Court Opinion

ID: 2646268
Source: CourtListenerOpinion
Date Created: 2013-12-17 21:29:02.140407+00
Date Added: 2024-06-11T12:52:24.568954
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

DONOVAN LEE, individually and on          No. 11-35810
behalf of all others similarly
situated; BRUCE KEITHLY,                     D.C. No.
individually and on behalf of all         2:09-cv-01485-
others similarly situated,                     RSL
                  Plaintiffs-Appellees,

                  v.                        OPINION

INTELIUS INC., a Delaware
corporation; INTELIUS SALES LLC,
  Defendants-Third-Party-Plaintiffs–
                          Appellees,

                  v.

ADAPTIVE MARKETING LLC, a
Delaware Limited Liability
Company,
           Third-Party-Defendant–
                          Appellant.

      Appeal from the United States District Court
        for the Western District of Washington,
       Robert S. Lasnik, District Judge, Presiding

                Argued and Submitted
          March 7, 2013—Seattle, Washington
2                      LEE V. INTELIUS INC.

                     Filed December 16, 2013

        Before: David M. Ebel,* William A. Fletcher,
         and Johnnie B. Rawlinson, Circuit Judges.

                  Opinion by Judge W. Fletcher

                           SUMMARY**

                             Arbitration

    The panel affirmed the district court’s order denying
third-party-defendant Adaptive Marketing’s motion to
compel arbitration in a state-law class action brought against
Intelius Inc. by plaintiff alleging his credit card was
improperly charged for a monthly “Family Safety Report”
after plaintiff purchased a background check on the Internet.

    The panel held that plaintiff did not enter into either a
contract to purchase the Family Safety Report, or a contract
to arbitrate. Under Washington law, the panel held that
Intelius’s webpage insufficiently identified Adaptive as a
contracting party to support a conclusion that plaintiff entered
into a contract with Adaptive to purchase the Family Safety
Report. Under the Federal Arbitration Act, the panel held
that even on the assumption that the plaintiff entered into a

 *
   The Honorable David M. Ebel, Senior Circuit Judge for the U.S. Court
of Appeals for the Tenth Circuit, sitting by designation.
  **
     This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                   LEE V. INTELIUS INC.                   3

contract to purchase the Family Safety Report, plaintiff did
not enter into a contract to arbitrate.

                       COUNSEL

Thomas L. Boeder and Cori Gordon Moore, Perkins Coie
LLP, Seattle, Washington; Darrell J. Hieber (argued),
Jennifer Elaine LaGrange, Kevin James Minnick, and Jason
D. Russell, Skadden, Arps, Slate, Meagher & Flom LLP, Los
Angeles, California, for Third-Party-Defendant-Appellant.

Whitney R. Case, Andrew Neil Friedman, and Victoria S.
Nugent, Cohen Milstein Sellers & Toll, PLLC, Washington,
D.C.; Mark Adam Griffin, David J. Ko, Karin B. Swope, and
Harry Williams, Keller Rohrback LLP, Seattle, Washington;
F. Paul Bland (argued), Public Justice, P.C., Washington,
D.C., for Plaintiffs-Appellees.

Tyler Lawrence Farmer, Calfo Harrigan Leyh & Eakes, LLP,
Seattle, Washington; Arthur W. Harrigan, Jr., Christopher T.
Wion, Danielson Harrigan Leyh & Tollefson, LLP, Seattle,
Washington, for Defendant-Third-Party-Plaintiffs-Appellees.
4                   LEE V. INTELIUS INC.

                         OPINION

W. FLETCHER, Circuit Judge:

    In June 2008, Plaintiff Donovan Lee purchased on the
Internet a background check and report from Intelius. After
Lee gave his credit card number and clicked to confirm his
purchase, he was directed to a new webpage. Intelius was the
only company name that appeared on that page. Lee clicked
on a large orange button with the words “YES And show my
report.” Small print on the page indicated that he had thereby
ostensibly obtained a seven-day free trial of a “Family Safety
Report” and an obligation to pay $19.95 per month thereafter.

    About a year later, Lee discovered that Adaptive
Marketing (“Adaptive”), a separate company from Intelius,
had been charging his credit card $19.95 per month for the
“Family Safety Report.” Lee and other named plaintiffs
brought a state-law class action against Intelius. Intelius in
turn filed a third-party complaint against Adaptive. Adaptive
moved to compel arbitration of both Lee’s and Intelius’s
claims. The district court denied the motion to compel.
Adaptive appeals with respect to Lee, contending that Lee
agreed to arbitration by clicking the orange button. We
affirm.

