What’s in the box? Not a valid agreement to arbitrate!

Norcia v. Samsung
Telecommunications America, LLC, — F.3d —-, 2017 WL 218027, No. 14–16994 (9th
Cir. Jan. 19, 2017)
Norcia brought a
putative class action bringing the usual California claims against Samsung,
alleging that Samsung made misrepresentations as to the performance of the
Galaxy S4 phone. Samsung moved to compel arbitration on the ground that an
arbitration provision contained in a warranty brochure included in the Galaxy
S4 box was binding on Norcia. The court of appeals affirmed the denial of
Samsung’s motion.
Norcia bought his
phone at a Verizon Wireless store.  When
he paid, he got a receipt labelled “Customer Agreement” which included a statement
(in all capital letters) that: “I understand that I am agreeing to …
settlement of disputes by arbitration and other means instead of jury trials,
and other important terms in the Customer Agreement.” Norcia signed the
Customer Agreement, and Verizon Wireless emailed him a copy.
After that, Norcia
took the phone, still in its sealed Samsung box, and a Verizon Wireless employee
opened the box and helped Norcia transfer his contacts from his old phone to
the new phone. Norcia declined the offer by the Verizon Wireless employee to
take the box and the rest of its contents, which included Samsung’s “Standard
Limited Warranty,” which included a statement that “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.”  The statement continued that purchasers could
opt out of the arbitration agreement by providing notice to Samsung within 30
calendar days of purchase, either through email or by calling a toll-free
telephone number.
“[A]rbitration is a
matter of contract and a party cannot be required to submit to arbitration any
dispute which he has not agreed so to submit.”  Samsung bore the burden of showing agreement
by a preponderance of the evidence.
First, Samsung argued
that including the arbitration provision in the Product Safety & Warranty
Information brochure created a valid contract between Samsung and Norcia.
California law governs contract formation. 
“A party who is bound by a contract is bound by all its terms, whether
or not the party was aware of them.” 
Contracts can be made “in any manner sufficient to show agreement,
including conduct by both parties which recognizes the existence of such a
contract.” Silence or inaction isn’t acceptance, unless the offeree has a duty
to respond to an offer and fails to act in the face of this duty (when she’s
given the opportunity to opt out) or the offeree retains the benefit offered.  Nonetheless, silence won’t be consent when
the offeree reasonably did not know that an offer had been made.
Norcia didn’t
expressly assent to any agreement in the brochure, or sign the brochure or
otherwise act in a manner that would show “his intent to use his silence, or
failure to opt out, as a means of accepting the arbitration agreement.” No
exception to the general rule applied; Samsung didn’t identify any duty imposed
on Norcia by California law, nor any previous course of dealing between the
parties. Nor did Norcia retain any benefit by failing to act, given that the brochure
stated that Norcia was entitled to “the benefits of the Limited Warranty”
regardless whether Norcia opted out of the arbitration agreement.  Without “outward manifestations of consent
[that] would lead a reasonable person to believe the offeree has assented to
the agreement,” no contract was formed between Norcia and Samsung.
Samsung argued that
the brochure was analogous to a shrink-wrap license, or to terms included in a
box sent to the consumer, which the Seventh Circuit has held to be enforceable.  The court of appeals first commented that a previous
“unreasoned” Ninth Circuit statement about the enforceability of shrink-wrap
licenses in California wasn’t focused on contract formation, and anyway wasn’t
free from doubt; there were no identified California cases on the subject.
At most, previous
precedent indicated that “a shrink-wrap license of intellectual property is
enforceable in California” when it states on the packaging that opening the
package constitutes consent to the license. But “[e]ven if a license to copy
software could be analogized to a brochure that contains contractual terms, the
outside of the Galaxy S4 box did not notify the consumer that opening the box
would be considered agreement to the terms set forth in the brochure.”  
How about the
in-the-box contract approved by the Seventh Circuit?  In the relevant case, consumers ordered a
computer over the phone, but when the box arrived, it contained the computer
and “a list of terms, said to govern unless the customer return[ed] the
computer within 30 days.”  The Seventh
Circuit stated that “[p]ractical considerations support allowing vendors to
enclose the full legal terms with their products,” and concluded that “[b]y
keeping the computer beyond 30 days, the [buyers] accepted [the seller’s]
offer, including the arbitration clause.”  But California hasn’t adopted that rule
(though it has held that statements in the box can constitute warranties;
warranty and contract law differ).  Even
if in-the-box contracts may be binding under certain circumstances, no contract
is formed “when the writing does not appear to be a contract and the terms are
not called to the attention of the recipient.” 
Samsung’s brochure was
called “Product Safety & Warranty Information.” That title indicated that
the brochure contained safety information and the seller’s warranty. “A
reasonable person in Norcia’s position would not be on notice that the brochure
contained a freestanding obligation outside the scope of the warranty.” Nor
would a reasonable person understand that failing to opt out of an arbitration
provision contained within the warranty constituted assent to a provision
requiring arbitration of all claims
against the seller, including claims not involving the warranty.
Samsung urged the
Ninth Circuit to agree with the Seventh that “the practicalities of consumer
transactions require the enforcement of in-the-box contracts and that consumers
expect that products will come with additional terms.”  Nope. 
Call your legislator if you want a different public policy.

Samsung’s next
argument, that Norcia agreed to arbitrate his claims by signing the Customer
Agreement with Verizon Wireless, was meritless. 
Verizon isn’t Samsung; Samsung isn’t a third-party beneficiary of the

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