Conspicuous Buy-Flows and Equitable Estoppel: A Blueprint for Enforcing Arbitration Agreements in E-Commerce

Key Points

• In Nicosia v. Amazon, the court overruled a variety of challenges to enforcement of arbitration agreements, based on Amazon’s reasonably conspicuous disclosure of online terms of use.
• The Nicosia decision provides a helpful point of comparison for reviewing online sign-up or buy flows and effective disclosures of terms of use.
• The decision also addresses the common scenario where a plaintiff borrows another customer’s password and then seeks to evade any arbitration agreement binding on the accountholder.

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A recent federal court decision provides a blueprint for retailers to use principles of equitable estoppel to enforce terms and conditions against third-party users of online accounts.  See Nicosia v. Amazon.com, Inc., No. 14-4513, 2019 U.S. Dist. LEXIS 100162 (E.D.N.Y. June 14, 2019).  Nicosia also offers critical insight into designing buy flows that will render the online terms enforceable, and thoughtfully considers—and rejects—a number of other common defenses to enforcement of online terms.

Background

Plaintiff Dean Nicosia filed a putative class action, alleging that Amazon’s sales of a product called “1 Day Diet” violated the Consumer Product Safety Act, 15 U.S.C. § 2051, et seq., and state law.  Plaintiff purchased the product through an Amazon account belonging to his wife, Annemarie.  As a result, evidence related to her account history ultimately proved dispositive of the question of whether Plaintiff was bound to arbitrate his claims.

Specifically, Amazon presented evidence that Annemarie shared her password with a friend named Dennis, who, with her permission, enrolled Annemarie in Amazon Mom (now known as Amazon Family), a free trial of Amazon’s paid Prime service.  The evidence showed that after her Mom membership expired, Annemarie signed up for Prime, and that Plaintiff subsequently used Annemarie’s Prime account to purchase 1 Day Diet. 

Amazon initially argued that Plaintiff had agreed to its Conditions of Use—including an arbitration clause—based on available disclosures at the time of Plaintiff’s online checkout.  The trial court agreed, but the Second Circuit reversed, holding that “reasonable minds could disagree” whether the checkout page “provided reasonably conspicuous notice” sufficient to bind Plaintiff to the arbitration clause.  Nicosia v. Amazon.com, 834 F.3d 220, 236–37 (2d Cir. 2016).  Noting the use of small font, spatial distance between the relevant notice and the order button, and unrelated items on the page, the court concluded that Amazon’s checkout page was “not sufficient as a matter of . . . law” to place Plaintiff on notice of the arbitration clause.  Id.

On remand—and following discovery—Amazon moved to compel arbitration, this time arguing that Plaintiff was derivatively bound by Amazon’s arbitration clause because Annemarie had agreed to the provision by enrolling in Amazon Mom and Prime.  The court granted the motion, reasoning that the doctrine of equitable estoppel precluded Plaintiff from avoiding an agreement that was binding on the accountholder.  The multistep analysis in the court’s extended opinion offers useful insights for retailers as they consider their online terms.

The Court’s Analysis: Commonsense and Blackletter Law Apply

Retired Sign-up Flows Should Be Archived. The court began by addressing a number of evidentiary objections, including a challenge to Amazon’s evidence as to the Prime sign-up flow. Amazon was unable to present the exact sign-up flow that Annemarie would have seen when signing up for Prime, and instead produced examples of similar online flows, which the court excluded as irrelevant.  Even so, Amazon presented exact images of the relevant Mom sign-up screens that Dennis would have seen, which evidence the Court ultimately found was sufficient.

Agency Principles Apply.  Turning to the substantive matters, the court first considered whether Annemarie assented to the arbitration clause when Dennis borrowed her password and enrolled her account in Amazon Mom.  Because Annemarie gave Dennis her Amazon password and permission to sign her up for Amazon Mom, the court concluded that Dennis had acted as Annemarie’s authorized agent, so as to make his actions binding on her.

