Federal Appeals Court Nixes Credit Score Company’s Bid to Enforce Arbitration Agreement

Federal Appeals Court Nixes Credit Score Company’s Bid to Enforce Arbitration Agreement

Have you ever noticed that most websites place a link at the bottom of at least the site’s home page entitled “Terms of Use” or “Terms of Service” or “Legal”? Most of the time those web sites don’t bother to call attention to those links, even those sites that sell stuff to website viewers. But those links take users to what the website owner considers to be a contract between the user and website that the website believes it can enforce in court if necessary. Can websites claim contracts exist even if the sites do not make users aware of the documents?

The Chicago-based U.S. Court of Appeals for the Seventh Circuit has recently nixed that idea. Sgouros v. TransUnion Corporation, 2016 WL 1169411 (7th Cir. March 25, 2016). In this case, the plaintiff purchased his credit score from the defendant’s website. He took that score to a car dealer and tried to use it in connection with a negotiation for a car loan. The car dealer had a different, lower credit score for the plaintiff. Plaintiff sued TransUnion but TransUnion demanded that the case be heard by an arbitrator pursuant to the requirements of the website’s arbitration agreement. The trial court found there was no such contract formed between Sgouros and TransUnion; the Seventh Circuit agreed.

The digital age has not changed contract basics. A contract can be formed only if there is mutual assent between or among the parties to that so-called contract. Some websites rely on what is known as a browserwrap scenario in which someone is supposedly bound by that website’s terms of service simply by browsing the website. Most courts have said contracts are not formed in this manner; there is no mutual assent unless the website can show that it made users aware a contract that would govern any purchase made through the site. But if the website made no clear and conspicuous effort to make the site user aware of that contract, the user did not assent to the contract; therefore, no contract was formed.

In this case, however, TransUnion claimed a clickwrap agreement existed that illustrated the plaintiff’s assent to the contract which included an agreement to arbitrate all disputes. On the website, Sgouros had to complete three steps in order to purchase a credit score. Step 1 required him to provide some identifying information. Step 2 is illustrated below.

The above-illustrated scroll window was entitled “Service Agreement.” Only the first three lines were visible; the bottom part of the words in the third line was cut off but still readable. Those three lines stated:

Welcome to the TransUnion interactive web site, membership tui.transunion.com (the “Site”).This Service Agreement (“Agreement”) contains the terms and conditions upon which you (“you” or “the member”) may access and use…

Below the scroll window was a hyperlink entitled “Printable Version.” Below that were the following words:

You understand that by clicking on the “I Accept & Continue to Step 3” button below, you are providing “written instructions” to TransUnion Interactive, Inc. authorizing TransUnion Interactive, Inc. to obtain information from your personal credit profile from Experian, Equifax and/or TransUnion. You authorize TransUnion Interactive, Inc. to obtain such information solely to confirm your identity and display your credit data to you.

Sgouros clicked that button referenced and proceeded to Step 3. He was not required to click on the scroll box or to scroll down to read the entire agreement. If he had done that he would have found on page 8 of the printed 10 page agreement an arbitration clause. There was also a notation on the first page of the printed version that the agreement contained an arbitration clause and class action waiver but that was not visible in the scroll box window.

The Seventh Circuit, applying Illinois law to the question of whether Sgouros assented to the agreement, noted that Illinois law uses an objective approach to whether a contract was assented to. In other words, there must be some type of outward expression (words, acts, etc.) that shows assent. That assent, the court noted, is usually clear in the non-digital world when a party signs a written contract. But application of the objective assent rule is not always easy in the digital world. The court compared the Sgouros situation with cruise ship tickets. In cases questioning whether a cruise ship passenger had assented to a cruise ship agreement mentioned on a ticket, the Illinois courts use a two part test: (1) whether the ticket reasonably communicated the existence of the agreements’ terms and conditions at issue in the case and (2) whether the passenger’s retention of the ticket permitted him/her to become meaningfully informed of its contractual terms. See Walker v. Carnival Cruise Lines, Inc., 889 N.E.2d 687 (Ill. App. 2008).

Using this two-part test, the Seventh Circuit did not believe the TransUnion website met its requirements. The court noted that it cannot be presumed that a person who clicks on a button appearing on the website has notice of the site’s contents especially if being able to view that content requires scrolling, following a link, etc. The court compared the Sgouros situation with an earlier Illinois case, Hubbert v. Dell Corp., 835 N.E.2d 113 (Ill. App. 2005). There, the plaintiff purchased a computer online and agreed to the site’s terms of services when he completed the purchased. All five pages that were part of the purchase procedure contained a hyperlink labeled “Terms and Conditions of Sale.” The forms completed by the plaintiff stated” All sales are subject to [the site’s] Terms and Conditions of Sale.” The state appeals court rules that this combination of hyperlinks and the statement was sufficient to put plaintiff on notice that there were terms/conditions attached to the purchase.

The Seventh Circuit noted that, unlike Hubbert, there was nothing brought to Sgouros’ attention indicating that his purchase was subject to any terms and conditions. The scroll box was labeled “Service Agreement” but gave no indication about what that agreement regulated. The “Print Version” link was not labeled “Terms of Use” or “Purchase” or “Service “Agreement.” And the visible lines in the scroll box gave no indication to readers that the purchase of the credit score was subject to that the terms of that agreement. The court concluded that the mere existence of a “Service Agreement” in a scrollable window was, in and of itself, not sufficient to create a binding contract. The requirement that Sgouros click on a button indicated that he was giving permission to find and use his personal information; there was nothing that indicated clicking on the button indicated Sgouros’ agreement to the website’s service agreement.

Bottom line: No arbitration agreement was consented to. Therefore, TransUnion could not invoke the requirements of that agreement to take this case out of court and into the hands of an arbitrator.

How to avoid this problem: Before a website user purchases a product/service from a website, enters a sweepstakes or contest on a website, or does anything else that the site owner expects to be governed by the site’s terms of service agreement, the user should be required to click on a box preceding the following statement: “I have read and I accept the [Terms of Service][Official Rules] etc. which I acknowledge contains an arbitration agreement.” The reference to Terms of Service, Official Rules, etc. should be a hyperlink that will take the user directly to those agreements.

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