Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-12-56120/USCOURTS-ca9-12-56120-0/pdf.json

Parties Involved:
Erik Knutson
Appellant
Sirius XM Radio Inc.
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ERIK KNUTSON, individually and on

behalf of all others similarly

situated,

Plaintiff-Appellant,

v.

SIRIUS XM RADIO INC.,

Defendant-Appellee.

No. 12-56120

D.C. No.

3:12-cv-00418-

AJB-NLS

OPINION

Appeal from the United States District Court

for the Southern District of California

Anthony J. Battaglia, District Judge, Presiding

Argued and Submitted

February 7, 2014—Pasadena, California

Filed November 10, 2014

Before: Harry Pregerson, Michael R. Murphy*,

and Marsha S. Berzon, Circuit Judges.

Opinion by Judge Pregerson

* The Honorable Michael R. Murphy, Senior Circuit Judge for the U.S.

Court of Appeals for the Tenth Circuit, sitting by designation.

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2 KNUTSON V. SIRIUS XM RADIO

SUMMARY**

Arbitration

The panel reversed the district court’s order dismissing a

putative class action under the federal Telephone Consumer

Protection Act, and granting Sirius XM Radio Inc.’s motion

to compel arbitration pursuant to the Federal Arbitration Act. 

The plaintiff purchased a vehicle from Toyota that

included a 90-day trial subscription to Sirius XM satellite

radio. About a month after his trial subscription was

activated, plaintiff received a “welcome kit” from Sirius XM

that contained a Customer Agreement with an arbitration

clause.

The panel held that Sirius XM failed to prove by a

preponderance of the evidence the existence of an agreement

to arbitrate. The panel held that a reasonable person in

plaintiff’s position could not be expected to understand that

purchasing a vehicle from Toyota would simultaneously bind

him or her to any contract with Sirius XM. The panel further

held that plaintiff’s continued use of the satellite radio service

after his receipt of the Customer Agreement did not manifest

his assent to the provisions in the Customer Agreement.

Because the arbitration clause in the Customer Agreement

was unenforceable for lack of mutual assent, the panel held

it need not decide whether the arbitration provision in the

Customer Agreement was unconscionable. The panel

remanded for further proceedings.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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KNUTSON V. SIRIUS XM RADIO 3

COUNSEL

Abbas Kazerounian (argued) and Mohammad Kazerouni,

Kazerouni Law Group, APC, Costa Mesa, California, for

Plaintiff-Appellant.

Chad S. Hummel (argued), Becca Wahlquist, and Lydia M.

Mendoza, Manatt Phelps & Phillips, LLP, Los Angeles,

California, for Defendant-Appellee.

OPINION

PREGERSON, Circuit Judge:

Plaintiff Erik Knutson (“Knutson”) appeals the district

court’s order dismissing his putative class action and granting

Defendant Sirius XM Radio Inc.’s (“Sirius XM”) motion to

compel arbitration pursuant to the Federal Arbitration Act

(“FAA”). Knutson alleges that he did not consent to enter

into a binding Customer Agreement with Sirius XM, and that

the Customer Agreement as a whole, and the arbitration

provision specifically, are unconscionable.

In November 2011, Knutson purchased a vehicle from

Toyota that included a 90-day trial subscription to Sirius XM

satellite radio. About a month after his trial subscription was

activated, Knutson received a “Welcome Kit” from Sirius

XM that contained a Customer Agreement. Knutson alleges

that during his trial subscription, he received three

unauthorized calls from Sirius XM on his cellphone. In

response to these calls Knutson, in February 2012, brought a

class action suit against Sirius XM alleging violations of the

federal Telephone Consumer Protection Act. The district

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4 KNUTSON V. SIRIUS XM RADIO

court found that both parties consented to enter into the

Customer Agreement and that the arbitration clause was valid

and enforceable under the FAA.

Knutson timely appealed the district court’s judgment. 

We have jurisdiction under 28 U.S.C. § 1291. For the

reasons set forth below, we reverse.

