Court Opinion

ID: 4466462
Source: CourtListenerOpinion
Date Created: 2019-12-20 18:00:47.726376+00
Date Added: 2024-06-11T14:05:41.776513
License: Public Domain

FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT

 SEAN WILSON, individually and on                     No. 18-36017
 behalf of all others similarly situated,
                      Plaintiff-Appellee,               D.C. No.
                                                     3:18-cv-05276-
                       v.                                 RBL

 HUUUGE, INC., a Delaware
 corporation,                                           OPINION
                Defendant-Appellant.

        Appeal from the United States District Court
          for the Western District of Washington
        Ronald B. Leighton, District Judge, Presiding

            Argued and Submitted August 29, 2019
                     Seattle, Washington

                     Filed December 20, 2019

Before: M. Margaret McKeown and Jay S. Bybee, Circuit
   Judges, and Fernando J. Gaitan, Jr., * District Judge.

                   Opinion by Judge McKeown

     *
       The Honorable Fernando J. Gaitan, Jr., United States District Judge
for the Western District of Missouri, sitting by designation.
2                   WILSON V. HUUUGE, INC.

                          SUMMARY **

                   Notice / Washington Law

   The panel affirmed the district court’s denial of
HUUUGE Inc.’s motion to compel arbitration against a
smartphone app user.

    Under Washington law, the panel held that because
Huuuge did not provide reasonable notice of its Terms of
Use, the app user did not unambiguously manifest assent to
the terms and conditions or the imbedded arbitration
provision. The panel held that the app user had neither actual
notice nor constructive notice of the Terms of Use, and thus
was not bound by Huuuge’s arbitration clause in the Terms.

                            COUNSEL

Jaime Drozd Allen (argued), Stuart R. Dunwoody, Cyrus E.
Ansari, and Benjamin J. Robbins, Davis Wright Tremaine
LLP, Seattle, Washington, for Defendant-Appellant.

Ryan D. Andrews, Roger Perlstadt (argued), and Alexander
G. Tievsky, Edelson PC, Chicago, Illinois, for Plaintiff-
Appellee.

    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
                 WILSON V. HUUUGE, INC.                   3

                        OPINION

McKEOWN, Circuit Judge:

    Smartphone applications have a ubiquitous presence in
our everyday lives. The question of first impression for our
court is under what circumstances does the download or use
of a mobile application (“app”) by a smartphone user
establish constructive notice of the app’s terms and
conditions?

    HUUUGE Inc. (“Huuuge”) appeals the district court’s
denial of its motion to compel arbitration against Sean
Wilson, a smartphone app user. Because Huuuge did not
provide reasonable notice of its Terms of Use (“Terms”),
Wilson did not unambiguously manifest assent to the terms
and conditions or the imbedded arbitration provision. We
affirm the district court’s denial of Huuuge’s motion to
compel arbitration and to stay proceedings.

                    BACKGROUND

    Huuuge is the owner and operator of the smartphone app
Huuuge Casino, which allows smartphone users to gamble
with chips to play casino games. Users can gamble either
with a limited number of free chips or with chips purchased
through the app. Wilson downloaded the app from Apple’s
App Store in early 2017 and played Huuuge Casino for over
a year.

    In April 2018, Wilson filed this class action lawsuit,
alleging Huuuge violated Washington gambling and
consumer protection laws by charging users for chips in its
app. Huuuge moved to compel arbitration under the Federal
Arbitration Act (“FAA”), alleging that Wilson was on
4                WILSON V. HUUUGE, INC.

inquiry notice of its Terms, which include a binding
arbitration provision that prohibits class actions.

    Huuuge does not require users to affirmatively
acknowledge or agree to the Terms before downloading or
while using the app. Users can access Huuuge’s Terms in
two ways: 1) reading the Terms before downloading the app,
although the user is not required to do so; or 2) viewing the
Terms during game play, which is similarly not necessary to
play the game. Either way, the user would need Sherlock
Holmes’s instincts to discover the Terms.