                       I. Background

    Intelius is an internet-based company that performs
background checks, people searches, and “reverse” telephone
directory searches. Lee and his fiancée looked at Intelius’s
website together, and Lee purchased a background check
using his credit card. After Lee made his purchase, he was
directed to a new webpage. Intelius submitted to the district
                    LEE V. INTELIUS INC.                      5

court a copy of a webpage that it asserts is identical to the
page seen by Lee. We attach a copy of the webpage
(unfortunately in black and white in the bound volume) as an
appendix to our opinion.

    At the top of the new webpage was a message in large
black letters, “Thank You,” and in smaller but still prominent
black letters, “your order has been successfully completed.”
This was followed, also at the top of the page, by Intelius’s
colored logo; in large black letters, Intelius’s name; and, in
smaller black letters, Intelius’s marketing slogan, “Live in the
know.” Adaptive’s name appeared nowhere on the webpage.

     Immediately below the “Thank You” was a dark blue
banner on which was written in large white and orange
letters, “Take our 2008 Community Safety Survey and claim
$10.00 CASH BACK when you try Family Safety Report.”
The “survey” consisted of two questions: (1) “Does your
neighborhood have a sex offender alert program?” (Possible
answers: Yes, No, I don’t know); (2) “What card type did you
use for your Intelius purchase today?” (Possible answers:
Credit Card, Debit Card). Below the survey, on the left-hand
side of the page, was a box with an instruction in prominent
white letters against a green background: “Please type your
email address below.” Below that, in small, light grey print,
was written, “By typing your email address below, it will
constitute your electronic signature and is your written
authorization to charge/debit your account according to the
Offer Details to the right.” (Emphasis added.) There were
two spaces in which to type, and then to confirm, an email
address. Lee was not asked to resupply his credit card
number.
6                   LEE V. INTELIUS INC.

    Below the spaces for the email address was written, also
in small, light grey print, “By clicking ‘Yes’ I have read and
agree to the Offer Details displayed to the right and authorize
Intelius to securely transfer my name, address, and
credit/debit card information to Family Safety Report, a
service provider of Intelius.” (Emphasis added.) Below this
was a large orange button with the words, written in
prominent white letters, “YES And show my report.” Below
the orange button was a smaller button with the words,
written in smaller, underlined dark grey letters, “No, show my
report.” The “report” to which the buttons referred was the
report that Lee had just purchased from Intelius.

     To the right of the box was a beige-colored box
containing two paragraphs, written in small, light grey print
that did not stand out prominently from the beige background.
The paragraphs were headed by the words, also in small, light
grey print, “OFFER DETAILS.” The first paragraph was
quite long. Inter alia, the paragraph stated that there was a
“7-day FREE trial period” of the Family Safety Report,
followed by a “membership fee of $19.95 per month . . . so
long as you remain a member.” The second paragraph,
labeled “Disclaimers,” was only three sentences long. The
first two sentences stated, “Family Safety Report does not
provide the Registered Sex offender Report. The report is
administered and provided by Intelius and is subject to their
Terms of Site Use and Terms & Conditions.” (Emphasis
added.)

    Immediately below these two paragraphs were two
hyperlinks labeled, in small, underlined black print, “Privacy
Policy” and “Terms and Conditions.” If Lee had clicked the
“Terms and Conditions” hyperlink, he would have been sent
to yet another webpage. This webpage contained a detailed
                     LEE V. INTELIUS INC.                        7

agreement titled “TERMS OF MEMBERSHIP AND
MEMBERSHIP AGREEMENT.” The first sentence stated,
“The following is the Membership Agreement between the
Provider of this Membership Program (‘We’ and ‘Us’) and
the enrolled member of this Membership Program (‘You’).”
The identity of the “Provider” was nowhere disclosed in the
agreement; nor was the name Adaptive ever mentioned in the
agreement. Paragraph 10 of the agreement was an arbitration
clause.

