Court Opinion

ID: 4156408
Source: CourtListenerOpinion
Date Created: 2017-03-29 17:00:21.86848+00
Date Added: 2024-06-11T14:29:54.880547
License: Public Domain

PRECEDENTIAL

    UNITED STATES COURT OF APPEALS
         FOR THE THIRD CIRCUIT
              ____________

                 No. 16-1555
                ____________

   BOBBIE JAMES, on behalf of themselves and
          all others similarly situated;
  CRYSTAL GIBSON, on behalf of themselves and
          all others similarly situated;
   BETTY KING, on behalf of themselves and all
            others similarly situated;
BARBARA SKLADANY, on behalf of themselves and
          all others similarly situated;
 MARK SKLADANY, on behalf of themselves and
          all others similarly situated;
MILAN SKLADANY, on behalf of themselves and all
            others similarly situated;
 DR. JOHN F. CROW, on behalf of themselves and
           all others similarly situated
                        v.

         GLOBAL TELLINK CORP;
  INMATE TELEPHONE SERVICE; DSI ITI LLC

    Global TelLink Corporation and DSI-ITI LLC,

                                         Appellants
                      ____________

      On Appeal from the United States District Court
               for the District of New Jersey
                 (D.C. No. 2-13-cv-04989)
       District Judge: Honorable William J. Martini
                       ____________

       Submitted Under Third Circuit L.A.R. 34.1(a)
                   November 3, 2016

    Before: CHAGARES, HARDIMAN, and SCIRICA,
                  Circuit Judges

                  (Filed: March 29, 2017)

James E. Cecchi, Esq.
Lindsey H. Taylor, Esq.
Carella, Byrne, Cecchi, Olstein, Brody & Agnello
5 Becker Farm Road
Roseland, NJ 07068

James A. Plaisted, Esq.
Lin C. Solomon, Esq.
Pashman Stein Walder Hayden
21 Main Street
Hackensack, NJ 07601

      Counsel for Plaintiffs-Appellees

                             2
Robert J. Herrington, Esq.
Greenberg Traurig
1840 Century Park East
Suite 1900
Los Angeles, CA 90067

Philip R. Sellinger, Esq.
Aaron Van Nostrand, Esq.
Greenberg Traurig
500 Campus Drive, Suite 400
Florham Park, NJ 07932

       Counsel for Defendants-Appellants

                         ____________

                  OPINION OF THE COURT
                      ____________

HARDIMAN, Circuit Judge

      Global Tel*Link Corporation, Inmate Telephone Service,
and DSI-ITI LLC (collectively, GTL), appeal the District
Court’s order denying their motion to compel arbitration against
Bobbie James and other putative class action plaintiffs who used
GTL’s prison phone services. The question presented is whether
Appellees agreed to be bound by the terms of use contained on
GTL’s website, even though they never visited it. Because the

                               3
District Court properly held that Appellees did not agree to
arbitrate, we will affirm.

                                 I

       GTL provides telecommunications services that enable
inmates at state and local correctional facilities to call family,
friends, attorneys, and other approved persons outside the
prisons. GTL is the sole provider of these services in New
Jersey. Users can sign up for an account and deposit funds either
through GTL’s website or through an automated telephone
service that uses an interactive voice-response system with
standardized scripts and prompts.

      People who create an account through the website are
shown a copy of GTL’s terms of use and must click a button that
says “Accept” to complete the process. Those who create an
account by telephone receive the following audio notice:

              Please note that your account, and
              any transactions you complete . . .
              are governed by the terms of use
              and the privacy statement posted at
              www.offenderconnect.com. The
              terms of use and the privacy
              statement were most recently
              revised on July 3, 2013.

App. 125. Unlike web users, those who set up accounts by
telephone are not required to indicate their assent to the terms of
use.

                                4
       GTL’s terms of use contain an arbitration agreement and
a class-action waiver, and users have 30 days to opt out of both
of these provisions. They also state that using the telephone
service or clicking the “Accept” button on the website
constitutes acceptance of the terms, and users have 30 days to
cancel their accounts if they do not agree to the terms.