    Typically, a user would first search for the app in a
smartphone app store. One option is to download the app
directly from the search results, in which case the user does
not view anything that alerts him to the existence of the
Terms. Alternatively, instead of a direct download, the user
would need to click through to Huuuge Casino’s landing
page. Next, the user must click on the small blue text stating
“more” in the app’s description (Figure A), which reveals
the app’s full profile (Figure B). The user would then need
to scroll through several screen-lengths of text to encounter
a paragraph that starts with “Read our Terms of Use,” and
includes the text of a link to the Terms (Figure C). The link,
however, doesn’t magically conjure the Terms. Instead, the
user must copy and paste or manually enter the URL into a
web browser to access the Terms.
WILSON V. HUUUGE, INC.   5

      Figure A
6   WILSON V. HUUUGE, INC.

          Figure B
WILSON V. HUUUGE, INC.   7

      Figure C
8               WILSON V. HUUUGE, INC.

    Once a user has downloaded the app, the user can play
games immediately. During gameplay, a user can view the
Terms by accessing the settings menu. The settings menu
can be accessed by clicking on a three dot “kebob” menu
button in the upper right-hand corner of the home page
(Figure D).

                        Figure D
                 WILSON V. HUUUGE, INC.                    9

    If a user clicks on the button, a pop-up menu of seven
options appears (Figure E). The fifth option is titled “Terms
& Policy” and reveals the Terms, including the arbitration
agreement.

                         Figure E

    It is not necessary for a user to open the settings menu
while playing the app. Nor is there a requirement to
acknowledge or agree to the Terms when opening the app,
creating an account, playing the game, or at any other point.

    When a user accesses the Terms, the following
arbitration provision appears:

       EXCEPT AS SPECIFICALLY STATED
       HEREIN, ANY DISPUTE OR CLAIM
       BETWEEN    YOU   AND   HUUUGE
       ARISING OUT OF, OR RELATING IN
       ANY WAY TO, THE TERMS, THE
       SERVICE OR YOUR USE OF THE
       SERVICE, OR ANY PRODUCTS OR
10               WILSON V. HUUUGE, INC.

       SERVICES OFFERED OR DISTRIBUTED
       THROUGH THE SERVICE (“DISPUTES”)
       SHALL BE RESOLVED EXCLUSIVELY
       BY FINAL, BINDING ARBITRATION. . . .

       YOU AGREE THAT YOU MAY BRING
       CLAIMS AGAINST HUUUGE ONLY IN
       YOUR INDIVIDUAL CAPACITY AND
       NOT AS A PLAINTIFF OR CLASS
       MEMBER IN ANY PURPORTED CLASS
       OR REPRESENTATIVE PROCEEDING.
       IN ADDITION, YOU AGREE THAT
       DISPUTES SHALL BE ARBITRATED
       ONLY ON AN INDIVIDUAL BASIS AND
       NOT IN A CLASS, CONSOLIDATED OR
       REPRESENTATIVE     ACTION.  THE
       ARBITRATOR DOES NOT HAVE THE
       POWER TO VARY THESE PROVISIONS.

    Huuuge claims Wilson is bound by the arbitration
provision because Wilson had constructive notice both when
he downloaded the app and during its use. Wilson, however,
argues the app’s Terms were not conspicuous when he
downloaded the app or during gameplay. The district court
agreed with Wilson and denied Huuuge’s motion to compel
arbitration. The district court further found that “actual
knowledge [was] not an issue” because Huuuge did not
“present any evidence of Wilson’s actual knowledge.”

                       ANALYSIS

    The FAA requires district courts to stay judicial
proceedings and compel arbitration of claims covered by a
written and enforceable arbitration agreement. 9 U.S.C. § 3.
The limited role of the district court under the FAA is to
                  WILSON V. HUUUGE, INC.                     11

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). This dispute falls
squarely within the first prong of the inquiry. We review de
novo both the denial of the motion to compel arbitration, Cox
v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir.
2008), and “[t]he interpretation and meaning of contract
provisions,” Milenbach v. Comm’r, 318 F.3d 924, 930 (9th
Cir. 2003).

