Ahead of the Class

If you want to enforce an arbitration clause and class action waiver, don’t bury it on the 97^th page of a product manual.  Instead, make sure consumers have reasonable notice of it.  That’s the lesson from the Third Circuit’s decision in Noble v. Samsung Electronics Am., Inc., 2017 WL 838269, — F. App’x — (3d Cir. Mar. 3, 2017).

In Noble, a consumer brought a class action against Samsung in the U.S. District Court for the District of New Jersey, claiming that the battery in his Samsung Smartwatch did not last as long as Samsung said it would.  Samsung moved to compel arbitration and to dismiss the class claims.  Samsung pointed the court to a 143-page document—a “Health and Safety and Warranty Guide”—packed inside each Smartwatch box.

On page 97, a question in bold face type read, “What is the procedure for resolving disputes?”  The answer:

ALL DISPUTES WITH SAMSUNG ARISING IN ANY WAY FROM THIS LIMITED WARRANTY OR THE SALE, CONDITION OR PERFORMANCE OF THE PRODUCTS SHALL BE RESOLVED EXCLUSIVELY THROUGH FINAL AND BINDING ARBITRATION, AND NOT BY A COURT OR JURY

Any such dispute shall not be combined or consolidated with a dispute involving any other person’s or entity’s Product or claim, and specifically, without limitation of the foregoing, shall not under any circumstances proceed as part of a class action.

The district court denied Samsung’s motion, finding the clause unreasonably hidden.  Samsung appealed.  The Third Circuit affirmed.

Applying basic principles of contract law, the Third Circuit found no “meeting of the minds” because Samsung failed to provide “reasonable notice” to the consumer that the Guide included bilateral contractual terms at all or contained an arbitration clause and class action waiver.  The court was troubled by the lack of any indication on the outside of the Guide that it was a bilateral contract or included any terms or conditions.  Rather, the cover of the Guide referred to itself as a “manual.”  Nor did the table of contents or index list an arbitration clause.

The court recognized the practical reality that a consumer would have no way to learn that this 143-page Guide contained either bilateral contractual terms in general or an arbitration clause and class action waiver in particular short of reading the whole thing, which consumers cannot be reasonably expected to do.  “[T]he only manner in which a consumer could receive notice of the Clause at issue here would be to read ninety-seven pages into the Guide where the Clause appears, or to happen upon page ninety-seven by luck.”

Though the Third Circuit’s decision was not precedential, it is consistent with a January 2017 published Ninth Circuit decision also refusing to enforce a Samsung arbitration clause and class action waiver.  Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279 (9th Cir. 2017).  “Faced with a nearly identical case, the … Ninth Circuit rejected Samsung’s argument that an arbitration agreement was created by language tucked away in a brochure entitled ‘Product Safety & Warranty Information.’”

If you’re thinking about adding an arbitration clause and class action waiver to your consumer warranties, it would be wise to give purchasers reasonable notice of what you’re doing.  Make sure the document in which the clause appears refers to itself as an agreement—not just a “manual.”  And make sure it conveys—up front—that it includes an arbitration clause and class waiver binding on the consumer and your company.  Don’t take these clauses for granted.  Courts will enforce them with reasonable notice, but you can’t bury them.