Court Opinion

ID: 4150104
Source: CourtListenerOpinion
Date Created: 2017-03-03 18:00:31.312836+00
Date Added: 2024-06-11T07:46:30.049997
License: Public Domain

NOT PRECEDENTIAL
                  UNITED STATES COURT OF APPEALS
                       FOR THE THIRD CIRCUIT
                            _____________

                                No. 16-1903
                               _____________

                   DAVID W. NOBLE, individually and on
                     behalf of others similarly situated

                                      v.

                SAMSUNG ELECTRONICS AMERICA, INC.,
                                     Appellant
                         _______________

                On Appeal from the United States District Court
                        for the District of New Jersey
                           (D.C. No. 2-15-cv-03713)
                   District Judge: Hon. Madeline C. Arleo
                              _______________

                                   Argued
                               January 13, 2017

     Before: SMITH, Chief Judge, JORDAN, and SHWARTZ, Circuit Judges.

                        (Opinion Filed: March 3, 2017)
                              _______________

S. Gale Dick [ARGUED]
Cohen & Gresser
800 Third Avenue
New York, NY 10022
Samuel P. Moulthrop
Stephanie R. Wolfe
Riker Danzig Scherer Hyland & Perretti
One Speedwell Avenue
Headquarters Plaza
Morristown, NJ 07962
      Counsel for Appellant

Rachel M. Clattenburg [ARGUED]
Scott L. Nelson
Public Citizen Litigation Group
1600 20th Street, N.W.
Washington, DC 20009

Joseph J. DePalma
Lite DePalma Greenberg
570 Broad Street
Suite 1201
Newark, NJ 07102

Benjamin D. Elga
Cuneo Gilbert & LaDuca
16 Court Street
Suite 1012
Brooklyn, NY 11241
      Counsel for Appellee
                                     _______________

                                        OPINION
                                     _______________

JORDAN, Circuit Judge.

       From David Noble’s point of view, perhaps the only thing more frustrating than

the weak battery in his Samsung Galaxy Gear S Smartwatch has been Samsung’s effort to

force him into arbitration after he brought suit. That effort failed in the District Court,

       
        This disposition is not an opinion of the full court and, pursuant to I.O.P. 5.7,
does not constitute binding precedent.

                                              2
but Samsung now appeals from the denial of its motion to compel arbitration in this

putative class action. It argues that a reference to arbitration located on the ninety-

seventh page of the “Health and Safety and Warranty Guide” contained within the

Smartwatch package is a binding contract under New Jersey law and therefore entitles it

to have Noble’s claims decided by an arbitrator. The District Court rejected that

argument, and, because we do too, we will affirm.

I.     Factual Background1

       Noble purchased his Samsung Smartwatch from an AT&T store after seeing

advertisements saying that the device’s battery lasted 24 to 48 hours with typical use.

But Noble’s Smartwatch battery lasted only about four hours, so he returned the

Smartwatch and received a new one. The second Smartwatch suffered from the same

battery problem, so Noble again went back to the AT&T store and, this time, was

directed to ship the Smartwatch to Samsung. Samsung then sent Noble a third

Smartwatch with equally poor battery life.

       Inside each of the Smartwatch boxes that Noble received was a 3.1-inch by 2.5-

inch, 143-page document, titled “Health and Safety and Warranty Guide” (the “Guide”).

The cover of the Guide directs the watch user to “[p]lease read this manual before

operating your device and keep it for future reference.” (App. at 51.) The next eight

pages include numerous legal disclaimers and warnings, followed by a table of contents

       1
        Given the stage of the proceedings, we recount this background based solely on
Noble’s allegations. See Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764,
771 (3d Cir. 2013) (explaining that a motion to compel arbitration filed after the
complaint, but before discovery, should be considered under the Federal Rule of Civil
Procedure 12(b)(6) standard).
                                              3
with three sections and many subsections. The table of contents indicates that “Warranty

Information” begins on page eighty-six and includes a “Standard Limited Warranty”

(App. at 61), but nowhere is there mention of an agreement to arbitrate. The table of

contents also references an index beginning on page 133, though, the index itself – like

the table of contents – does not mention an agreement to arbitrate.

       On page ninety-seven of the Guide, there is a question in bold face type that reads

“What is the procedure for resolving disputes?” (App. at 156 (emphasis omitted).)