       Plaintiffs in this case are inmates and their relatives or
friends who used GTL’s services. Four of them opened accounts
by telephone, and one opened an account through GTL’s
website.1 In August 2013, Plaintiffs filed a putative class action
alleging that GTL’s charges were unconscionable. They alleged
violations of the New Jersey Consumer Fraud Act, the Federal
Communications Act (FCA), the Takings Clause of the Fifth
Amendment, and various New Jersey state laws. GTL moved to
dismiss or stay the matter, arguing that the Federal
Communications Commission (FCC) had primary jurisdiction.
In September 2014, the District Court stayed the case until either
the FCC made a determination or Plaintiffs withdrew their
claims arising under the FCA. Plaintiffs decided to withdraw
their FCA claims.

       GTL answered the complaint in November 2014 and
filed an amended answer in March 2015, asserting as an
affirmative defense that some of the Plaintiffs’ claims were
subject to binding arbitration. GTL moved to compel arbitration
five months later.

       1
        Bobbie James, Betty King, Barbara Skladany, and
Milan Skladany opened accounts by telephone, and Crystal
Gibson opened an account through the website. It is unclear how
John Crow and Mark Skladany opened accounts.

                                5
        The District Court denied GTL’s motion to compel
arbitration with respect to Plaintiffs who opened accounts by
telephone.2 The Court found that, although Plaintiffs were
notified that GTL’s service was “governed by the terms of use,”
they were not informed that “use of the service alone constituted
an acceptance of these terms.” James v. Global Tel*Link Corp.,
2016 WL 589676, at *7 (D.N.J. Feb. 11, 2006). They therefore
“had neither the knowledge nor intent necessary to provide
‘unqualified acceptance.’” Id. (citation omitted). “Consequently,
without an understanding that they were accepting to be bound
by the [terms of use], which included an agreement to arbitrate,
there was no ‘legally enforceable contract’ created between
GTL and the Plaintiffs.” Id. GTL filed this timely appeal.

                               II

       The District Court had jurisdiction under 28 U.S.C.
§§ 1331 and 1332(d). We have jurisdiction to review the District
Court’s order denying GTL’s motion to compel arbitration under
the Federal Arbitration Act (FAA), 9 U.S.C. § 16(a)(1)(B). “We
exercise plenary review over questions regarding the validity
and enforceability of an agreement to arbitrate.” Puleo v. Chase
Bank USA, N.A., 605 F.3d 172, 177 (3d Cir. 2010) (en banc).

                               III

       2
         The Court granted the motion with respect to plaintiff
Crystal Gibson, who opened her account online. Gibson was
required to arbitrate her claims because she was presented with
all the terms of use on the computer screen, including the
arbitration provision, and provided her assent by clicking the
“Accept” button.

                               6
        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.
Thus, the first question is whether a valid arbitration agreement
exists. Id. § 4. “Arbitration is a matter of contract between the
parties and a judicial mandate to arbitrate must be predicated
upon an agreement to that effect.” Par-Knit Mills, Inc. v.
Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir. 1980). “[T]he
FAA does not require parties to arbitrate when they have not
agreed to do so.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland
Stanford Jr. Univ., 489 U.S. 468, 478 (1989).

                                A

        To determine whether a valid arbitration agreement
exists, we “apply ordinary state-law principles that govern the
formation of contracts.” First Options of Chi., Inc. v. Kaplan,
514 U.S. 938, 944 (1995). Here, the District Court held that
New Jersey law governs the question of contract formation, and
the parties have not challenged that determination.

        Under New Jersey law, “[a]n agreement to arbitrate, like
any other contract, must be the product of mutual assent, as
determined under customary principles of contract law.” Atalese
v. U.S. Legal Servs. Grp., L.P., 99 A.3d 306, 312–13 (N.J. 2014)
(internal quotation marks and citation omitted), cert. denied, 135
S. Ct. 2804 (2015). “Mutual assent requires that the parties have
an understanding of the terms to which they have agreed.” Id. at
313. As the New Jersey Supreme Court explained, this principle
is especially important in arbitration cases. “[B]ecause
arbitration involves a waiver of the right to pursue a case in a
judicial forum, courts take particular care in assuring the
knowing assent of both parties to arbitrate, and a clear mutual

                                7
understanding of the ramifications of that assent.” Id. (internal
quotation marks and citation omitted).

