Court provides guidance on how to effectively communicate online terms of service

Are online terms of service provided via hyperlink in an email binding on the recipient of that email? The Second Circuit recently addressed that question, and the decision gives guidance on best practices for online providers.

Plaintiff booked a trip to the Galapagos Islands using defendant’s website. When she purchased her ticket, she got a booking information email, a confirmation invoice and a service voucher. (It is not clear how plaintiff got the confirmation invoice and the service voucher – the court’s opinion says they were sent as emails, but the PACER record does not show them as emails. In any event, plaintiff did not dispute that she received all three documents, nor did she dispute all three documents contained a hyperlink to defendant’s “terms and conditions” which were available online.)

One evening during the trip, a tour guide allegedly assaulted plaintiff. She sued defendant for negligently hiring and training that tour guide. Defendant moved to dismiss, pointing to language in the online terms and conditions that called for disputes to be heard in Canadian court. The district court dismissed the action, and plaintiff sought review with the Second Circuit. On appeal, the court affirmed. It held that defendant had reasonably communicated the forum selection clause to plaintiff by using hyperlinks and the appropriate language in the terms and conditions.

Each of the documents contained an underlined hyperlink, and accompanying language advising plaintiff to click on the hyperlink. The booking information email contained a standalone provision with the heading “TERMS AND CONDITIONS”. This section stated that “[a]ll . . . passengers must read, understand and agree to the following terms and conditions.” The hyperlink immediately followed. Both the confirmation invoice and the voucher contained a link to the terms and conditions, preceded by “[c]onfirmation of your reservation means that you have already read, agreed to and understood the terms and conditions. . . .”

The actual structure and language of the terms and conditions also served to reasonably communicate the forum selection clause. The second paragraph stated that the terms and conditions “affect your rights and designate the governing law and forum for the resolution of any and all disputes.” Later in the terms and conditions, a standalone section titled “APPLICABLE LAW” provided that all matters arising from the agreement were subject to Ontario and Canadian law and the exclusive jurisdiction of the Ontario and Canadian courts.

The decision validates the notion that an e-commerce provider can rely on establishing valid and binding contracts with its customers without having to actually transmit a copy of the terms and conditions that would apply to the transaction. Though the facts of this case dealt with email, there is no substantive reason why the best practices revealed by the court’s decision would not apply to providers of mobile apps and other online platforms.

Starkey v. G Adventures, Inc., — F.3d —, 2015 WL 4664237 (2nd Cir. August 7, 2015)

Evan Brown is an attorney in Chicago helping clients manage issues involving technology and new media.

Forum selection clause in browsewrap agreement did not bind parties in bitcoin fraud case

We all know that clickwrap agreements are preferable to browsewrap agreements, assuming, of course, the objective is to establish binding contracts between participants in online transactions. Nonetheless, some online platforms still (try to) rely on browsewrap agreements to establish terms of service. That avoidance of best practices gives us situations like the recent case of Hussein v. Coinabul, LLC, in which a federal court in Illinois refused to enforce a forum selection clause in a “bitcoin to gold marketplace” browsewrap agreement.

Plaintiff alleged that he sent about $175,000 worth of bitcoins to defendants in June 2013, expecting to get gold in return. (Plaintiff alleges he transferred 1,644.54 BTC. The average exchange value in June 2013 was $107.82/BTC. You can get historical bitcoin price data here: http://www.coindesk.com/price) When the gold never arrived, plaintiff sued for fraud.

Defendants moved to dismiss, citing a forum selection clause contained in a browsewrap agreement found on its website. That purported agreement required all disputes to be heard in the state courts of Wyoming, and for Wyoming law to apply. The court denied the motion to dismiss, finding that the browsewrap agreement afforded plaintiff neither actual nor constructive knowledge of its terms and conditions.

The court observed that the hyperlink that directed users to defendants’ Terms of Service was listed among ten other hyperlinks at the bottom of each page. (See this Wayback Machine capture of the website from June 2013).