Below that question is the following text:

       ALL DISPUTES WITH SAMSUNG ARISING IN ANY WAY FROM
       THIS LIMITED WARRANTY OR THE SALE, CONDITION OR
       PERFORMANCE OF THE PRODUCTS SHALL BE RESOLVED
       EXCLUSIVELY THROUGH FINAL AND BINDING ARBITRATION,
       AND NOT BY A COURT OR JURY.

       Any such dispute shall not be combined or consolidated with a dispute
       involving any other person’s or entity’s Product or claim, and specifically,
       without limitation of the foregoing, shall not under any circumstances
       proceed as part of a class action.

(App. at 156.) This purported arbitration clause (the “Clause”) continues through page

102 and, in its final paragraph, states that consumers may opt-out of the “dispute

resolution procedure by providing notice to SAMSUNG no later than 30 calendar days

from the date of the first consumer purchaser’s purchase of the Product.” (App. at 159-

60 (emphasis omitted).)

II.    Procedural Background

       Noble filed a Complaint in the United States District Court for the District of New

Jersey on behalf of himself and others similarly situated, alleging six causes of action

                                             4
based on (1) the New Jersey Consumer Fraud Act (“NJCFA”), (2) common law fraud, (3)

negligent misrepresentation, (4) breach of an express warranty, (5) breach of the implied

warranty of merchantability, and (6) unjust enrichment. All of those claims arise out of

what is said to be Samsung’s “fraudulent and deceptive marketing and pricing” related to

the battery life of the Smartwatch. (App. at 20.)

       Samsung moved to compel arbitration on all of Noble’s individual claims and to

dismiss his class claims, citing the Clause. The District Court held that Samsung had not

provided reasonable notice of the arbitration provision and, consequently, Noble could

not be treated as if he had assented to it. In short, there was no meeting of the minds and

no binding contract under New Jersey law. Although the Court recognized that the Guide

was readily available, the issue was whether the Clause itself was “readily ascertainable

or unreasonably hidden.” (App. at 13.) The Court determined that the Clause was

unreasonably hidden and that Samsung’s motion thus had to be denied. This timely

appeal followed.

III.   Discussion2

       “We exercise plenary review over questions regarding the validity and

enforceability of an agreement to arbitrate.” Quilloin v. Tenet HealthSystem Phila., Inc.,

673 F.3d 221, 228 (3d Cir. 2012) (quoting Puleo v. Chase Bank USA, N.A., 605 F.3d 172,

177 (3d Cir. 2010)). When the merit, or lack thereof, in the affirmative defense of

arbitrability can be discerned from the face of a complaint or documents that the

       2
         The District Court had jurisdiction under 28 U.S.C. § 1332(d)(2) and 9 U.S.C.
§ 4. We have jurisdiction to review the District Court’s denial of the motion to compel
arbitration pursuant to 9 U.S.C. § 16(a)(1)(B).
                                             5
complaint relies on, a motion to compel arbitration can be resolved under the same kind

of standard applicable to a motion to dismiss under Federal Rule of Civil Procedure

12(b)(6), without the inherent delay of discovery. Guidotti v. Legal Helpers Debt

Resolution, LLC, 716 F.3d 764, 773-74 (3d Cir. 2013) (citation omitted). That is the case

here, so the question is whether, accepting all factual allegations as true and construing

the Complaint in the light most favorable to Noble, it is clear that Samsung is either

entitled to arbitration or that it is not. In making that determination, we are permitted to

“consider the substance of the contracts that ostensibly compel arbitration.” CardioNet,

Inc. v. Cigna Health Corp., 751 F.3d 165, 168 n.2 (3d Cir. 2014) (citation omitted).