    Lee clicked on the orange “YES” button. In his
deposition, he recalled that there had been a prominent
“orange box, . . . in larger font, which drew our eye very
quickly.” He recalled noticing some grey text on the right-
hand side of the screen. He testified in his deposition: “The
block of text to the right on that screen was very small and,
like, an off color; I think it was grey text, a little difficult to
read. That’s about all I remember.” He testified that he did
not read it. He did not recall clicking on a “terms and
conditions” hyperlink. He testified that he did not realize he
had been enrolled as a “member” of the Family Safety Report
program until “midyear 2009,” when he realized his bank
account “balance was extremely low.” He testified that he
never received ten dollars “cash back.” He stated that he
called Intelius on the telephone to inquire about the monthly
charges. The person he reached “could give [him] no
information” about the charges.            He cancelled his
“membership” about a year after clicking on the orange
button.

    The district court described the relationship between
Intelius and Adaptive:
8                   LEE V. INTELIUS INC.

       Under a July 2007 agreement between Intelius
       and Adaptive Marketing, Intelius provides
       Adaptive access to consumers and receives
       revenue for each customer who accepts the
       offer of a free trial period. By the end of the
       first quarter 2008, almost 40% of Intelius’
       revenue came from Adaptive. When the 7-day
       trial period for an Adaptive product or service
       expires, the $19.95 monthly charge placed on
       the consumer’s credit card does not identify
       Adaptive Marketing as the source of the
       charge and often consists of unintelligible
       abbreviations. Pursuant to their agreement,
       Intelius is prohibited from communicating
       with any customer with respect to an Adaptive
       Marketing product or service without
       Adaptive’s prior written consent. Hundreds
       of Washington consumers have unknowingly
       enrolled in Adaptive Marketing programs
       while attempting to purchase an Intelius
       product. Despite complaints to Intelius, many
       consumers have been unable to obtain refunds
       from either Intelius or Adaptive.

     We need not go into all the procedural details of the
litigation. For present purposes, it is sufficient to say that
Plaintiffs sued Intelius, that Intelius impleaded Adaptive as a
third-party defendant, and that Adaptive then filed a motion
to compel arbitration of both Intelius’s and Lee’s claims. The
district court denied Adaptive’s motion to compel. With
respect to Lee’s claims, the court held that Lee did not agree
to arbitrate. It wrote, “Lee was asked to agree only to the
‘Offer Details displayed to the right’ and, given the language
of those Details, would have no reason to go looking for other
                    LEE V. INTELIUS INC.                      9

terms and conditions that might apply.” Adaptive appeals the
denial of its motion to compel arbitration of Lee’s claims.

                   II. Standard of Review

      “We review the denial of a motion to compel arbitration
de novo.” Cox v. Ocean View Hotel Corp., 533 F.3d 1114,
1119 (9th Cir. 2008). We review “underlying factual findings
. . . for clear error.” Balen v. Holland Am. Line Inc., 583 F.3d
647, 652 (9th Cir. 2009). We review de novo “[t]he
interpretation and meaning of contract provisions.”
Milenbach v. Comm’r, 318 F.3d 924, 930 (9th Cir. 2003).

                       III. Discussion

    The district court held that Lee entered into a contract
with Adaptive to purchase the Family Safety Report but did
not enter into a contract to arbitrate. The district court
therefore denied Adaptive’s motion to compel arbitration.
Lee contends on appeal that he did not enter into a contract
with Adaptive to purchase a “Family Safety Report.” He
contends, further, that even if he did enter into such a
contract, he did not enter into a contract to arbitrate.

    The parties agree that Washington law applies. For the
reasons that follow, we hold that Lee did not enter into either
a contract to purchase or a contract to arbitrate.

     A. Contract to Purchase the Family Safety Report

   In holding that Lee entered into a contract to purchase the
Family Safety Report, the district court wrote:
10                  LEE V. INTELIUS INC.

       While the manner in which Adaptive
       presented its subscription service offer may
       support a finding of fraud in the inducement
       and/or unilateral mistake, such defenses do
       not alter the fact that a contract was entered
       into in the first instance. For purposes of
       determining whether a contract exists, it is
       Lee’s objective manifestation of assent, rather
       than his subjective intent, that governs. . . .
       Lee objectively manifested assent when he
       clicked the “YES And show my report
       button.”

We disagree and hold that Lee did not enter into a contract to
purchase the Family Safety Report. This conclusion also
necessarily entails a holding that Lee did not enter into a
contract to arbitrate.