    Huuuge, as the party seeking to compel arbitration, must
prove the existence of a valid agreement by a preponderance
of the evidence. Norcia v. Samsung Telecomms. Am., LLC,
845 F.3d 1279, 1283 (9th Cir. 2017). To determine whether
such an agreement exists, “federal courts ‘apply ordinary
state-law principles that govern the formation of contracts.’”
Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th
Cir. 2014) (quoting First Options of Chi., Inc. v. Kaplan, 514
U.S. 938, 944 (1995)).

    The parties agree that Washington state law governs the
validity of the arbitration agreement since there is no choice
of law provision in the agreement and the district court has
diversity jurisdiction. See First Options of Chi., Inc., 514
U.S. at 944.

    As we have acknowledged many times, although online
commerce has presented courts with new challenges,
traditional principles of contract still apply. See, e.g., In re
Holl, 925 F.3d 1076, 1084 (9th Cir. 2019); Nguyen, 763 F.3d
at 1175. A contract is formed when mutual assent exists,
which generally consists of offer and acceptance. Weiss v.
Lonnquist, 224 P.3d 787, 792 (Wash. Ct. App. 2009). Like
many states, Washington does not allow parties to shirk
contract obligations if they had actual or constructive notice
12                WILSON V. HUUUGE, INC.

of the provisions. See W. Consultants, Inc. v. Davis, 310 P.3d
824, 827-28 (Wash. Ct. App. 2013); see also Nguyen, 763
F.3d at 1177 (applying similar California law). In the context
of online agreements, the existence of mutual assent turns on
whether the consumer had reasonable notice of the terms of
service agreement. Nguyen, 763 F.3d at 1177; Wilson v.
Playtika, Ltd., 349 F. Supp. 3d 1028, 1037 (W.D. Wash.
2018).

    We first consider the issue of actual notice. The district
court determined actual notice was not at issue when it
denied Huuuge’s motion to compel. According to the district
court, at best Huuuge suggested in its reply brief that
“Wilson was ‘likely’ to have viewed the Terms at some point
because he played the game many times.” We agree with the
district court’s conclusion that “Huuuge does not present any
evidence of Wilson’s actual knowledge.” Now Huuuge
contends it was entitled to additional discovery with respect
to actual notice. That request was first raised in a footnote in
Huuuge’s reply brief on its motion to compel arbitration;
Huuuge stated if the district court planned on ruling against
Huuuge, it should first be allowed to engage in limited
discovery.

    Although the district court did not expressly deny
Huuuge’s discovery request, it implicitly did so in its
reasoning rejecting Huuuge’s argument. Whether we review
this issue de novo or for abuse of discretion, the result is the
same. See Stevens v. Corelogic, Inc., 899 F.3d 666, 677 (9th
Cir. 2018) (reviewing denial of discovery de novo where the
district court denies a motion to compel additional discovery
as moot without considering its merits).

    The district court did not err in not permitting discovery
on actual notice before denying the motion to compel
arbitration. Huuuge wanted it both ways—if it won the
                  WILSON V. HUUUGE, INC.                     13

motion to compel, great; if it didn’t win, only then did it want
discovery. Although Huuuge had the burden to present
evidence of actual notice, it rolled the dice and chose not to
pursue additional discovery at the outset, instead moving to
stay discovery pending the motion to compel arbitration.
Huuuge, as operator of the app, undoubtedly had at least
some information probative of actual notice in its control,
but it offered nothing on the actual notice issue. Finally,
Huuuge waived its discovery request as it was insufficiently
raised in a two-line footnote in a reply brief. Put simply,
Huuuge’s discovery request was too little, too late.

    We now move to the issue of constructive notice. Just as
we have applied traditional contract principles to online
contracts, we do so here too. Online contracts fall into two
broad categories. Nguyen, 763 F.3d at 1175-76. Clickwrap
agreements require users to affirmatively assent to the terms
of use before they can access the website and its services.
Browsewrap agreements do not require the user to take any
affirmative action to assent to the website terms. Id. In some
situations, a user may not even know a website has a user
agreement.