        To manifest assent, an offeree must provide “unqualified
acceptance,” which can be express or implied by conduct.
Weichert Co. Realtors v. Ryan, 608 A.2d 280, 284 (N.J. 1992)
(citing Restatement (Second) of Contracts § 19(1) (1981)).
“Silence does not ordinarily manifest assent, but the
relationships between the parties or other circumstances may
justify the offeror’s expecting a reply and, therefore, assuming
that silence indicates assent to the proposal.” Id. Nevertheless,
the offeror must “give[] the offeree reason to understand that
assent may be manifested by silence or inaction.” Restatement
(Second) of Contracts § 69 (1981). New Jersey law also
recognizes that contract terms may be incorporated by reference.
“In order for there to be a proper and enforceable incorporation
by reference of a separate document . . . the party to be bound by
the terms must have had knowledge of and assented to the
incorporated terms.” Alpert, Goldberg, Butler, Norton & Weiss,
P.C. v. Quinn, 983 A.2d 604, 617 (N.J. Super. Ct. App. Div.
2009) (internal quotation marks and citation omitted).

                                B

        The parties have not cited and we are unaware of any
decisions that address the issue of contract formation through an
interactive voice-response telephone system. In this case, GTL
informed telephone users each time they set up or deposited
funds in their accounts that its service was governed by terms of
use available on its website. However, users were not required
to visit the website or demonstrate acceptance of the terms of
use through any affirmative act. Nor were they notified by the

                                8
automated telephone service that their use of GTL’s service
would constitute assent to the terms of use.

        GTL argues that Appellees manifested assent by using its
services after being repeatedly informed that their accounts were
governed by its terms of use. In support of its argument, GTL
relies on several cases finding assent to contract terms through
use of a product or service. But in those cases, the purchasers
manifested assent through the affirmative act of signing
contracts that contained arbitration provisions. See, e.g., Raynor
v. Verizon Wireless (VAW), LLC, 2016 WL 1626020, at *3–4
(D.N.J. Apr. 25, 2016) (enforcing arbitration agreement where
customer physically signed agreement containing arbitration
clause and activated cell phone service); Curtis v. Cellco P’ship,
992 A.2d 795, 797–800 (N.J. Super. Ct. App. Div. 2010)
(enforcing arbitration agreement where customer electronically
signed agreement containing arbitration clause before activating
wireless phone service plan). Unlike those cases, Appellees here
never signed anything when they opened their accounts or
deposited money, let alone an agreement containing an
arbitration provision.

        GTL also relies on a number of cases in which consumers
purchased goods or services online and were found to have
assented to the terms and conditions available by hyperlink. See,
e.g., Snap-on Bus. Sols. Inc. v. O’Neil & Assocs., 708 F. Supp.
2d 669, 683 (N.D. Ohio 2010); PDC Labs. v. Hach Co., 2009
WL 2605270, at *3 (C.D. Ill. Aug. 25, 2009); Hubbert v. Dell
Corp., 835 N.E.2d 113, 121–22 (Ill. App. Ct. 2005). In each of
those cases, the terms and conditions were immediately
accessible to online users. By contrast, the transactions between
GTL and Appellees occurred entirely through an automated
telephone system, a medium that adverted to the terms of use

                                9
without stating them. To access the terms of use, Appellees
would have needed to connect to the internet, visit GTL’s
website, and then click on a hyperlink. No Appellee took those
extra steps.

        GTL’s reliance on Carnival Cruise Lines v. Shute, 499
U.S. 585 (1991), is likewise misplaced. There, the Supreme
Court held that a forum-selection clause printed on a cruise
ticket was valid and enforceable. Id. at 594–95. In contrast to
this appeal, plaintiffs in Carnival Cruise received a copy of the
contract with their tickets and conceded that they had notice of
the forum-selection clause before contracting for passage. Id. at
590. Here, Appellees were never presented with the terms
available on GTL’s website and therefore were unaware of the
arbitration provision contained therein.

