The Ninth Circuit’s recent Berman decision looks to be even more of a game-changer after a federal district court in California relied on it to hold that widely-used clickwrap “continued-use” provisions allowing companies to amend their terms of service at will, and binding consumers to the amended terms merely by their continued use of the service, will not be enforced unless the consumer has been notified of the changed terms.

Berman Changes the Game. In Berman v. Freedom Fin. Network, LLC (9th Cir., Apr. 5, 2022, No. 20-16900) 30 F.4th 849, the Ninth Circuit rejected the argument that plaintiffs’ mere use of defendants’ websites had signified their agreement to a mandatory arbitration provision that could only be seen after clicking on notices stating “I understand and agree to the Terms and Conditions which includes mandatory arbitration.” Clicking on the hyperlinked notices would have revealed the terms and conditions, but plaintiffs did not do so.

The Ninth Circuit applied federal case law, citing, among others, Nguyen v. Barnes & Noble Inc. (9th Cir. 2014) 763 F.3d 1171, 1173 and Long v. Provide Commerce, Inc. (2016) 245 Cal.App.4th 855, for the proposition that unless a website operator can show that a consumer has actual notice of agreement terms, enforceability will be found based on an inquiry notice theory only if: (1) the website provides reasonably conspicuous notice of the terms; and (2) the consumer takes some action, such as clicking a button or checking a box, that unambiguously manifests assent to those terms. (Berman, 30 F.4th at 856.) In Berman, defendants did not assert that plaintiffs had actual notice. And as for inquiry notice, defendants failed to show that they had provided either reasonably conspicuous notice of the terms, or that plaintiffs had taken the required action. Accordingly, the court held the arbitration provision unenforceable.

Much of the reaction to the Berman opinion was related to its detailed criticism of aspects of webpage design the court characterized as “the antithesis of conspicuous,” such as tiny font sizes and hyperlinks without contrasting colors and capital letters, These elements provided an important road map for what not to do in website and app design going forward, at least if you want to provide reasonably conspicuous notice under Berman. And in the months since Berman, many consumer-facing apps and websites have made appropriate changes to comply.

Evading Berman. But many companies have not complied with Berman. Sales and marketing departments, citing bottom-dollar sales-conversion, customer-retention, or other website metrics, may well make a strong business case for why a company would not want to follow the Berman road map of web design.

Among the many creative fallback positions clever compliance counsel might adopt in response, two are of interest:

  1. You attempt to distinguish Berman (a sign-in wrap agreement case) and Nguyen and Long (browsewrap agreement cases) from your own website or app by ensuring that your users have at least agreed to your continuous-use provision via a clickwrap or scrollwrap agreement (these include an “I accept” or “I agree” button for the user to click). (For explanation of the types of “-wrap” agreements, see here.)
  2. Alternatively, “Under Nguyen,” you might say to yourself, “we can safely change our terms without having to provide reasonably conspicuous notice on our website or app, or requiring a consumer to take action, so long as we make sure we’ve emailed them actual notice.”

The stage was set for Sifuentes v. Dropbox, which blows cannonball-sized holes in both of those fallback positions.

The Lessons of Sifuentes v. Dropbox. Pro se plaintiff David Sifuentes sought damages from Dropbox for a 2012 data breach. Dropbox contended Sifuentes had agreed to its 2011 Terms of Service because he’d affirmatively checked a box stating “I agree to Dropbox Terms of Service” (with the terms of service hyperlinked in blue font) and then pressed a “Create Account” button — in other words, a clickwrap agreement. Sifuentes didn’t contest this. The terms of service Sifuentes agreed to included a provision that Dropbox could revise the terms from time to time, and that continued use of the service constituted the user’s agreement to any such revised terms — in other words, a continued-use provision.

Dropbox moved for arbitration based on a 2014 amendment to its terms of service that added an arbitration provision. It claimed that it notified Sifuentes and other users of this change in a detailed email, with hyperlinks leading to the new terms and an opt-out form. Sifuentes argued that he couldn’t be bound by the updated terms, including the arbitration provision, because he never read, clicked on, or accepted any of Dropbox’s updated terms of service or the emails about them.

In analyzing the case, the court acknowledged that Sifuentes had agreed to clickwrap terms of service in 2011, but since the 2014 amendment was not made by clickwrap, the court looked for either actual notice or inquiry notice under Berman.

Unlike Berman, in Sifuentes the defendant asserted that the plaintiff had received actual notice. The court disagreed. It found that Dropbox had failed to show actual notice by the required preponderance of the evidence. Sifuentes denied opening or reading Dropbox’s emails, and Dropbox merely claimed that its policy was to mass-email its subscribers when updating terms. The court dryly noted that the record did not include an email read receipt to show Sifuentes had read the email.

Proceeding to inquiry notice, the court listed a number of methods Dropbox could have — but didn’t — use to show that it had provided Sifuentes and other users with reasonably conspicuous notice each of the twelve times it updated its terms of service from 2011 to 2019:

There is nothing in the record to suggest that Plaintiff could not use the service until he indicated his assent, that he would have been advised of new terms and conditions while using Defendant’s services, or that Defendant ever tracked whether Plaintiff had opened its email.

(Sifuentesslip op. at p. 7.)

However, even if Dropbox had used one or more of those methods, it still would not have met the second half of the Berman/Nguyen requirements for inquiry notice, because Sifuentes never took action to unambiguously manifest his consent, such as clicking a button or checking a box.

The court then proceeded to take a hammer to the entire concept of continued-use provisions being effective without having to provide notice of each change. That argument, the court said, “misses the point. Given the complete lack of evidence of notice within Defendant’s service itself, Plaintiff’s ongoing use of the service is irrelevant to determining whether he had actual or constructive notice of the post-2011 terms of service.” (Sifuentes, slip op. at p. 7, emphasis added.) “Without actual or inquiry notice,” the court said, “there was no manifestation of mutual assent, and the later terms of service do not impose an enforceable agreement to arbitrate.” (Sifuentes, slip op. at p. 8.)

The lessons of Sifuentes v. Dropbox are many, but four stand out:

  • Arguments that continued-use provisions in a clickwrap agreement might not be subject to the Berman requirements for inquiry notice no longer hold water (if they ever did);
  • An emailed notice of changed terms is useless without a read receipt (or, perhaps, tracking to show it was opened);
  • Consider giving notice of updated terms within your service, and ideally prevent your users from continuing to use the service until they take an action to acknowledge the notice (or agree to the terms); and
  • Even a lowly pro se plaintiff can upend entire industries. Beware!

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