    Huuuge’s agreement is unambiguously a browsewrap
agreement. Wilson was not required to assent to Huuuge’s
Terms before downloading or using the app—or at any point
at all. Huuuge did not notify users that the app had terms and
conditions, let alone put them in a place the user would
necessarily see. Instead, a user would need to seek out or
stumble upon Huuuge’s Terms, either by scrolling through
multiple screens of text before downloading the app or
clicking the settings menu within the app during gameplay.

    In the absence of actual knowledge, a reasonably prudent
user must be on constructive notice of the terms of the
contract for a browsewrap agreement to be valid. Id. at 1177.
14                WILSON V. HUUUGE, INC.

In Nguyen v. Barnes & Noble, we stressed that “the onus
must be on website owners to put users on notice of the terms
to which they wish to bind consumers.” Id. at 1179. The
burden similarly falls on app operators.

    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. Id. at
1177. For example, courts will not enforce agreements
where the terms are “buried at the bottom of the page or
tucked away in obscure corners of the website,” especially
when such scrolling is not required to use the site. Id. (citing
to Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 23 (2d
Cir. 2002)). Similarly, courts decline to enforce agreements
where the terms are available only if users scroll to a
different screen, Hines v. Overstock.com, Inc., 668 F. Supp.
2d 362, 367 (E.D.N.Y. 2009), complete a multiple-step
process of clicking non-obvious links, Van Tassell v. United
Mktg. Grp., 795 F. Supp. 2d 770, 792-93 (N.D. Ill. 2011), or
parse through confusing or distracting content and
advertisements, Starke v. SquareTrade, Inc., 913 F.3d 279,
293 (2d Cir. 2019); Nicosia v. Amazon.com, Inc., 834 F.3d
220, 237 (2d Cir. 2016). Even 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. Nguyen, 763 F.3d at 1178-79.

    Huuuge’s app is littered with these flaws. When
downloading the app, the Terms are not just submerged—
they are buried twenty thousand leagues under the sea.
Nowhere in the opening profile page is there a reference to
the Terms. To find a reference, a user would need to click on
an ambiguous button to see the app’s full profile page and
scroll through multiple screen-lengths of similar-looking
paragraphs. Once the user unearths the paragraph
                  WILSON V. HUUUGE, INC.                     15

referencing the Terms, the page does not even inform the
user that he will be bound by those terms. There is no box
for the user to click to assent to the Terms. Instead, the user
is urged to read the Terms—a plea undercut by Huuuge’s
failure to hyperlink the Terms. This is the equivalent to
admonishing a child to “please eat your peas” only to then
hide the peas. A reasonably prudent user cannot be expected
to scrutinize the app’s profile page with a fine-tooth comb
for the Terms.

     Accessing the terms during gameplay is similarly a hide-
the-ball exercise. A user can view the Terms through the
“Terms & Policy” tab of the settings menu. Again, the user
is required to take multiple steps. He must first find and click
on the three white dots representing the settings menu,
tucked away in the corner and obscured amongst the brightly
colored casino games. The “Terms & Policy” tab within the
settings is buried among many other links, like FAQs,
notifications, and sound and volume. The tab is not bolded,
highlighted, or otherwise set apart.

    Huuuge argues Wilson’s repeated use of the app places
him on constructive notice since it was likely he would
stumble upon the Terms during that time period. However,
just as “there is no reason to assume that [users] will scroll
down to subsequent screens simply because screens are
there,” there is no reason to assume the users will click on
the settings menu simply because it exists. Specht, 306 F.3d
at 32. The user can play the game unencumbered by any of
the settings. Nothing points the user to the settings tab and
nowhere does the user encounter a click box or other
notification before proceeding. Only curiosity or dumb luck
might bring a user to discover the Terms.

   Instead of requiring a user to affirmatively assent,
Huuuge chose to gamble on whether its users would have
16               WILSON V. HUUUGE, INC.

notice of its Terms. The odds are not in its favor. Wilson did
not have constructive notice of the Terms, and thus is not
bound by Huuuge’s arbitration clause in the Terms. We
affirm the district court’s denial of Huuuge’s motion to
compel arbitration.

     AFFIRMED.