    The webpage to which Lee was directed after he
completed his purchase of the Intelius background check was
designed to deceive him and others like him. The district
court found that a “not unreasonable” consumer in Lee’s
position could have “reasonably believe[d]” that he was not
purchasing an additional product or service by merely
providing his email address and clicking on the orange button
with the words “YES And show me my report.” The court
wrote:

           If the consumer is not interested in Family
       Safety Report, he would likely scan the page
       for a button or link that would, hopefully,
       reveal the report he had just purchased. A text
       box down the left side of the page contains all
       of the dominant design elements. Those
                    LEE V. INTELIUS INC.                     11

       elements instruct the consumer to enter and
       confirm his email address, then provide a
       choice of [an orange] “YES And show my
       report” button or a smaller, gray “No, show
       my report” button.

           A careful or suspicious consumer might
       conclude that further investigation is
       necessary because both buttons will
       apparently lead to the desired report. A less
       careful, but not unreasonable, consumer could
       conclude that providing Intelius with his
       email address and clicking the big [orange]
       “YES” button would reveal the report he had
       been trying to get for an undisclosed number
       of screens. Because the consumer never
       selects an additional product or service and is
       not asked for his account information, he
       could reasonably believe, based on his past
       experiences with internet transactions, that
       there would be no unpleasant surprises on his
       credit/debit account.

           He would be wrong. . . . Taken in the
       context of the overall Intelius transaction, it is
       not surprising that a substantial number of
       Washington citizens unknowingly “accepted”
       the offered subscription service.

     We are skeptical that Lee “objectively manifested assent”
to the contract merely by providing and confirming his email
address and by clicking on the prominent “YES” button.
Under Washington law, a contract requires mutual assent to
its essential terms in order to be binding. Although it is clear
12                  LEE V. INTELIUS INC.

that an electronic “signature” can be legally sufficient under
Washington state law, see Wash. Rev. Code § 19.34.010(2),
Washington courts have not decided whether or under what
circumstances a “click” constitutes a signature. Cf.
Hauenstein v. Softwrap Ltd., No. C07-0572MJP, 2007 WL
2404624, at *2 (W.D. Wash. Aug. 17, 2007) (noting that the
plaintiff did not dispute that he manifested assent to a
contract by “‘clicking’ the appropriate box”). In any event,
the presence or absence of a signature, standing alone, is not
determinative. Jacob’s Meadow Owners Ass’n v. Plateau 44
II, LLC, 162 P.3d 1153, 1166 (Wash. Ct. App. 2007). “The
existence of mutual assent may be deduced from the
circumstances.” Id.

    When Lee entered his email address and clicked on the
large orange “YES” button, he had completed his purchase of
the background check from Intelius but had not yet received
a copy of his promised report. He did not re-enter his credit
card number on the new webpage. The language on the
“YES” button told him that the effect of clicking on that
button would allow him to see the report he had already
purchased. The critical text on the new webpage was written
in small, light-colored print. We are skeptical that, under
such circumstances, Lee objectively manifested assent to a
contract. Nevertheless, because of the lack of clarity in
Washington law surrounding whether and under what
circumstances a click may constitute an objective
manifestation of assent, we do not rest our conclusion that
Lee did not enter into a contract on the ground that he did not
manifest assent.

    We rest our conclusion on another ground. Washington
law requires that the “essential elements” of the contract be
set forth in writing. An essential element is identification of
                    LEE V. INTELIUS INC.                     13

the parties to the contract. See Becker v. Wash. State Univ.,
266 P.3d 893, 899 (Wash. Ct. App. 2011) (citing DePhillips
v. Zolt Constr. Co., 959 P.2d 1104, 1107 (Wash. 1998) (en
banc)). Adaptive admits that the contract must identify the
contracting parties, though it contends that the parties need
not be identified by name. See Bhd. State Bank v. Chapman,
259 P. 391, 392 (Wash. 1927) (recognizing that a corporation
or individual may contract or do business under an assumed
name). There is nothing on the new webpage offering the
Family Safety Report, to which Lee was directed, that
identified either Adaptive or an Adaptive-related entity as the
party with which Lee was contracting.

