Category Archives: Contracts

Terms of e-commerce agreement not part of previous franchise agreement

Arbitration provision in later agreement not applicable to previous agreement, where contracts independent, collateral, and not inconsistent with one another.

Defendant AMF, the well-known manufacturer of bowling and billiards equipment, entered into an oral franchise agreement with plaintiff Suburban Leisure Center, whereby Suburban would sell AMF’s products in the St. Louis area. Later, the parties entered into a written “e-commerce” agreement, whereby Suburban agreed to service products in its geographic area that were sold through AMF’s website.

After AMF sought to terminate the oral franchise agreement, Suburban filed suit, claiming, among other things, that AMF had not provided the proper notice of termination under Missouri law. AMF moved to dismiss Suburban’s claim, arguing that under the terms of the e-commerce agreement, the exclusive method of dispute resolution between the parties was through arbitration. The district court denied the motion to dismiss, and AMF sought review. On appeal, the Eighth Circuit affirmed.

AMF had argued that the e-commerce agreement (which contained the arbitration provision) fully set forth the terms of the contract. AMF pointed to a “merger clause” (also known as an “integration clause” or “entire agreement” clause) in the agreement. Because of this clause, AMF contended, the parol evidence rule prohibited considering the terms of the oral franchise agreement, which contained no mention of arbitration.

The court disagreed, however. Applying Virginia law as required by the choice of law provision in the e-commerce agreement, the court examined the “collateral contract doctrine.” It noted that the oral franchise agreement addressed a contractual relationship between the parties that was not covered in any manner by the e-commerce agreement. As a result, the oral franchise agreement was “independent of, collateral to, and not inconsistent with” the e-commerce agreement. Examination of parol evidence, namely, the terms of the oral agreement, was therefore proper.

Because the agreements were independent of each other, the e-commerce agreement’s arbitration language could not be attributed to the oral franchise agreement. After all, the dispute was over the termination of the franchise, not the agreement to service products that had been sold through AMF’s website. The oral franchise agreement did not provide for arbitration. Because a “party cannot be required to submit to arbitration any dispute which he has not agreed so to submit,” the matter was properly before the court, and the lower court’s denial of the motion to dismiss was proper.

Suburban Leisure Center, Inc. v. AMF Bowling Products, Inc., — F.3d —-, No. 06-1865, 2006 WL 3332965 (8th Cir., November 17, 2006).

Court examines conversion claim in breach of EULA case

Plaintiff Meridian Project Systems, Inc., a purveyor of construction project management software, was peeved to see that a couple of its licensees collaborated to reverse engineer Meridian’s flagship software product. Meridian filed suit, alleging numerous claims, including conversion. It claimed that the defendants converted both tangible property relating to the licensed software, as well as “concepts, logic, processes, features and functions of [the software] to the extent not covered by its copyrights.”

The defendants moved to dismiss, alleging that Meridian had failed to state a claim upon which relief could be granted. Furthermore, the defendants argued that the claim of conversion of the intangible aspects of the software was preempted by the Copyright Act. The court denied the motion in part, and granted it in part.

The court held that Meridian adequately alleged conversion of the physical components of the software. The End User License Agreement (“EULA”) provided that upon any violation of the agreement, the licensees were to either destroy or return the software’s physical components. In this case, Meridian sufficiently alleged a breach of the agreement, namely, the act of reverse engineering the software. Because the defendants did not thereupon return the “disks, files, and other documents,” such items were “unlawfully retained.” These allegations supported a claim of conversion.

There could be no conversion, however, of the intangible aspects of the software. The court held that the elements which Meridian claimed were converted fell within the general subject matter of copyright, even though they were not actually entitled to copyright protection. Meridian’s claim arising out of the alleged conversion was one seeking to assert rights equivalent to a claim for copyright infringement. Accordingly, this portion of the conversion claim was preempted by the Copyright Act.

Meridian Project Systems, Inc. v. Hardin Construction Co., (Slip Op.) 2006 WL 1062070 (E.D. Cal., April 21, 2006).

Cell phone contract not unconscionable

Florida case provides good example of why one should actually read a contract before filing a lawsuit

Appellant Briceno took her camera phone to a Sprint store to have it worked on. She claimed that employees of the store, using her phone, accessed and distributed “personal photographs of her body to third persons by the internet.” Briceno filed suit against Sprint in Florida state court alleging various privacy-related causes of action.

