Tricky arbitration agreement is found to be invalid

There are two justice systems in America: the public justice system, with courts, judges, the Supreme Court, the federal and state rules of procedure, and the rules of evidence. Then there is the private justice system, also known as arbitration, in which the parties choose the arbitrator, the rules of evidence and prior precedent don't always apply, appellate options are limited, and the proceeding may operate in secret. In many employment disputes, the employer pays the arbitrator's bill. Many people, upon starting a new job or signing up for a service, "agree" to arbitration by signing a sheet of paper they never read, or by clicking through an internet link with fine print that says that any dispute arising from the relationship (whether an employment relationship or consumer transaction) must be arbitrated and cannot be taken to court. This case asks when the arbitration "agreement" in a consumer transaction can be invalidated.

The case is Soliman v. Subway Franchisee Advertising Fund, issued on June 8. Plaintiff went to a Subway sandwich shop and signed up for a promotion that would give her a free sandwich. All you have to do is send a text message to Subway. Of course, plaintiff signed up for this. Then she opted out of the promotion later on, but the promotional text messages from Subway continued unabated. She sues under the Telephone Consumer Protection Act over the unwanted text messages. The problem is that Subway argues that she has to take the case to arbitration, not court. Arbitration is regarded as a lesser forum for plaintiffs then court, so she challenges Subway's arbitration demand.

Courts normally assume that most arbitration agreements are valid, even if the plaintiff never read them prior to signing them, or if they contain legalese. Most people are not in a position to negotiate the arbitration provision, particularly new hires who want the job and don't have the gumption to take issue with arbitration; they have no bargaining power, and what new employee argues with management about where they might take any future employment dispute?

This case is different. The plaintiff prevails on appeal, as the Second Circuit (Jacobs, Pooler and Bianco) finds the arbitration agreement agrees with the district court in holding the arbitration provision cannot force plaintiff to arbitration because it was too obscure (and frankly, tricky) to place her on notice that any dispute she would have with Subway would have to proceed to arbitration. Here is what the Court of Appeals says about all of this:

Subway has failed to demonstrate that such terms and conditions would be clear and conspicuous to a reasonable person in Soliman’s position for the following reasons:  (1)   Subway failed  to provide   evidence   regarding   the   size   of   the advertisement  at  issue,  or  the  print  size  contained  within  that  advertisement; 2) the reference to “[t]erms and conditions” was buried on the advertisement in a paragraph that was printed in significantly smaller font relative to the other text on  the  advertisement, and  the  reference  itself  was  surrounded  by a  substantial amount of unrelated information; (3) the advertisement only vaguely referenced “[t]erms and conditions,” and did not state that a consumer would be agreeing to those terms if she sent a text message to Subway’s short code, nor did it otherwise direct the consumer to such terms; (4) access to the terms and conditions on the Subway website required Soliman to type in the URL text provided on the hard- copy print advertisement into an internet browser on her cell phone or some other device  with  internet  browsing  capabilities;  and  (5)  once  linked  to  the  Subway website, the heading stated that it contained “terms of use for this website,” thus potentially  suggesting  to  a  reasonable  person (searching  for  conditions of the promotional offer) that the website did not contain any terms or conditions beyond those relevant to the use of the website.  This combination of barriers leads us to conclude that   the   terms and conditions in this case were   not   reasonably conspicuous under the totality of the circumstances and, thus, a reasonable person would not realize she was being bound to such terms and conditions by texting Subway in order to begin receiving promotional offers.

At oral argument in this appeal, the Second Circuit jumped all over Subway's lawyer from the outset, noting that this was a different kind of arbitration case and suggesting the terms of the arbitration provision were too obscure to place anyone on notice that any disputes would have to be arbitrated. Subway's lawyer argued in part that a reasonable consumer would expect that a free sandwich will come with certain conditions. The panel was not buying it, though it did say that no precedents really address a case like this.