Reinsurance & Arbitration Focus

The Ninth Circuit recently denied a motion to compel arbitration after concluding that an arbitration agreement "buried" in difficult to access terms for a smartphone app did not put users on constructive notice that they were agreeing to arbitration (and a class action waiver).

Huuuge Inc. operated a smartphone application that allowed users to play casino games. Sean Wilson downloaded and played that app for more than a year. Wilson then filed a putative class action alleging that Huuuge violated the state of Washington's gambling and consumer protection laws by charging users for chips to play the casino games.

Huuuge moved to compel arbitration. It relied on an arbitration agreement and class action waiver in the terms and conditions for the app. The U.S. District Court for the Western District of Washington denied Huuuge's motion to compel arbitration.

The Ninth Circuit affirmed on appeal. The court explained that a "user would need Sherlock Holmes's instincts to discover the [t]erms" containing the arbitration agreement. A user could access the terms in two ways. First, before downloading the app, the user could click on a "more" button in the app store, which took the user to a page that discussed the app. The user would then need to scroll down and see a paragraph that began with: "Read our Terms of Use." Although a "link" was in that paragraph, the user could not click on it. Instead, the user had to copy and paste it into a web browser to access the terms. Second, after downloading the app, the user could click a "three dot 'kebob' menu button in the upper right-hand corner of the home page," which took them to a pop-up menu. The fifth option down on that menu read: "Terms & Policy." Clicking on that option opened the terms, including the arbitration agreement.

Users were not required to view or assent to the terms and conditions. Thus, the agreement was a classic "browsewrap" agreement, which does "not require the user to take any affirmative action to assent to the website terms." (In contrast, a "clickwrap" agreement "require[s] users to affirmatively assent to the terms of use before they can access the website and its services.")

Applying traditional contract law of the state of Washington, the Ninth Circuit concluded that the manner in which Huuuge displayed the arbitration agreement and class action waiver did not put Wilson on constructive notice that he was agreeing to arbitration and a class action waiver. It explained: "Users are put on constructive notice based on the conspicuousness and placement of the terms and conditions, as well as the content and overall design of the app." Constructive notice did not exist where terms are "buried" or "in obscure corners," particularly where scrolling to such areas was not required to use the app. Indeed, the Ninth Circuit noted that "[e]ven where the terms are accessible via a conspicuous hyperlink in close proximity to a button necessary to the function of the website, courts have declined to enforce such agreements."

Huuuge's terms were not anywhere close to meeting the constructive notice standard.

The court also rejected Huuuge's claim that Wilson was on actual notice of the arbitration agreement merely because he was "likely" to have viewed the terms at some point because he played the game so much. The court also concluded that Huuuge had waived its request for discovery regarding actual knowledge, noting that Huuuge chose not to pursue such discovery at the outset, instead moved to compel arbitration, and only then sought discovery (and did so insufficiently in a footnote in its reply brief) after moving to compel arbitration.

Wilson v. Huuuge, Inc., No. 18-36017 (9th Cir. Dec. 20, 2019).