Inquiry Notice Is Sufficient.  The court then turned to the question of “whether the Mom sign-up flow provided reasonably conspicuous notice” of the arbitration clause and required the user to consent.  See Nicosia, 2019 U.S. Dist. LEXIS 100162, at *30.  The court had “no difficulty” answering in the affirmative.  Id.  The court noted that the online buy flow “contain[ed] a notice directly below the ‘Sign up for Amazon Mom’ button, which read[], ‘By signing up, you acknowledge that you have read and agree to the Amazon Prime Terms and Conditions . . . .’”  Id. (first emphasis added).  This language linked to the Terms and Conditions and, in turn, to the Conditions of Use that contained the operative arbitration clause.  The court found this interface sufficient, as a matter of law, in that “[t]he proximity of this notice to the ‘Sign up’ button would make it very difficult for any user to miss, and its explicit use of contract-forming language . . . leaves no doubt as to the legal consequences of proceeding with the transaction.”  Id.  Further, the resulting “[i]nquiry notice of the arbitration clause [was] buttressed by the first page of the sign-in flow, which contain[ed] a ‘Continue’ button and, directly above that button, a notice that, ‘By clicking the Continue button, you acknowledge that you agree to the Amazon Mom Terms and Conditions.’”  See id. at *30–31 (emphasis added).

Everyone Knows Online Terms Govern.  The court also considered that “reasonably prudent internet users know that there are terms and conditions attached when they log onto Facebook, order merchandise on Amazon, or hail a ride on Uber.”  See id. at *51.  “They know this, not because a loud, brightly-colored notice on the screen tells them so, but because it would be difficult to exist in our technological society without some generalized awareness of the fact.”  Id.  In addition to acknowledging that the reasonable consumer would be aware of online terms, the court found the specific disclosures provided in connection with the Amazon Mom sign-up were more than sufficient.

Free Trials Matter.  Next, the court determined that Annemarie remained bound by the arbitration clause when her Amazon Mom membership expired and she “manually re-enrolled” in Amazon Prime.  See id. at *35.  Noting that vendors routinely offer free trials that automatically convert to paid subscriptions, the court espoused “no doubt that one who agrees to a contract term as part of a free trial remains bound if they automatically convert to a paid subscription.”  See id. at *34.  In Annemarie’s case, the argument for enforcing arbitration was even stronger: “By affirmatively rolling her Mom membership over into a paid Prime subscription, Annemarie implicitly manifested an assent to remain bound by whatever contractual obligations previously governed the Account while it was enrolled in Mom.”  Id. at *35. 

Password Sharing Is No Defense.  Finally, the court turned to the question of whether Amazon’s arbitration clause was binding on Plaintiff—a question it easily answered in the affirmative.  The court noted that “[p]assword-sharing is a[n] ubiquitous, useful, and generally harmless activity that millions of people engage in.”  Id. at *36 (internal quotation marks and citation omitted).  It follows, then, that password-sharing “cannot be used as a back door to undermine the contractual landscape governing internet commerce.”  Id. at *37 (emphasis added). 

Estoppel Leads to Commonsense Results.  The court then analyzed the facts under theories of traditional equitable estoppel and direct benefits estoppel and found either theory sufficient to render Plaintiff bound by the arbitration clause.  Under the traditional theory, the court explained, “Plaintiff’s use of [Annemarie’s] [a]ccount was tantamount to a representation that he was Annemarie Nicosia (and therefore bound by the arbitration provision to which she had previously agreed).”  Id. at *41.  Accordingly, “equity and fairness” required that “he should be bound by the consequences of that representation as though it were true.”  Id. 

Under the direct benefits test, “a nonsignatory may be compelled to arbitrate where it knowingly accepts the benefits of an agreement with an arbitration clause.”  Id. at *42 (citations and internal quotation marks omitted).  Here, the court explained,
“[P]⁠⁠laintiff knowingly accepted the benefit of Annemarie’s contractual relationship with Amazon,” so “he must also be held to the arbitration clause that governs that relationship.”  Id. at *44.

Takeaways

The court’s well-reasoned opinion reflects long-overdue recognition that online shopping has become commonplace, and shoppers are well aware that online terms govern their transactions.  While it should be welcome news to retailers that commonsense and blackletter law apply, they should still take steps to protect their interests in the event of similar litigation.  Specifically, when faced with this type of litigation, retailers should investigate the entire account history (with an eye towards password sharing) and be prepared to show that the terms—as actually presented to the user at the time—were reasonably conspicuous and, where applicable, that the user provided express consent to those terms.

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