    Even an exceptionally careful consumer, who understood
that he or she was being asked to enter into a contract for an
additional product, would likely have thought that the
contracting party was Intelius. Adaptive’s name appeared
nowhere on the new webpage. In contrast, Intelius’s name
and logo were prominently displayed at the top of the page,
and Intelius was mentioned several times by name in the text.
Adaptive contends in its brief that the words “Family Safety
Report” “sufficiently described” an Adaptive-related entity
for purposes of identifying the party with whom Lee
contracted. We disagree. Standing alone, the words “Family
Safety Report” were more readily understood as referring to
a report rather than to a company supplying a report. It is true
that parts of the text indicated that “Family Safety Report”
was not itself a report. For example, the first sentence under
“Disclaimers” provided, “Family Safety Report does not
provide the Registered Sex offender Report.” But this
sentence did not make clear that the entity, “Family Safety
Report,” was not part of Intelius. It is also true that the
sentence just above the orange button said that the Family
Safety Report was “a service provider of Intelius.” But this
14                  LEE V. INTELIUS INC.

sentence did not indicate that Family Safety Report was not
part of Intelius. The preposition “of” (instead of “to”) could
easily be understood to indicate that Family Safety Report
was part of Intelius. We therefore conclude that the webpage
insufficiently identified Adaptive, or an entity affiliated with
Adaptive, as a contracting party to support a conclusion that
Lee entered into a contract with Adaptive to purchase the
Family Safety Report.

    Though it is not necessary to our holding, we note that the
would-be contract that Adaptive is seeking to enforce is now
illegal under federal law. Lee clicked on the orange button in
June 2008. Two and a half years later, in December 2010,
President Obama signed into law the Restore Online
Shoppers’ Confidence Act (“ROSCA”). ROSCA expressly
prohibits the “data pass” method of sharing customers’ credit
card information with third-party sellers, as well as the
practice of authorization of financial transactions by email
address alone. See 15 U.S.C. § 8401 et seq.

                   B. Contract to Arbitrate

   Arbitration provisions in contracts are governed by the
Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq. The
Act provides:

       A written provision in any maritime
       transaction or a contract evidencing a
       transaction involving commerce to settle by
       arbitration a controversy thereafter arising out
       of such contract or transaction, or the refusal
       to perform the whole or any part thereof, or an
       agreement in writing to submit to arbitration
       an existing controversy arising out of such a
                     LEE V. INTELIUS INC.                     15

        contract, transaction, or refusal, shall be valid,
        irrevocable, and enforceable, save upon such
        grounds as exist at law or in equity for the
        revocation of any contract.

Id. § 2. Our “role under the Act is . . . limited to determining
(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).

   The district court held that, even on the assumption that
Lee entered into a contract to purchase the Family Safety
Report, Lee did not enter into a contract to arbitrate. It wrote:

        Neither the text above the “YES” button nor
        the “Offer Details” themselves mention the
        “Privacy Policy” or the “Terms and
        Conditions.” By clicking the “YES” button,
        Lee objectively manifested his assent to be
        bound by the “Offer Details,” nothing more.
        The fact that there were additional hyperlinks
        on a webpage Lee reviewed does not establish
        assent to the terms embedded in those
        hyperlinks.

We agree.

    The arbitration clause was contained in the “Terms and
Conditions” that Lee would have seen only if he clicked on
the hyperlink below “OFFER DETAILS” on the right-hand
side of the webpage. The text on the left-hand side of the
page twice directed a purchaser of the Family Safety Report
to the “Offer Details.” It stated, “By typing your email
16                  LEE V. INTELIUS INC.

address below, it will constitute your electronic signature and
is your written authorization to charge/debit your account
according to the Offer Details to the right” and “By clicking
‘YES’ I have read and agree to the Offer Details displayed to
the right.” The three-sentence second paragraph of the “Offer
Details,” located just above the “Terms and Conditions”
hyperlink, stated in its second sentence, “The report is
administered and provided by Intelius and is subject to their
Terms of Site Use and Terms & Conditions.” Intelius’s
“Terms and Conditions,” to which Lee had already agreed,
contained no agreement to arbitrate.

    Even an exceptionally careful consumer would not have
understood that a purchaser of the Family Safety Report, by
clicking the orange button, was agreeing to anything more
than the “Offer Details.” That careful consumer would
reasonably have understood, in light of the second sentence
of the second paragraph, that the hyperlink to “Terms and
Conditions” was to Intelius’s rather than Adaptive’s terms
and conditions.

                         Conclusion

    We hold that Lee did not enter into a contract with
Adaptive to purchase the Family Safety Report, and did not
enter into a contract with Adaptive to arbitrate. We therefore
affirm the district court. We remand to the district court for
further proceedings consistent with this opinion.

     AFFIRMED and REMANDED.
           LEE V. INTELIUS INC.                                   17

                  APPENDIX

Case 2:09-cv-01485-RSL Document 72-1 Filed 08/16/10 Page 2 of 2