FACTUAL BACKGROUND

I. Knutson’s 90-day Trial Subscription to Sirius XM

Radio

Sirius XM is a satellite radio service that broadcasts

commercial-free channels to more than 20 million

subscribers. Sirius XM has arrangements with many major

automakers, including Toyota, to install satellite radio

receivers in new vehicles. Under these arrangements,

automakers, including Toyota, include a trial subscription to

Sirius XM for some fixed period of time with the purchase or

lease of a vehicle. In November 2011, Knutson purchased a

Toyota Tacoma truck, which came with a 90-day trial

subscription to Sirius XM satellite radio. Knutson’s Sirius

XM account was activated on November 7, 2011, for a trial

period ending February 7, 2012.

On November 29, 2011, Sirius XM mailed a “Welcome

Kit” to Knutson. The Welcome Kit arrived in the mail on or

about December 12, 2011, over a month after Knutson’s

satellite receiver was activated. The Welcome Kit contained

a Sirius XM Customer Agreement.

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KNUTSON V. SIRIUS XM RADIO 5

II. Sirius XM’s Customer Agreement

The Sirius XM Customer Agreement sets out the terms

and conditions of use during a 90-day trial subscription. The

Agreement states that failure to cancel the subscription within

three business days of activation legally binds the customer

to the agreement:

BY ACCESSING OR USING THE SITE OR

THE SERVICE, YOU AGREE TO BE

LE G A LL Y B O U N D B Y T H IS

AGREEMENT. PLEASE DO NOT USE

THE SITE OR THE SERVICE IF YOU DO

NOT AGREE WITH THIS AGREEMENT.

IF YOU DO NOT ACCEPT THESE TERMS,

PLEASE NOTIFY US IMMEDIATELY

AND WE WILL CANCEL YOUR

SUBSCRIPTION. IF YOU DO NOT

CANCEL YOUR SUBSCRIPTION WITHIN

3 BUSINESS DAYS OF ACTIVATION OF

YOUR RECEIVER, IT WILL MEAN THAT

YOU AGREE TO THIS AGREEMENT

WHICH WILLBELEGALLY BINDING ON

YOU.

A separate section entitled, “Cancellation,” provides: “You

may cancel your Subscription at any time by notifying

Listener Care. Your cancellation will become effective on

your next Subscription ‘cycle date.’”

Sirius XM also retains the right to modify the Customer

Agreement by “unilateral amendment . . . and the posting of

such amended version” on the Sirius XM website. Section

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6 KNUTSON V. SIRIUS XM RADIO

B.1 of the Agreement reserves Sirius XM’s right to change

the terms of the agreement at any time, and makes the

changes effective once Sirius XM posts the revised terms on

its website. Customers are also advised to review the website

from time to time to check for revisions.

The Arbitration Provision

The arbitration provision of the Customer Agreement

states that “ANY DISPUTE MAY BE RESOLVED BY

BINDING ARBITRATION.”1 By agreeing to arbitration,

“YOU ARE HEREBY WAIVING THE RIGHT TO GO TO

COURT, INCLUDING THE RIGHT TO A JURY.” The

Agreement requires that “[t]he party initiating arbitration

must follow the rules and procedures of the American

Arbitration Association (“AAA”) . . . and the parties agree

that the arbitration shall be administered by the AAA.” A

copy of the AAA rules did not accompany the Customer

Agreement in the Welcome Kit.

Parties also waive their “right or authority for any claims

to be arbitrated on a class action basis.” The customer does

not “have the right to act as a class representative or

participate as a member of a class of claimants with respect

to any Claim submitted to arbitration (‘Class Action

Waiver’).” The Class Action Waiver is “material and

essential to the arbitration of any disputes . . . and is

nonseverable from this agreement to arbitrate.” But the

“validity and effect of the Class Action waiver” must be

decided by a court.

 

1

 Alternatively, the parties may pursue a claim in small claims court.

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KNUTSON V. SIRIUS XM RADIO 7

Whoever files for arbitration pays the initial filing fee,

unless that party obtains a fee waiver. If the customer

prevails, Sirius XM will reimburse the filing fee. If there is

a hearing, Sirius XM will pay the arbitrator fees for the first

day of the hearing, and other fees “will be allocated as

provided by the rules of the arbitration firm and applicable

law.” The customer will not be “required to reimburse [Sirius

XM] for any arbitration filing, administrative, or hearing fees

in an amount greater than what [their] court costs would have

been if the Claim had been resolved in a state court with

jurisdiction.” Each party bears its own costs, regardless of

which party prevails, but “a party may recover any or all

expenses from another party if the arbitrator, applying

applicable law, so determines.”