       “[A] question of arbitrability arises only in two circumstances – first, when there is

a threshold dispute over ‘whether the parties have a valid arbitration agreement at all,’

and, second, when the parties are in dispute as to ‘whether a concededly binding

arbitration clause applies to a certain type of controversy.’” Puleo, 605 F.3d at 178

(quoting Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003)). We are concerned

here only with the first of those alternatives, the question of validity. The validity of an

arbitration agreement is determined under ordinary principles of state contract law, First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995), and it is undisputed that

the operative state law in this instance is New Jersey’s. 3 Under New Jersey law, a

       3
         At oral argument, Samsung argued that the Clause is part of a written warranty
and should thus be upheld under validity principles applicable to warranties, rather than
bilateral contracts more generally. In New Jersey, “[a]ny affirmation of fact or promise
made by the seller to the buyer which relates to the goods … creates an express warranty
that the goods shall conform to the affirmation or promise.” N.J. Stat. Ann. § 12A:2-
313(1)(a). The Clause is plainly not a warranty under New Jersey law. Therefore,
                                              6
binding contract requires four things: an offer and acceptance, consideration, a meeting of

the minds, and sufficiently definite terms. Serrins & Assocs., LLC v. Hanover Direct,

Inc., No. A-5629-11T4, 2014 WL 3928523, at *9 (N.J. Super. Ct. App. Div. Aug. 13,

2014) (citing Weichert Co. Realtors v. Ryan, 608 A.2d 280, 284 (N.J. 1992)). Noble and

Samsung dispute whether there was a meeting of the minds, “an essential element to the

valid consummation of any contract.” Ctr. 48 Ltd. P’ship v. May Dep’t Stores Co., 810

A.2d 610, 619 (N.J. Super. Ct. App. Div. 2002).

       A meeting of the minds, or mutual assent, “requires that the parties have an

understanding of the terms to which they have agreed.” Atalese v. U.S. Legal Servs.

Grp., L.P., 99 A.3d 306, 313 (N.J. 2014), cert. denied, 135 S. Ct. 2804 (2015). That

necessarily requires reasonable notice to each contracting party of the contractual terms.

Hoffman v. Supplements Togo Mgmt., LLC, 18 A.3d 210, 218 (N.J. Super. Ct. App. Div.

2011). Once there is reasonable notice, a party is bound by those terms, even if he failed

to read them. See Specht v. Netscape Commc’ns Corp., 306 F.3d 17, 30 (2d Cir. 2002)

(applying California’s reasonable notice requirement); Hoffman, 18 A.3d at 218

(recognizing that California and New Jersey have identical reasonable notice

requirements). But, “when the writing does not appear to be a contract and the terms are

not called to the attention of the recipient,” there is no reasonable notice and the terms

cannot be binding. Specht, 306 F.3d at 30. Therefore, contractual terms, including an

Samsung’s argument is unavailing and ordinary contract formation principles apply. See
Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1288 (9th Cir. 2017)
(distinguishing between “warranty law and contract law, which are governed by different
sets of rules”).
                                              7
arbitration clause, will only be binding when they are “reasonably conspicuous,” id. at

32, rather than “proffered unfairly, or with a design to conceal or de-emphasize its

provisions.” Caspi v. Microsoft Network, L.L.C., 732 A.2d 528, 532 (N.J. Super. Ct.

App. Div. 1999). Here, the document in which the Clause was included did not appear to

be a bilateral contract, and the terms were buried in a manner that gave no hint to a

consumer that an arbitration provision was within. See Specht, 306 F.3d at 30

(explaining that a reasonable consumer cannot be deemed to have consented to a writing

that does not even appear to be a contract).

       More particularly, there was no indication on the outside of the Guide that it was a

bilateral contract or included any terms or conditions. In fact, the cover of the Guide

referred to itself only as a “manual.” (App. at 51.) Those facts alone distinguish this case

from those in which shrinkwrap4 or clickwrap5 agreements were found to be binding,

because those agreements clearly informed consumers that they were agreeing to certain

terms.6 With the Samsung Smartwatch, a consumer would open the package and find

       4
         Shrinkwrap agreements, sometimes called “in-the-box contracts,” are terms
included in a document inside the box that contains the purchased product. The failure to
return the product after removing the plastic shrinkwrap from the box and unpacking the
product may constitute assent to the terms. Schnabel v. Trilegiant Corp., 697 F.3d 110,
121-22 (2d Cir. 2012).
       5
        Clickwrap agreements are terms that appear on a consumer’s computer screen
and to which a consumer can manifest assent by clicking on an icon indicating
agreement. Hoffman v. Supplements Togo Mgmt., LLC, 18 A.3d 210, 219 (N.J. Super.
Ct. App. Div. 2011).
       6
        See, e.g., Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148 (7th Cir. 1997)
(product packaging contained stand-alone “statement of terms” that consumer admitted
noticing); ProCD v. Zeidenberg, 86 F.3d 1447, 1450-52 (7th Cir. 1996) (product box
                                               8
only the Guide and an instruction to “[p]lease read this manual before operating your

device and keep it for future reference.” (App. at 51.) The outside of the “Health and

Safety and Warranty Guide” does not include any language indicating that bilateral

contractual terms or conditions are inside, let alone an arbitration agreement.7 Nor does

the table of contents provide a hint. It lists an “End User License Agreement for

Software” beginning on page 105, but it includes no language to tell consumers to expect

bilateral terms, such as a binding arbitration agreement, in the Guide. (App. at 61.) The

index too is devoid of any reference to the Clause.