As for lack of actual knowledge, the court credited plaintiff’s allegations that he did not review or even know of defendants’ Terms of Service when he entered the bitcoin transaction. And there was no evidence to the contrary in the record.

And as for lack of constructive knowledge, the court found that the hyperlink, “buried at the bottom of the webpage – [was] without some additional act of notification, insufficient for the purpose of providing reasonable notice.”

Hussein v. Coinabul, LLC, No. 14-5735, 2014 WL 7261240 (N.D. Ill. December 19, 2014)

Limitation of liability clause in software license agreement did not excuse customer from paying fees

Customer did not like how software it had bought performed, so it stopped paying. Vendor sued for breach of contract, and customer argued that the agreement capped its liability at $5,000. Both parties moved for summary judgment on what the following language from the agreement meant:

NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE TOTAL DOLLAR LIABILITY OF EITHER PARTY UNDER THIS AGREEMENT OR OTHERWISE SHALL BE LIMITED TO U.S. $5,000.

Customer argued that the sentence meant what it said, namely, that customer would not be liable for anything over $5,000. But the court read otherwise, holding that construe the language as excusing customer’s payment of fees would render those provisions calling for fees (which were much more that $5,000) meaningless.

The court observed that when parties use the clause “notwithstanding anything to the contrary contained herein” in a paragraph of their contract, they contemplate the possibility that other parts of their contract may conflict with that paragraph, and they agree that the paragraph must be given effect regardless of any contrary provisions of the contract.

In this situation, the $5,000 limitation language was the last sentence of a much longer provision dealing with limitations of liability in the event the software failed to function properly. The court held that the rule about “notwithstanding anything to the contrary” applies if there is an irreconcilable difference between the paragraph in which that statement is contained and the rest of the agreement.

There was no such irreconcilable difference here. On the contrary, reading in such difference would have rendered the other extensive provisions dealing with payment of goods and services meaningless, which would have violated a key canon of construction.

IHR Sec., LLC v. Innovative Business Software, Inc., — S.W.3d —, 2014 WL 1057306 (Tex.App. El Paso March 19, 2014)

Evan Brown is an attorney in Chicago, advising clients on matters dealing with software licensing, technology, the internet and new media.

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In software dispute, court enforces forum selection clause and transfers case from California to Michigan

Though parties often think of forum selection clauses as throwaway “boilerplate” language, a recent case demonstrates the influence such a clause can have on where litigation takes place.

Plaintiff sued defendant in California for fraud and other claims relating to the alleged defective performance of electronic medical records software. Defendant moved to transfer the matter to federal court in Michigan, based on a forum selection clause in the agreement that provided, in relevant part, that “[a]ny and all litigation arising from or relating to this Agreement will be filed and prosecuted before any court of competent subject matter jurisdiction in the State of Michigan.” Plaintiff objected to the motion, arguing that enforcement would violate California public policy in a number of ways. The court rejected plaintiff’s arguments and granted the motion to transfer.

Plaintiff argued that transfer would go against California’s public policy against unfair business practices, and would also be against the policy of incentivizing medical providers to adopt electronic medical records systems. The court rejected these arguments because plaintiff’s motion dealt with venue, i.e., where the lawsuit would occur, not which substantive law would apply. Given that the potential existed for the federal court in Michigan to consider whether California law should apply, transferring the case would not cut against public policy.

The court further rejected plaintiff’s argument that the forum selection clause was unconscionable, given that plaintiff did not dispute that she read the clause, and was a sophisticated party. Moreover, citing to language of the Supreme Court on the issue, the court refused to consider arguments about the parties’ private interests. “When parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses, or for their pursuit of the litigation.”

East Bay Women’s Health, Inc. v. gloStream, Inc., 2014 WL 1618382 (N.D.Cal. April 21, 2014)

Evan Brown is an attorney in Chicago, advising clients on matters dealing with technology, the internet and new media. Follow him on Twitter @internetcases

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[This is a cross post from the InfoLawGroup blog.]

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