If any portion of the arbitration agreement or the Class

Action waiver is “limited, voided or cannot be enforced, then

the parties’ agreement to arbitrate . . . shall be null and void

with respect to such proceeding.” The parties have the “right

to appeal the limitation or invalidation of the Class Action

Waiver.” The limited or voided portion of the arbitration

agreement would then be severed, and “the rest of the

arbitration agreement will continue to apply.” If the entire

arbitration agreement is declared “null and void, then the

parties agree that any actions shall be brought in the State or

Federal courts of New York, New York.”

Knutson did not read the Customer Agreement when it

arrived in the mail because he did not think “that any of the

documents contained therein were a contract governing the

terms of Sirius’ service.” Knutson stated,

I did not realize that there was [an arbitration]

clause in the Customer Agreement until my

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8 KNUTSON V. SIRIUS XM RADIO

attorneys so informed me . . . . I was not given

an opportunity to review the arbitration clause

or even the Customer Agreement itself at the

time that my receiver was activated given that

the Customer Agreement was not provided to

me at that time.

Knutson neither contacted Sirius regarding his subscription,

nor asked to end his trial subscription.

During the 90-day trial period, Knutson received three

telemarketing calls from Sirius XM. Knutson alleges that

these calls were “unauthorized and unsolicited,” and violated

the Telephone Consumer Protection Act. Knutson then

sought to become a representative plaintiff in a nationwide

class action asserting violations of the Telephone Consumer

Protection Act.

PROCEDURAL BACKGROUND

In February 2012, Knutson brought a class action suit

against Sirius XM, alleging violations of the federal

Telephone Consumer Protection Act. In response to

Knutson’s class action complaint, Sirius XM filed a motion

to compel arbitration on April 23, 2012. Sirius XM asserted

that the Customer Agreement is a binding contract that

governs the parties’ relationship. Thus, the Customer

Agreement “requires [Knutson] to arbitrate on an individual

basis and waive any right to participate as a class

representative . . . with respect to any claim against Sirius

XM.”

On May 9, 2012, Knutson filed an opposition to Sirius

XM’s motion to compel arbitration. Knutson responded that

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KNUTSON V. SIRIUS XM RADIO 9

the Customer Agreement was not binding because Sirius XM

mailed the Agreement over a month after the three-day

designated period in which Knutson could reject the terms of

the Agreement. Therefore, Knutson argued, there was no

mutual assent to the terms. Knutson also claimed that

enforcement of the arbitration clause would limit his potential

remedies, specifically his statutory right to seek damages

under the Telephone Consumer Protection Act. In addition,

Knutson alleged that Sirius XM’s Customer Agreement “is

unenforceable as it is an unconscionable adhesion contract.”

On May 20, 2012, District Judge Anthony J. Battaglia

held that there was a binding contract requiring arbitration

because the terms of the Customer Agreement are

conspicuous, and the contract is enforceable even though

Knutson received the Agreement over one month after the

service was activated. Although the arbitration provision in

the Customer Agreement had “elements of procedural

unconscionability” for failing to provide a copy of the AAA

rules, “the Agreement contains all the hallmarks of

substantive conscionability.” The district court granted Sirius

XM’s motion to compel arbitration, and dismissed Knutson’s

case. The instant appeal followed.

STANDARD OF REVIEW

“The district court’s decision to grant or deny a motion to

compel arbitration is reviewed de novo.” Bushley v. Credit

Suisse First Boston, 360 F.3d 1149, 1152 (9th Cir. 2004). 

This court also “review[s] the validity and scope of an

arbitration clause de novo” and “the factual findings

underlying the district court’s decision for clear error.” Cape

Flattery Ltd. v. Titan Mar., LLC, 647 F.3d 914, 917 (9th Cir.

2011).

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10 KNUTSON V. SIRIUS XM RADIO

DISCUSSION

The Federal Arbitration Act (“FAA”) provides that

arbitration agreements generally shall be “valid, irrevocable,

and enforceable.” 9 U.S.C. § 2. But where grounds “exist at

law or in equity for the revocation of any contract,” courts

may decline to enforce such agreements. Id. This provision

reflects both a “liberal federal policy favoring arbitration, and

the fundamental principle that arbitration is a matter of

contract.” AT&T Mobility LLC v. Concepcion, 131 S. Ct.

