Online Deception No Basis to Compel Arbitration

Consumers cannot be compelled to arbitrate claims if they are duped into continuous online membership agreements when they thought they purchased a one-time product.

The 9th U.S. Circuit Court of Appeals Monday rejected an effort by Intelius, an online company that performs background checks and people searches.

In 2008, Donovan Lee of Seattle purchased a background check and report from Intelius though an online credit card purchase.  But he failed to see small print that give him a seven-day free trial of a “Family Safety Report,” with an obligation to pay $19.95 per month thereafter.

A year later, Lee discovered that Adaptive Marketing, a separate company from Intelius, was charging him for the Family Safety Report.  Lee sued Intelius, making Washington state law class action claims.  Intelius in turn sued Adaptive in a third-party complaint.

Adaptive then filed a motion to compel both Lee and Intelius to arbitrate their claims.

The details of the agreement were part of a beige-colored box with small, light grey print that did not stand out from the beige background, according to the court.  It is there that the $19.95 per month charge was cited if the consumer remained a member after the seven-day free trial.

“We are skeptical that e Lee ‘objectively manifested assent’ to the contract merely by providing and confirming his email address and clicking on the prominent ‘yes’ button,” wrote Judge William Fletcher.

Intelius has a marketing agreement with Adaptive.  It supplies access to consumers and receives revenue for each customer who accepts the free trial period offer.  Almost 40 percent of Intelius revenue came from that relationship in 2008.

The trial court found that although Lee entered into a contract with Adaptive to purchase the family Safety Report, he did not enter into a contract to arbitrate.  The appeals court disagreed, saying Lee did not even enter into a contract, let alone an agreement to arbitrate.

.Washington state requires that the essential elements of a contract be set forth in writing.  “Even an exceptionally careful consumer, who understood that he or she was being asked to enter into a contract for an additional product, would likely have thought that the contracting party was Intelius,” Fletcher wrote.

While it is not necessary to our holding, “we not that the would-be contract that Adaptive is seeking to enforce is now illegal under federal law,” he said.  It was made illegal in Dec. 2010, in the Restore Online Shoppers’ Confidence Act, which prohibits data pass method of sharing customer credit card information.

The case goes back to federal court in Washington to allow Lee to pursue his class claims.

[A color view of the online screen shot is attached to the opinion.]

Case:  Lee v. Intelius Inc., No. 11-35810




Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s