The court never got to the merits of the case, however, because Sprint successfully moved to compel arbitration, pursuant to a clause found in Sprint’s “Terms and Conditions of Service.”

Briceno sought review of the trial court’s order compelling arbitration. The appellate court affirmed.

Unlike the recent Illinois case of Hubbert v. Dell Corp., this case did not involve the question of whether the terms and conditions containing the arbitration clause were part of the contract between the customer and the provider. The main issue in this case was whether the arbitration clause was unconscionable. The court held that it was not.

Because of a choice of law provision in the terms and conditions, the Florida court found itself in the unusual position of applying Kansas law to determine the question of whether the arbitration clause was unconscionable. It held that the agreement did not unfairly exploit any disadvantaged position of Briceno. On the contrary, the court noted that she was “college educated . . . certainly not illiterate, uneducated, or unsophisticated.” She simply ignored the terms and conditions because “she did not care about reading them and . . . did not like to read.”

The court then concluded that Sprint had not unfairly concealed amendments to the terms and conditions containing the arbitration clause. It noted that alerts to changes in the terms and conditions had been provided on an invoice sent to Briceno. She could have looked online to read them, or could have requested a paper copy by telephone. It was also customary for Sprint to include the terms and conditions with new telephones, and Briceno had exchanged her telephone for a new one four times within the course of three years.

Given these factors, the court held that the arbitration clause was not unconscionable. It was therefore enforceable, and the trial court properly ordered the parties to arbitrate the dispute.

Briceno v. Sprint Spectrum, L.P., — So.2d —, 2005 WL 2093681 (Fla.App. 3 Dist., August 31, 2005).

[Link to opinion]

“Terms and Conditions of Sale” provided by hyperlink created binding contract

[Thanks to the Technology & Marketing Law Blog and the ContractsProf Blog for alerting me to this case.]

Several purchasers of Dell computers filed a class action lawsuit against Dell in an Illinois court. Dell moved to dismiss the action, or to compel arbitration, based on an arbitration clause found in the “Terms and Conditions of Sale” that were available for viewing by clicking on a blue hyperlink found on each of the pages that website visitors saw during the purchasing process.

Although the plaintiffs admitted that by purchasing computers online they entered into contracts with Dell, they claimed that the Terms and Conditions of Sale containing the arbitration clause were not a part of the contracts. They argued that merely making a link to the Terms and Conditions of Sale available was insufficient, and that Dell should have required purchasers to affirmatively manifest their assent by clicking an “I Accept” box.

Dell argued that it had done enough to make purchasers aware of the Terms and Conditions of Sale. It had provided the link by means of a contrasting blue hyperlink. It had also stated on numerous pages on its website, used for marketing and for purchase, that all sales were subject to the Terms and Conditions of Sale.

The trial court determined that the online terms and conditions had not been “adequately communicated” to the plaintiffs, because Dell did not “provide a display text on the Web site that manifested a clear assent to the terms and conditions,” and because the terms and conditions themselves were not visible on the pages viewed while placing the orders. Accordingly, the trial court denied Dell’s motion to dismiss or to compel arbitration. Dell sought review. The appellate court reversed.

On appeal, the court held that the plaintiffs were properly made aware of the terms and conditions. The hyperlinks appearing on the web pages made the pages “the same as a multipage written paper contract. The blue hyperlink simply takes a person to another page of the contract, similar to turning the page of a written paper contract.” The contrasting blue color of the hyperlink served to make it conspicuous. Finally, the court noted that because the plaintiffs were purchasing computers online, they were not novices, and should have known that more information would have been available by clicking on the link.

Because the Terms and Conditions of Sale were part of the online contract, the court held that the arbitration clause applied. It reversed the decision of the trial court and remanded it with directions to either stay or dismiss the action so that the parties could arbitrate their disputes.

Hubbert v. Dell Corp., — N.E.2d —, 2005 WL 1968774 (Ill.App. 5th Dist., August 12, 2005).

Forum selection clause upheld in content scraping case

In the case of Cairo, Inc. v. CrossMedia Services, Inc., decided on April 1, 2005, the U.S. District Court for the Northern District of California has held that although a company using scrapers to gather content from a competitor’s website did not expressly assent to the website’s terms of use, the scrapers’ “repeated and automated” access to the site created imputed assent to the terms of service and the forum selection clause appearing therein.