1740, 1745 (2011) (internal quotation marks and citations

omitted). Under the FAA, the basic role for courts is to

determine “(1) whether a valid agreement to arbitrate exists

and, if it does, (2) whether the agreement encompasses the

dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys.,

Inc., 207 F.3d 1126, 1130 (9th Cir. 2000); see also AT&T

Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648

(1986).

As explained below, applying well-settled principles of

contract law, we conclude that no valid agreement to arbitrate

exists between Knutson and Sirius XM because Knutson

never assented to the Customer Agreement.

No valid agreement exists between Knutson and Sirius

XM.

Sirius XM, as the party seeking to compel arbitration, has

the burden of proving the existence of an agreement to

arbitrate by a preponderance of the evidence. Rosenthal v.

Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 413 (1996).

“[A]rbitration is a matter of contract.” AT&T Techs., Inc.,

475 U.S. at 648 (internal quotation marks and citation

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KNUTSON V. SIRIUS XM RADIO 11

omitted). State contract law controls whether the parties have

agreed to arbitrate. Circuit City Stores, Inc. v. Adams, 279

F.3d 889, 892 (9th Cir. 2002) (noting that although the FAA

preempts state laws that are only applicable to arbitration

agreements, general contract principles and defenses

“grounded in state contract law, may operate to invalidate

arbitration agreements”) (citing Doctor’s Assocs., Inc. v.

Casarotto, 517 U.S. 681, 687 (1996)).

“[A] party cannot be required to submit to arbitration any

dispute which he has not agreed so to submit.” United

Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S.

574, 582 (1960). It is undisputed that under California law,

mutual assent is a required element of contract formation. 

“Mutual assent may be manifested by written or spoken

words, or by conduct,” Binder v. Aetna Life Ins. Co., 75 Cal.

App. 4th 832, 850 (1999), and acceptance of contract terms

may be implied through action or inaction, see Carnival

Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593–95 (1991). 

Thus, “an offeree, knowing that an offer has been made to

him but not knowing all of its terms, may be held to have

accepted, by his conduct, whatever terms the offer contains.” 

Windsor Mills, Inc. v. Collins & Aikman Corp., 25 Cal. App.

3d 987, 991 (1972). Courts must determine whether the

outward manifestations of consent would lead a reasonable

person to believe the offeree has assented to the agreement. 

Meyer v. Benko, 55 Cal. App. 3d 937, 942–43 (1976).

Knutson contends that there was no mutual assent to enter

into the Customer Agreement because he was never given the

opportunity to accept or reject the Agreement. Sirius XM

asserts that after Knutson received the Customer Agreement,

he had an opportunity to both review it and to notify Sirius

XM if he wished to cancel his subscription, but Knutson did

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12 KNUTSON V. SIRIUS XM RADIO

neither. Instead, Sirius XM argues, Knutson continued using

Sirius XM’s service, which indicated his acceptance of the

Customer Agreement, and thus a valid contract between the

parties was formed. Accordingly, we consider (1) whether a

reasonable person in Knutson’s position would understand

that he had assented to the arbitration provision in the Sirius

XM Customer Agreement when he purchased the vehicle

from Toyota, and (2) whether failure to cancel the trial

subscription to Sirius XM after he received the Customer

Agreement constituted an objective manifestation of his

assent to the arbitration provision.

1. “[A]n offeree, regardless of apparent manifestation of

his consent, is not bound by inconspicuous contractual

provisions of which he was unaware, contained in a document

whose contractual nature is not obvious.” Windsor Mills,

Inc., 25 Cal. App. 3d at 993. “This principle of knowing

consent applies with particular force to provisions for

arbitration.” Id. “If a party wishes to bind in writing another

to an agreement to arbitrate future disputes, such purpose

should be accomplished in a way that each party to the

arrangement will fully and clearly comprehend that the

agreement to arbitrate exists and binds the parties thereto.” 

Com. Factors Corp. v. Kurtzman Bros., 131 Cal. App. 2d

133, 136 (1955) (internal quotation marks and citation

omitted). That is not the case here.

