When does “no contract” mean “mandatory arbitration contract”?

Barraza v. Cricket Wireless LLC, 2015 WL 6689396, No. C
15-02471 (N.D. Cal. Nov. 3, 2015)
 
Cricket advertised a “No Contract” wireless phone plan with
an arbitration clause in its purported contract terms.  As Omri Ben-Shahar
pointed out
, advertising “No Contract” has some risks in terms of …
contract formation.  Here, Cricket still
gets a chance to prove that there was a contract, but it can’t force these
false advertising plaintiffs immediately to arbitration.
 
Until May 2014, Cricket advertised “No Contract” wireless
service, then switched to “No Annual Contract.” Plaintiffs bought wireless
service and accompanying phones at Cricket-owned stores; employees opened the
boxes and activated the phones. One panel on those boxes  included a paragraph that discussed signal
frequency and battery performance, and also said: “Use of phone requires
purchase of Cricket® service, which must be purchased separately. By activating
Cricket® service, you agree to the enclosed terms and conditions of the
service.”  The terms and conditions were in
in a 3×4 inch booklet titled “Quick Start Guide.”
 
The first page of the Quick
Start Guide described Cricket as “the home of no contract, no hassle wireless,”
and did not mention that the booklet contained terms and conditions for the use
of Cricket’s service. Pages 6-15 had “numerous terms and conditions written in
a smaller font than the rest of the contents of the booklet.”  These included (in much smaller font than here
displayed):
 
IMPORTANT: WHEN YOU START SERVICE
OR USE THE SERVICE … YOU INDICATE YOUR ACCEPTANCE OF THIS AGREEMENT. IN
ADDITION, EACH TIME YOU PAY FOR SERVICE FROM US, YOU CONFIRM YOUR ACCEPTANCE OF
THIS AGREEMENT. IF YOU DO NOT WANT TO ACCEPT THIS AGREEMENT, DO NOT START
SERVICE OR USE THE SERVICE AND RETURN YOUR WIRELESS DEVICE…FOR A REFUND
 
The Quick Start Guide also included an arbitration provision
and class-action waiver:
 
YOU AND WE ARE WAIVING RIGHTS TO
PARTICIPATE IN CLASS ACTIONS …
 
Cricket also required its employees to hand any customer
purchasing a new phone Cricket’s “Half Is More” promotional pamphlet (or to
have it stapled to the receipt), which stated, “Terms, conditions and other
restrictions apply” to Cricket’s services, written in five-point font.  Cricket made yet another handbook called “My
Cricket Guide” available within its stores, which also said in five-point font
that “Your Agreement … includes terms of your service plan  …. Carefully read all the Cricket Terms and
Conditions of Service which include, among other things, a MANDATORY
ARBITRATION of disputes provision.”  The
named plaintiffs averred that they saw the “Half as More” pamphlet and “My
Cricket Guide” handbook on display, but that they weren’t given those materials
and never reviewed them.
 
One of the plaintiffs also purchased a Cricket PAYGo card in
2013 at a gas station in order to reload the balance on her account. That card
read, “By using your Cricket service or phone, or by increasing your account
balance, you acknowledge your consent to the current Cricket Terms and
Conditions of Service.” Cricket also argued that she went to a store to change
her service;  the back of Cricket’s
printed receipts in the store included a reference to the terms and conditions,
including that the terms and conditions included an “agreement to dispute
resolution by binding individual arbitration instead of jury trials or class
actions.”
 
The FAA governs the enforcement of the arbitration
provisions. The “existence of a contract as a whole must be determined by the
court prior to ordering arbitration.” Although a party generally cannot avoid
the terms of a contract because she failed to read it, that rule does not apply
“when the writing does not appear to be a contract and the terms are not called
to the attention of the recipient.”  Here,
“the Quick Start Guide lacked any indication of its contractual nature.” Thus,
its inclusion in the box was insufficient to place plaintiffs on inquiry notice
of the terms and conditions.  By opening
the boxes before giving them to plaintiffs, Cricket’s employees “obviated the
need for plaintiffs to review the Quick Start Guide and signaled that it was
unimportant to review the text on the box before activating the service.”
 
Cricket argued that plaintiffs had 60 days to opt out of the
arbitration provisions and that numerous consumers exercised that option, but
that didn’t matter if plaintiffs never agreed to be bound by the provisions in
the first place. “An employee of a telephone service provider or an attorney
may be attuned to the possibility that an arbitration agreement would be buried
in a document titled ‘Quick Start Guide,’ while a reasonable consumer is
unaware of that possibility.”  Nor did
plaintiffs have reason to consult the other materials in the store, or to read the
inconspicuous references to terms and conditions on the back of a PAYGo card or
an in-store receipt.
 
The court did, however, reject plaintiffs’ argument that
equitable estoppel applied based on the “No Contract” ads.  It is “[a]n essential element of equitable
estoppel is that the party to be estopped…‘intended by [its] conduct to
induce reliance by the other party, or acted so as to cause the other party
reasonably to believe reliance was intended.’ ”  Even if plaintiffs relied on the “No Contract”
ads to buy wireless service, “they have failed to demonstrate that Cricket
acted with the intention or expectation that Cricket intended such reliance.”  “No Contract” claims are meant to distinguish
services with annual commitments to those without such commitments; there was
no evidence that Cricket intended to get consumers to assent to arbitration
instead of to convey that more limited message. Nonetheless, at the upcoming
summary trial to determine whether a contract was actually formed (and to
assess the credibility of named plaintiffs’ claims that they didn’t review the
materials), the “No Contract” ads could be taken into account in determining
the reasonable expectations of the parties.

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