Both parties to this case operate database-driven websites that users can access to get information about local retail sales. Soon after Cairo launched its site in late 2004, CrossMedia noticed that Cairo was “scraping” content and images from CrossMedia’s sites and implementing that material on Cairo’s sites. Cairo also created “deep links” in its site leading to pages within CrossMedia’s sites. According to CrossMedia, Cairo automatically accessed CrossMedia’s servers thousands of times each month to gather information.

CrossMedia sent a cease and desist letter to Cairo in November 2004. Soon thereafter, without waiting to be sued for infringement, Cairo filed the present case in federal court in California, asking for a declaratory judgment. Cairo sought a determination that, among other things, Cairo’s website did not infringe any of CrossMedia’s copyrights or trademarks.

Cairo is a California company and CrossMedia is located in Chicago. CrossMedia moved to dismiss the action, citing a forum selection clause appearing in the terms of service of its various websites. This forum selection clause stated that “[j]urisdiction for any claims arising under this Agreement shall lie exclusively with the state or federal courts in Chicago, Illinois where CrossMedia has its principal place of business.”

The court sided with CrossMedia by determining that the forum selection clause applied and dismissed the action.

Cairo had argued the action should not be dismissed because it had no agreement with CrossMedia. Cairo contended that it never assented to the websites’ terms of use, thus it was not bound by the forum selection clause.

The court found these arguments unpersuasive. It looked to the decision in v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004) to determine that “when a benefit is offered subject to stated conditions, and the offeree makes a decision to take the benefit with knowledge of the terms of the offer, the taking constitutes acceptance of the terms, which accordingly become binding on the offeree.” Cairo’s visits to CrossMedia’s sites with knowledge of the terms of use constituted acceptance of the terms.

Similarly, the court rejected Cairo’s argument that the Specht v. Netscape Comm. Corp. case (306 F.3d 17 (2d Cir. 2002)) should apply. In that case, the Second Circuit ruled that a click-wrap agreement did not bind the parties where users had to scroll down their screens without reason to do so in order to see the terms of the agreement. In the present case, the court found that Cairo had imputed knowledge of the terms of use through its “repeated and automated use” of CrossMedia’s sites. “[E]ven accepting Cairo’s allegation that it did not explicitly agree to [CrossMedia]’s Terms of Use, the Court finds that Cairo’s use of [the] web site under circumstances in which Cairo had actual or imputed knowledge of [the] terms effectively binds Cairo to [the] Terms of Use and the forum selection clause therein.”

Cairo, Inc. v. CrossMedia Services, Inc., 2005 WL 756610 (N.D. Cal., April 1, 2005).

See also Dix v. ICT Group, — P.3d —, 2005 WL 372483 (Ct. App. Wash., Feb. 17, 2005).

AOL does not get to choose where it can be sued

In a recent decision in the case of Dix v. ICT Group, Inc., reversing the lower court, the appellate court in the state of Washington held unenforceable a forum selection clause in AOL’s terms of service which stated that Virginia courts have exclusive jurisdiction over any dispute arising in connection with the services.

The plaintiffs had sued AOL (and its independent contractor ICT to answer customer service questions) in Washington state court, claiming that they had been swindled when AOL started charging them for secondary accounts for which the plaintiffs had never signed up. AOL moved to dismiss, claiming that under the terms of service, Virginia was the only place in which such suit could be brought. The trial court agreed, and dismissed the lawsuit. The appellate court held otherwise, reversing the lower court’s dismissal and remanding the case for further proceedings.

The appellate court began its analysis by reminding us that a party to a contract challenging a forum selection clause bears a heavy burden. In the state of Washington, absent evidence of fraud, undue influence, or unfair bargaining power, courts are reluctant to invalidate forum selection clauses because they enhance contractual predictability.

The plaintiffs put forward two arguments to invalidate the forum selection clause. The court did not accept the plaintiffs’ first argument of fraud: that AOL began billing them for the new accounts without giving them the opportunity to sign new terms of service. The second argument, that enforcing the provision would violate public policy, passed muster.

Washington is not the first state to have had the opportunity to rule on the enforceability of AOL’s forum selection clause. The court looked to some mixed decisions on the issue coming from such states as California, Maryland and Florida. In the end, the court’s decision to hold the forum selection clause unenforceable was based mostly on the policy underlying the state’s consumer protection statue. Denying the ability to litigate the question in a Washington court would “undermine the very purpose” of the consumer protection act, which is to offer broad protection to its citizens.

Dix v. ICT Group, Inc., — P.3d —, 2005 WL 372483 (Ct. App. Wash., Feb. 17, 2005)