When Knutson purchased his vehicle from Toyota, he did

not receive any documents from Sirius XM, and he did not

know that he was entering into a contractual relationship with

Sirius XM by using the service. Instead, he believed that

Sirius XM’s trial subscription was a complimentary service

“provided for marketing purposes.”

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KNUTSON V. SIRIUS XM RADIO 13

As far as Knutson was concerned, then, he had not

entered into an agreement for service with Sirius XM when he

purchased the vehicle. He was, as far as he knew, only in a

contractual relationship with Toyota. A reasonable person in

Knutson’s position could not be expected to understand that

purchasing a vehicle from Toyota would simultaneously bind

him or her to any contract with Sirius XM, let alone one that

contained an arbitration provision without any notice of such

terms. “[N]either expressly or impliedly, neither directly or

indirectly, did the parties ever discuss arbitration or bargain

about it, and certainly they reached no agreement thereon.” 

Com. Factors Corp., 131 Cal. App. 2d at 136.

2. Sirius XM argues nevertheless that although there was

a delay between the activation of the service and Knutson’s

receipt of the Customer Agreement, Knutson’s continued use

of its service after that receipt constituted his assent to be

bound to the Customer Agreement. Sirius XM cites Golden

Eagle Ins. Co. v. Foremost Ins. Co., which states that “[a]s a

general rule, silence or inaction does not constitute

acceptance of an offer. There are several well-recognized

exceptions to this rule. Acceptance of an offer may be

inferred from inaction in the face of a duty to act . . . and from

retention of the benefit offered.” 20 Cal. App. 4th 1372,

1385–86 (1993) (citations omitted); see also Cal. Civ. Code

§ 1589 (“A voluntary acceptance of the benefit of a

transaction is equivalent to a consent to all the obligations

arising from it, so far as the facts are known, or ought to be

known, to the person accepting.”).

Nothing in the record, however, indicates that Sirius

XM’s offer was clearly and effectively communicated to

Knutson by mailing him the Customer Agreement. Knutson

would only have had notice of his opportunity to cancel his

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14 KNUTSON V. SIRIUS XM RADIO

subscription, or the effect of his continued use of the service,

if he opened the Welcome Kit from Sirius and read all of the

documents therein, which—in view of his lack of awareness

of any contractual relationship with Sirius—he had no reason

to do. He could not be obligated to act where there was no

effective notice that action was required. Accordingly,

Knutson’s continued use of the service after his receipt of the

Customer Agreement did not manifest his assent to the

provisions in the Customer Agreement.

3. Sirius XM further argues that its Customer Agreement

is a valid “shrinkwrap” agreement—“where the consumer

purchases prior to getting the detailed terms of the contract.” 

Meridian Project Sys. Inc., v. Hardin Const. Co., LLC, 426 F.

Supp. 2d 1101, 1107 (E.D. Cal. 2006). As a general rule, a

party cannot avoid the terms of a contract by failing to read

them before signing. See Marin Storage &Trucking v. Benco

Contracting & Eng’g, Inc., 89 Cal. App. 4th 1042, 1049

(2001). Yet “[a]n exception to this general rule exists when

the writing does not appear to be a contract and the terms are

not called to the attention of the recipient. In such a case, no

contract is formed with respect to the undisclosed term.” Id. 

That is what happened here.

Sirius XM contends, nevertheless, citing Bischoff v.

DirecTV, Inc., 180 F. Supp. 2d 1097 (C.D. Cal. 2002), and

Lozano v. AT&T Wireless, 216 F. Supp. 2d 1071 (C.D. Cal

2002), order vacated on other grounds by Lozano v. AT&T

Wireless, 2003 WL 2558566 (C.D. Cal. Aug. 18., 2003), that

courts have held the fact that the customer purchased the

service and was later sent the contract terms does not render

the contract unenforceable. But even assuming, without

deciding, that such cases accurately reflect the law of our

circuit, these decisions are inapposite.

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KNUTSON V. SIRIUS XM RADIO 15

In Bischoff, the district court held that a valid and

enforceable arbitration agreement existed between the parties

even though the plaintiff received the customer agreement

after initiating a purchase from DirecTV, the service provider.

