Savetsky v. Pre-Paid Legal Services d/b/a LegalShield

In an order issued last week in Savetsky v. Pre-Paid Legal Services d/b/a LegalShield, District Judge Samuel Conti of the Northern District of California denied a defendant’s motion to compel arbitration. The court ruled that the arbitration clause found in the defendant’s standard customer contract was not enforceable. The ruling is of note because it involves a service operator that sought to enter into contract with customers both through an online mechanism and through a paper document. It was ineffective in both spheres. The purchasing process on its website did not result in the desired contract, and a follow-on paper-based agreement did not include sufficient language of acceptance.

LegalShield offers legal services in exchange for a monthly fee paid by its customers after they sign up for the program on its website. Michael Savetsky, one of LegalShield’s customers, sued the service in a putative class action. In response to being sued, LegalShield moved to compel arbitration based on the arbitration clause that it argued was included in a written contract binding plaintiff.

According to the court, at the time at issue, when a prospective customer visited the LegalShield website, he was given the choice to either “BUY NOW” or “LEARN MORE.” When a visitor chose “BUY NOW,” he was prompted to select his state of residence and was given an overview of the service plan. As a part of the overview, he was offered a “MORE PLAN DETAILS” button that he was not required to click prior to purchase. But at the page to which such button linked, if he chose to view it, the prospective customer was told that he should “consult [the member] contract for the complete terms and conditions.” The words “member contract” linked to a sample member contract that included the arbitration provision.

After clicking the “BUY NOW” button a customer completed the online purchase by clicking through the website’s payment information screen, which did not refer to or require assent to the member contract. After completing the online purchase, a paper copy of the membership contract containing the arbitration clause was mailed to the customer’s physical mailing address.

LegalShield argued first that Savetsky agreed to arbitrate his claims simply by purchasing a membership on its website. It argued that the website design either adequately communicated the terms of the member contract or that it put Savetsky on inquiry notice of the terms and, as a result, the member contract was binding whether he read it or not. The court rejected these arguments finding no evidence that Savetsky had actual or inquiry notice of the member contract at the time of purchase. According to the court, “by simply checking the desired services and clicking the “BUY NOW” button, a consumer could order a service plan without ever being aware that a member contract exists.” Additionally, the court found that it could not conclude that a reasonable person would understand after seeing the “MORE PLAN DETAILS” button that he would find a member contract or additional legal terms and conditions on the page to which the button linked.

Second, LegalShield argued that by not canceling his membership contract after receiving its written terms in the mail, Savetsky agreed to those terms. LegalShield pointed to a provision in the member contract allowing such cancellation by written notice sent to LegalShield. The court disagreed, saying that “nothing in the membership contract indicated that inaction by Savetsky would constitute asset to the terms of the contract. Accordingly, a reasonable consumer reading the membership contract would have no way of knowing that failing to cancel his membership could be construed as assent to arbitrate all disputes with LegalShield.”

The court distinguished this case from other cases in which the courts have enforced shrinkwrap agreements and other agreements that expressly state, often in bold or otherwise conspicuous type, that by taking a specific action the customer will be deemed to accept the terms of contract. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 587 (1991) (enforcing a forum selection clause against cruise ship passengers where the ticket stated that “[t]he acceptance of this ticket . . . shall be deemed to be an acceptance and agreement . . . of all [its] terms and conditions”); Lima v. Gateway, Inc., 886 F. Supp. 2d 1170, 1178 (C.D. Cal. 2012) (noting that the subsequent document “prominently states in capital letters and bold font that it applies to [the plaintiff’s] purchase unless within 15 days . . . he notifies [the defendant] in writing that he does not agree to it and returns his product”).

I’ve said it before. Here’s the bottom line for website designers. Require your customers to manifest unambiguous assent to your Terms of Service through physical action, like clicking a button or checking a box. And, obviously, give your customers easy access to your Terms of Service. It is what courts want to see.


☐ Purchase. By checking this box I agree to the Terms of Service.

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