credit-card payments, which were auto-debited from their credit cards, were too passive for any reasonable fact finder to conclude that they manifested a subjective understanding of the existence of the arbitration and other emailed provisions and an intent to be bound by them in exchange for the continued benefits Great Fun offered.

In affirming the order of the District Court, the Second Circuit remanded the case for further proceedings.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.