180 F. Supp. 2d at 1103–06. The DirecTV customer

agreement arrived by mail after the plaintiff purchased

DirecTV equipment, after he elected to receive DirecTV

programming, and after the activation of satellite television

service. Id. at 1101. The district court reasoned that the time

between the receipt of the agreement and the activation of

services was not “dispositive on the issue of whether a valid

arbitration agreement exists.” Id. at 1105. Instead, “[t]he

more controlling issue is the economic and practical

considerations involved in selling services to mass consumers

which make it acceptable for terms and conditions to follow

the initial transaction.” Id.; see also Lozano, 216 F. Supp. 2d

at 1073 (“providing customers with terms and conditions after

an initial transaction is acceptable, and [] such terms and

conditions are enforceable, including arbitration clauses.”).

But Bischoff and Lozano turn on crucial facts not present

here. In Bischoff, unlike with Knutson, the customer

specifically elected to receive the service directly from the

service provider:

To obtain [television programming] services,

a potential DirecTV customer first purchases

from a retailer the equipment necessary to

receive a satellite signal. The potential

customer then calls DirecTV and becomes a

subscriber by electing to receive one or more

of DirecTV’s numerous programming

packages. A “Customer Agreement,” which

governs the relationship formed between

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16 KNUTSON V. SIRIUS XM RADIO

DirecTV and the customer, is then mailed to

each customer along with the first billing

statement.

Bischoff, 180 F. Supp. 2d at 1101 (internal citations omitted). 

Likewise in Lozano, the customer signed a contract for

service from the service provider, AT&T, and a Welcome

Guide was provided in the box with the newly purchased

phone. Lozano, 216 F. Supp. 2d at 1073 n. 1.

Here, by contrast, there is no evidence that Knutson

purchased anything from Sirius XM, or ever knew that he

was entering into a contractual relationship with the satellite

radio service provider. Unlike in Bischoff, there was no

initial transaction between Knutson and the service provider,

Sirius XM. There was only a transaction between Knutson

and Toyota—Knutson purchased a Toyota truck that came

with a pre-loaded Sirius XM radio receiver, and upon

purchasing the vehicle Knutson received a trial subscription

to Sirius XM. There is no information in the record about

what, if any, language regarding the Sirius XM trial

subscription was in the Toyota purchase contract. As

discussed above, it was never clear to Knutson that he was

entering into an agreement with Sirius XM—he received no

documents about his relationship with Sirius XM at the

outset, nor ever understood that his use of the satellite radio

service bound him to the terms of the Customer Agreement

he would later receive from Sirius XM. Thus, neither

Bischoff nor Lozano supports Sirius XM’s argument that the

Customer Agreement is supported by mutual assent.

4. Even considering the “economic and practical

considerations involved in selling services to mass

consumers,” Bischoff, 180 F. Supp. 2d at 1105, lack of notice

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KNUTSON V. SIRIUS XM RADIO 17

regarding the terms of the Sirius XM Customer Agreement

could be easily remedied by Toyota. The Toyota purchase

agreement could clearly state that Toyota has a relationship

with Sirius XM to provide Toyota customers with a trial

service, and that therefore the Toyota customer is entering

into a contractual relationship with Sirius XM. Toyota could

also provide its customers with literature that similarly

explains the agreement between Sirius XM and the Toyota

customer and ask for assent to such agreement. Because

Sirius XM’s offer was not effectively communicated, there

was no knowing consent to the Customer Agreement,

including the arbitration clause within it.

Applying California law, the Second Circuit has similarly

held that a party to a contract cannot be held to the contract’s

arbitration provision where the plaintiff does not know a

contract exists. In Schnabel v. Trilegiant Corp., 697 F.3d 110

(2d Cir. 2012), plaintiffs made purchases using the travel

website Priceline.com and the sports memorabilia website

Beckett.com, and then separately enrolled in a discount

subscription service with a separate merchant, id. at 114. The

enrollment webpage from the original merchant indicated that

the customer had received a “Special Award.” Id. at 115. 

The plaintiffs were then “presented with separate ‘enrollment

offer’ [web]pages and entered personal information into the

fields on those pages.” Id. In small print, the enrollment

page stated that the customer would receive membership

information, and that there was no obligation to continue to

receive benefits: “[The purchaser can] call us to cancel

before the end of . . . [the] FREE trial and owe us nothing.” 

