October 17, 2019, Trial News | The American Association For Justice

October 17, 2019, Trial News

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‘Vague’ terms and conditions sink Samsung’s forced arbitration clause

Kate Halloran

a photo of a hand holding a smartphone while the other hand is ready to tap on the screen

Insufficient notice of a forced arbitration clause contained in a smartphone’s packaging and safety and warranty guide upends Samsung’s motion to compel arbitration in a personal injury case, the Ninth Circuit has ruled. The court found that language on the Galaxy S7 Edge’s packaging and inside a booklet sold with the device did not provide adequate notice to the plaintiff of the company’s forced arbitration provision.
 

Insufficient notice of a forced arbitration clause contained in a smartphone’s packaging and safety and warranty guide upends Samsung’s motion to compel arbitration in a personal injury case, the Ninth Circuit has ruled. The court found that language on the Galaxy S7 Edge’s packaging and inside a booklet sold with the device did not provide adequate notice to the plaintiff of the company’s forced arbitration provision. The court also rejected the defendant’s argument that California law follows the “in the box” theory of contract assent and reiterated that a consumer’s silence or inaction is not enough to show consent to a contract. (Samsung Elec. Am., Inc. v. Ramirez, 777 F. App’x 243 (9th Cir. Sept. 17, 2019).)

Daniel Ramirez purchased a Samsung S7 Edge smartphone in 2016. The phone was in his pocket when it emitted a screeching noise and started vibrating. Ramirez noticed smoke coming from the pocket and tried to remove the phone, but his fingers were burned. The phone then caught fire, burning through Ramirez’s clothes and causing severe burns to his leg. Ramirez sued Samsung, alleging that the phone’s battery was defective, causing it to overheat and explode.

The defendant moved to compel arbitration of Ramirez’s claims, relying on a forced arbitration clause on pages 19 to 21 in a warranty guide included with the phone. The clause provided a 30-day opt-out period. The phone’s packaging also referenced a safety and warranty brochure, a statement that the device was subject to additional terms and conditions, and directions to visit Samsung’s website for more information on the device. Ramirez opposed the motion to compel arbitration, arguing that under California contract law, the forced arbitration agreement was unenforceable. Specifically, Ramirez contended that he could not have consented to the agreement because notice of the terms and conditions was inadequate.

The district court reviewed Ramirez’s argument in light of the In re Samsung Galaxy Smartphone Marketing and Sales Practices Litigation pending in another district court in the Ninth Circuit. In that litigation, the court delved into exactly what information was contained in the packaging and manuals for S7 Edge phones on various cellular networks. The court divided the plaintiffs into two groups based on the detail of information contained on and in their device boxes. For the group that received boxes with more prominently displayed information about the terms and conditions, the court found that those plaintiffs would be subject to the forced arbitration clause. For the second group, whose boxes had the “go to our website” language, the court found that the information contained on the website would not provide adequate notice and the warranty guide did not make it clear that arbitration was a binding contract because it was discussed in the context of a warranty. For this group of plaintiffs, the court refused to compel arbitration. Based on this determination, Ramirez’s box and guide from Verizon should have fallen into the former category, thus subjecting his claims to arbitration.

But the district court in Ramirez’s case pointed out that the In re Samsung court had erred: The warranty guide for Verizon phones like Ramirez’s did not contain a cover page with the language the court relied on in its assessment to enforce arbitration. Consumers would not have received notice from the guide’s cover page about additional terms and conditions; they would have had to flip through the guide itself to locate the forced arbitration provision—meaning that Ramirez’s device actually fell into the second category. The district court further noted that circuit precedent established that a warranty and safety guide could not put a reasonable person “on notice that the brochure contained a freestanding obligation outside the scope of the warranty” or that failing to opt out of an arbitration provision contained in that guide would affect claims beyond any related to the product’s warranty.

On appeal, the Ninth Circuit affirmed. It concluded that “the inaptly titled booklet” and “the smartphone packaging’s vague reference to terms and conditions” did not adequately notify a reasonable consumer about the forced arbitration provision. It also explained that just because the provision was contained somewhere within the device’s packaging, that did not mean consumers automatically were notified of and consented to it.

Orlando attorney Andrew Felix, who represents Ramirez, said, “We have believed from the beginning that our client’s injuries were preventable and that Samsung is unjustly trying to force him into an arbitration proceeding that he never agreed to, and in so doing, shirk its responsibility to ensure its products are safe.”