        GTL also relies on decisions enforcing contract terms
that consumers do not receive until after completing their
purchases. These are known as “shrinkwrap-license” cases
because of the plastic that is used to seal products such as
computer software. See Schnabel v. Trilegiant Corp., 697 F.3d
110, 121 & n.10 (2d Cir. 2012). In these cases, the license terms
are typically provided inside the packaging, and consumers are
deemed to accept those terms by opening or using the products.
Id. at 122. Unlike this appeal, however, the consumers in the
shrinkwrap-license cases received physical copies of the terms
and conditions upon opening the products, and their subsequent
use of the products manifested assent to the enclosed terms. See,
e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996)
(holding that terms inside a software box bind consumers who
use the software after an opportunity to read the terms and reject
them by returning the product).

                               10
                                C

       This appeal presents an unusual hybrid of technology—
offering services via one medium (an interactive telephone
voice-response system) and purporting to bind users of those
services to terms that are accessible only through a different
medium (the internet). Because of the technology involved,
particularly the internet, the District Court analogized GTL’s
method of notice and assent to that used in online “browsewrap”
agreements. See James, 2016 WL 589676, at *5. In browsewrap
agreements, a company’s terms and conditions are generally
posted on a website via hyperlink at the bottom of the screen.
Unlike online agreements where users must click on an
acceptance after being presented with terms and conditions
(known as “clickwrap” agreements), browsewrap agreements do
not require users to expressly manifest assent. See Nicosia v.
Amazon.com, Inc., 834 F.3d 220, 233 (2d Cir. 2016).

       There is an evolving body of caselaw regarding whether
the terms and conditions in browsewrap agreements are
enforceable, often turning on whether the terms or a hyperlink to
the terms are reasonably conspicuous on the webpage. See, e.g.,
id.; Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1177 (9th
Cir. 2014); Specht v. Netscape Commc’ns Corp., 306 F.3d 17,
30–32 (2d Cir. 2002); Hoffman v. Supplements Togo Mgmt.,
LLC, 18 A.3d 210, 218–20 (N.J. Super. Ct. App. Div. 2011).
When terms are linked in obscure sections of a webpage that
users are unlikely to see, courts have refused to find constructive
notice. See Nicosia, 834 F.3d at 233; Specht, 306 F.3d at 30–32.
On the other hand, “where the website contains an explicit
textual notice that continued use will act as a manifestation of
the user’s intent to be bound, courts have been more amenable

                                11
to enforcing browsewrap agreements.” Nguyen, 763 F.3d at
1177.

        Here we need not consider the particular design and
content of GTL’s website because Appellees’ transaction with
GTL occurred over the telephone. They neither received GTL’s
terms of use, nor were they informed that merely using GTL’s
telephone service would constitute assent to those terms.3 Under
these circumstances, Appellees did not assent to the terms of use
or the arbitration provision contained therein. See, e.g.,
Schnabel, 697 F.3d at 127 (finding no assent where arbitration
provision “was both temporally and spatially decoupled from the
plaintiffs’ enrollment in and use of” the service). Accordingly,
the District Court properly held that Appellees cannot be
required to arbitrate their claims. See Par-Knit Mills, 636 F.2d at
54 (“Before a party to a lawsuit can be ordered to arbitrate and
thus be deprived of a day in court, there should be an express,
unequivocal agreement to that effect.”).

       3
          As GTL points out and the District Court recognized,
the company’s terms of use do state that using the telephone
service would constitute acceptance of those terms. But those
terms were neither conspicuous nor readily accessible by
Appellees, and we cannot say that by their actions they
manifested assent to terms contained on a website they never
visited. See Nguyen, 763 F.3d at 1179 (“Given the breadth of the
range of technological savvy of online purchasers, consumers
cannot be expected to ferret out hyperlinks to terms and
conditions to which they have no reason to suspect they will be
bound.”).

                                12
                         *       *      *

        Congress has made clear that arbitration is an important
federal policy and the Supreme Court has vindicated that policy
many times. Yet it remains axiomatic that a party cannot be
required to arbitrate without its assent. On the facts as pleaded in
this case, Appellees did not, through their words or deeds, agree
to arbitrate their dispute with GTL. For that reason, we will
affirm the order of the District Court denying GTL’s motion to
compel arbitration.

                                13