Id. at 115–16 (alterations in original). The plaintiffs’ credit

cards were then auto-debited during the months of their

membership.

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18 KNUTSON V. SIRIUS XM RADIO

The Schnabel plaintiffs claimed that they did not

intentionally or knowingly enroll in the second merchant’s

discount service, and thus their failure to cancel the service

did not indicate their assent to the arbitration provision

included in the second merchant’s contract terms. Id. at 114. 

As in the present case, the Schnabel plaintiffs argued that it

was not clear that the second merchant’s enrollment form was

an offer from “a party other than the merchant with whom the

[customer was] in the process of completing a purchase.” Id.

at 115.

Unlike the present case, the Schnabel plaintiffs

affirmatively elected to receive the second merchant’s

services—plaintiffs provided their personal information into

a separate enrollment form, and clicked a “Yes” button to

indicate that they had read the “Terms & Conditions” of the

agreement. Id. at 115–16. If the purchaser clicked on the

“Terms & Conditions” hyperlink, the purchaser would see a

webpage that included the arbitration provision at issue. Id.

at 116. A separate email was also sent to the plaintiffs that

included the terms of the agreement with the second

merchant. Id.

Even though the plaintiffs in Schnabel had more notice of

the terms of their agreement than Knutson, the Second Circuit

held that the arbitration provision was unenforceable. 

Although the second merchant sent the agreement containing

the arbitration provision after the customer’s enrollment in

and use of the service,

there was no prior relationship between the

parties that would have suggested that terms

sent . . . after the initial enrollment were to

become part of the contract. . . . Nor would a

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KNUTSON V. SIRIUS XM RADIO 19

reasonable person likely understand in some

other way that disputes arising between him

or her and [the service provider] were to be

resolved by an alternative dispute resolution

procedure.

Id. at 126. The Second Circuit also determined that the autodebiting of the plaintiffs’ credit cards was “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 [the second

merchant] offered.” Id. at 128–29.

As in Schnabel, Knutson could not assent to Sirius XM’s

arbitration provision because he did not know that he was

entering into a contract with Sirius XM. We find the

reasoning of the Second Circuit persuasive, especially

because Knutson provided even less indication of his assent

than the customers in Schnabel. Knutson did not

affirmatively enroll in a subscription service with Sirius XM. 

He did not separately provide his personal information to

Sirius XM. He did not indicate that he had read the terms of

the Sirius XM Customer Agreement. And he did not pay

Sirius XM at any point during the trial subscription period. 

Instead, “[Knutson] respond[ed] to an offer that did not carry

an immediately visible notice of the existence of [contract]

terms or require unambiguous manifestation of assent to

those terms.” Specht v. Netscape Com. Corp., 306 F.3d 17,

31 (2d Cir. 2002) (applying California law to hold that

defendants did not provide reasonable notice of software

license terms where a reasonably prudent Internet user would

not have known or learned of the existence of the terms

before responding to defendant’s invitation to download free

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20 KNUTSON V. SIRIUS XM RADIO

software); see also Nguyen v. Barnes & Noble, Inc., 763 F.3d

1171, 1176 (9th Cir. 2014) (“[C]ourts have consistently

enforced [terms of use] agreements where the user had actual

notice of the agreement . . . [or] where the user is required to

affirmatively acknowledge the agreement before proceeding

with use of the [service],” but not where “there is no evidence

that the [service] user had actual knowledge” or that a

reasonably prudent user would have been on inquiry notice

that a terms of use agreement existed.).

For the reasons stated above, Sirius XM has failed to

prove by a preponderance of the evidence the existence of an

agreement to arbitrate. Because the arbitration clause in the

Customer Agreement is unenforceable for lack of mutual

assent, we need not decide whether the arbitration provision

in the Customer Agreement is unconscionable.

CONCLUSION

For the foregoing reasons, we reverse the district court’s

granting of Sirius XM’s motion to compel arbitration. We

remand to the district court for further proceedings consistent

with this disposition.

REVERSED and REMANDED.

 Case: 12-56120, 11/10/2014, ID: 9306796, DktEntry: 36-1, Page 20 of 20