Hines v Overstock.com, Inc.

Brief Fact Summary.

a class action was purportedly brought against Overstock.com, Inc. (Overstock) (D) for charging a restocking fee by Hines (P), a consumer, contending that the fee had never been disclosed. But Overstock affirmed that arbitration of all issues, including the transfer to a different forum was backed by the contract governing the transaction. Hines (P) alleged that the terms were unenforceable on the ground that she had no notice of the terms and conditions and that any reasonable user would have seen the seen the terms if it had been on the website.

Synopsis of Rule of Law.

a user is not bound to the terms and conditions of an online contract he/she had not been notified of, and this also includes a reasonable user of the website who have not seen the terms and conditions.

Facts.

Hines (P) returned a vacuum cleaner she had bought from an on-line “closeout” retailer named Overstock.com, Inc. (Overstock) (D) and was given back the amount in which she bought the vacuum cleaner with after a $30 restocking fee was effected. Due to this, Hines (P) brought a purported class action against Overstock (D) in the federal district court in New York for breach of contract, fraud, and other grounds, challenging the restocking fee. Her reason for returning the vacuum was based on the advice which she received that she would suffer no cost upon the return of the vacuum cleaner and that the fee that was deducted by Overstock (D) was never disclosed.
According to Overstock (D), all its online purchases were governed by its terms and conditions and required that all disputes would be resolved through arbitration as well as a transfer to a different forum which was the state court in Utah. Hence, Overstock (D) prayed the court should dismiss the suit, stay for arbitration or transfer the suit. But Hines (P) argument was that she had no seen the terms and conditions when she had made the purchase of the vacuum cleaner and that a reasonable would have seen such terms and conditions, and as such, it was not enforceable. She further explained that the terms and conditions in question could only be seen by a user who scrolls down the page(s) and that there was no need for her to scroll down the pages because she was directed each step of the way to click on to a bar to take her to the next step to complete the purchase. The district court however ruled on the motion.

Issue.

is a user bound to the terms and conditions of an online contract he/she had not been notified of including a reasonable user of the website that have not seen the terms and conditions?

Held.

(Johnson, J.) No. A user is not bound to the terms and conditions of an online contract he/she had not been notified of and this also includes a reasonable user of the website who had not seen the terms and conditions. Determining as a matter of state law whether the underlying arbitration agreement is valid is the first step in determining the enforceability of the arbitration terms. Overstock (D) failure to meet its burden showed that regardless of the law controlling, either New York or Utah, there was a valid arbitration agreement under state’s law because it had shown neither that the plaintiff was aware of the terms and conditions, not that a reasonable user of the website would have. There must be “mutual assent” and a “meeting of mind” before a contract can become binding on the parties. In this case, “browsewrap agreement” is the type of agreement at issue and it is an agreement which is typically at the bottom of the screen. It is here that the terms and conditions are pasted and assenting to the terms and conditions is not expressly required by the user but the user assents to the terms and conditions by using the website.
Therefore, whether a website user has actual or constructive knowledge of the terms and conditions prior to the usage of the site are factors the courts primarily considers in ruling on the validity of a browsewrap agreement. In this particular scenario, Hines (P) had no prior or constructive knowledge of the terms and conditions and Overstock (D) did not produce any evidence to show that she was informed of the existing terms and conditions. This particular case is unique and not like other cases of similar issues because the notice that “Entering this Site will constitute your acceptance of these Terms and Conditions,” was only available within the terms and conditions. Therefore, is can be confirmed that Hines (P) was not aware of the terms and conditions because Overstock (D) did not prompt her to review them and the link to the terms and conditions was not significantly displayed for her to be conversant with it.
On this ground, there is no valid arbitration agreement and the motion to stay for arbitration is denied. In line with this ruling, the motion to transfer is denied due to the fact that Hines (P) did not have notice of the forum selection portions of the terms and selections and a reasonable user would not have had notice of them. In summary, the defendant failed to explain how its customers, which included Hine (P) were “advised” of the terms and conditions or make reference to a particular scenario in which posting of such terms on a different part of a website constituted reasonable communication of a forum selection clause. Overstock (D) failure to meet its burden of showing that another venue would be proper under a forum non-conveniens theory was also determined by the court. The motion was denied.

Discussion.

this case clearly shows the principles of contracts are not fundamentally changed by the making of contracts over the internet but are in fact applicable to online contracts as well. The “clickwrap” (or “click-through”) agreement are the primary means of forming a contract now on the internet in which the website users click on an “I agree” box after they have been presented with the terms and conditions of use, including the “browsewrap” agreement which was at issue in this case, where website posts terms and conditions typically as a hyperlink at the bottom of the screen. Traditional contract principles such as “meeting of the minds” and “manifestation of mutual assent” have been used by the court as the starting point for determining whether such contracts formed online are enforceable.