       Faced with a nearly identical case, the United States Court of Appeals for the

Ninth Circuit rejected Samsung’s argument that an arbitration agreement was created by

language tucked away in a brochure titled “Product Safety & Warranty Information.”

The Court said that, “[b]ecause ‘an offeree … is not bound by inconspicuous contractual

provisions of which he was unaware, contained in a document whose contractual nature

is not obvious,’ [the plaintiff] was not bound by the arbitration provision even if the in-

the-box contract were otherwise enforceable under California law.” Norcia v. Samsung

declared that binding terms were stated in an enclosed agreement and those terms
appeared every time the program was used); Mortenson Co. v. Timberline Software
Corp., 970 P.2d 803, 806 (Wash. App. 1999) (terms were printed on each disk envelope,
inside the cover of the user agreement, and appeared on the computer screen every time
the program was used), aff’d, 998 P.2d 305 (Wash. 2000); Caspi v. Microsoft Network,
L.L.C., 732 A.2d 528, 532 (N.J. Super. Ct. App. Div. 1999) (plaintiffs clicked that they
agreed to the terms); Feldman v. Google, Inc., 513 F. Supp. 2d 229, 237 (E.D. Pa. 2007)
(plaintiff clicked agreement to notice entitled “terms and conditions”).
       7
        Regardless of whether a warranty may be considered a type of contract – a
question which we need not answer here – notice of a warranty does not, by itself,
provide notice of an ensuing bilateral contract term, such as an arbitration clause.
                                              9
Telecomms. Am., LLC, 845 F.3d 1279, 1285 (9th Cir. 2017) (quoting Windsor Mills, Inc.

v. Collins & Aikman Corp., 101 Cal. Rptr. 347, 351 (Cal. Ct. App. 1972)).

       Ultimately, the only manner in which a consumer could receive notice of the

Clause at issue here would be to read ninety-seven pages into the Guide where the Clause

appears, or to happen upon page ninety-seven by luck. While it may sometimes be

presumed that consumers agree to contractual provisions of which they are on notice,8

that presumption is warranted only where there is a reasonable basis to conclude that

consumers will have understood the document contained a bilateral agreement. Because

the contractual provision here appears on the ninety-seventh page of a “Health and Safety

and Warranty Guide” that gives no notice of something claiming to be a binding bilateral

agreement and waiver of legal rights, we will not presume that consumers read or had

notice of that purportedly binding agreement.9 The District Court correctly concluded

that there was no mutual assent here because Noble lacked reasonable notice of the

arbitration provision. The Clause, in short, is not a valid contractual term.

       8
         See, e.g., Carfaro v. Blue Haven Pools Ne., Inc., No. A-2803-13T3, 2015 WL
1980705, at *5 (N.J. Super. Ct. App. Div. May 5, 2015) (upholding a forum selection
clause where “[t]he provisions … [we]re immediately viewable, on the reverse side of the
sales contract”); Canon Fin. Servs., Inc. v. Eufaula Sch. Dist., No. A-2200-11T2, 2012
WL 1989225, at *1-2 (N.J. Super. Ct. App. Div. June 4, 2012) (upholding a forum
selection clause included in the last paragraph of a two-page lease agreement directly
above where the plaintiffs had initialed the agreement).
       9
          Samsung argues that the Clause was conspicuous because it appeared in all
capitalized text. But “[t]he relative size of the disclaimer’s type face is irrelevant” when
it is “designed in a manner that makes it unlikely that consumers would ever see it at
all[.]” Hoffman, 18 A.3d at 219.
                                             10
IV.   Conclusion

      For the foregoing reasons, we will affirm the District Court’s order denying the

motion to compel arbitration.

                                           11