August 18, 2014
KEVIN KHOA NGUYEN, an individual, on behalf of himself and all others similarly situated, Plaintiff-Appellee,
BARNES & NOBLE INC., Defendant-Appellant
Argued and Submitted May 16, 2014, Pasadena, California
Appeal from the United States District Court for the Central District of California. D.C. No. 8:12-cv-00812-JST-RNB. Josephine L. Staton, District Judge, Presiding.
Michelle C. Doolin (argued), Leo P. Norton, and Erin E. Goodsell, Cooley LLP, San Diego, California, for Defendant-Appellant.
Gretchen Carpenter (argued), and Brian R. Strange, Strange & Carpenter, Los Angeles, California, for Plaintiff-Appellee.
Before: John T. Noonan and Kim McLane Wardlaw, Circuit Judges, and Roslyn O. Silver, Senior District Judge.[*]
NOONAN, Circuit Judge.
We therefore affirm the district court's denial of Barnes & Noble's motion to compel arbitration and to stay court proceedings.
The underlying facts are not in dispute. Barnes & Noble is a national bookseller that owns and operates hundreds of bookstores as well as the website < www.barnesandnoble.com> . In August 2011, Barnes & Noble, along with other retailers across the country, liquidated its inventory of discontinued Hewlett-Packard Touchpads (" Touchpads" ), an unsuccessful competitor to Apple's iPad, by advertising a " fire sale" of Touchpads at a heavily discounted price. Acting quickly on the nationwide liquidation of Touchpads, Nguyen purchased two units on Barnes & Noble's website on August 21, 2011, and received an email confirming the transaction. The following day, Nguyen received another email informing him that his order had been cancelled due to unexpectedly high demand. Nguyen alleges that, as a result of " Barnes & Noble's representations, as well as the delay in informing him it would not honor the sale," he was " unable to obtain an HP Tablet during the liquidation period for the discounted price," and was " forced to rely on substitute tablet technology,
which he subsequently purchased . . . [at] considerable expense."
XVIII. DISPUTE RESOLUTION
. . . .
Any claim shall be arbitrated or litigated, as the case may be, on an individual basis and shall not be consolidated with any Claim of any other party whether through class action proceedings, class arbitration proceedings or otherwise.
. . . .
II. Standard of Review
" We review the denial of a motion to compel arbitration de novo." Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008). Underlying factual findings are reviewed for clear error, Balen v. Holland Am. Line Inc., 583 F.3d 647, 652 (9th Cir. 2009), while " [t]he interpretation and meaning of contract provisions" are reviewed de novo, Milenbach v. Comm'r, 318 F.3d 924, 930 (9th Cir. 2003).
The FAA, 9 U.S.C. § 1 et seq., requires federal district courts to stay judicial proceedings and compel arbitration of claims covered by a written and enforceable arbitration agreement. Id. § 3. The FAA limits the district court's role to determining whether a valid arbitration agreement exists, and whether the agreement encompasses the disputes at issue. See Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). The parties do not quarrel that Barnes & Noble's arbitration agreement, should it be found enforceable, encompasses Nguyen's claims. The only issue is whether a valid arbitration agreement exists.
In determining whether a valid arbitration agreement exists, federal courts " apply ordinary state-law principles that govern the formation of contracts." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Federal courts sitting in diversity look to the law of the forum state--here, California--when making choice of law determinations. Hoffman v. Citibank (S.D.), N.A., 546 F.3d 1078, 1082 (9th Cir. 2008) (per curiam). Under California law, the parties' choice of law will govern unless section 187(2) of the Restatement (Second) of Conflict of Laws dictates a different result. Id.
For the reasons that follow, we hold that Nguyen did not enter into Barnes & Noble's agreement to arbitrate.
" While new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract." Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004). One such principle is the requirement that " [m]utual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract." Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 29 (2d Cir. 2002) (applying California law).
Contracts formed on the Internet come primarily in two flavors: " clickwrap" (or " click-through" ) agreements, in which website users are required to click on an " I
(enforcing forum selection clause where prospective members had to check box confirming that they both read and agreed to the website's Terms and Conditions of Service to obtain account); Fteja, 841 F.Supp.2d at 838-40 (enforcing forum selection clause in website's terms of service where a notice below the " Sign Up" button stated, " By clicking Sign Up, you are indicating that you have read and agree to the Terms of Service," and user had clicked " Sign Up" ).
But the proximity or conspicuousness of the hyperlink alone is not enough to give rise to constructive notice, and Barnes & Noble directs us to no case law that supports this proposition. The most analogous case the court was able to locate is PDC Labs., Inc. v. Hach Co.,
an unpublished district court order cited by neither party. No. 09-1110, 2009 WL
2605270 (C.D. Ill. Aug. 25, 2009). There, the " Terms [and Conditions of Sale]
were hyperlinked on three separate pages of the online . . . order process in
underlined, blue, contrasting text." Id. at *3. The court held that " [t]his contrasting text is sufficient to be considered conspicuous," thereby placing a reasonable user on notice that the terms applied. Id. It also observed, however, that the terms' conspicuousness was reinforced by the language of the final checkout screen, which read, " 'STEP 4 of 4: Review terms, add any comments, and submit order,'" and was followed by a hyperlink to the Terms. Id. (emphasis added).
In light of the lack of controlling authority on point, and in keeping with courts' traditional reluctance to enforce browsewrap agreements against individual consumers, we therefore hold that where
First, the doctrine of direct benefits estoppel does not apply to the facts at hand. Federal courts have recognized that the obligation to arbitrate under the FAA does not attach only to one who has personally signed the arbitration provision. Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995). Instead, a non-signatory to an arbitration agreement may be compelled to arbitrate where the non-signatory " knowingly exploits" the benefits of the agreement and receives benefits flowing directly from the agreement. See MAG Portfolio Consultant, GMBH v. Merlin Biomed Grp. LLC, 268 F.3d 58, 61 (2d Cir. 2001); see also Belzberg v. Verus Invs. Holdings Inc., 21 N.Y.3d 626, 999 N.E.2d 1130, 1134, 977 N.Y.S.2d 685 (N.Y. 2013). But Nguyen is not the type of non-signatory contemplated by the rule. Equitable estoppel typically applies to third parties who benefit from an agreement made between two primary parties. See, e.g., Wash. Mut. Fin. Grp., LLC v. Bailey, 364 F.3d 260, 267-68 (5th Cir. 2004) (estopping non-signatory wife of borrower from avoiding arbitration clause of loan agreement made between her husband and lender); Parillo v. Nataro, 34 Misc.2d 800, 229 N.Y.S.2d 492, 493-94 (Sup. Ct. 1962) (applying equitable estoppel to third-party beneficiary of insurance contract).
Second, we are unable to find any case law holding that reliance on a contract's choice of law provision in itself constitutes a " direct benefit." The closest case is HD Brous & Co., Inc. v. Mrzyglocki, an unpublished district court decision, in which the court compelled arbitration against a non-signatory petitioner in part because the non-signatory had sought to limit the respondent's choice of substantive law by relying on the agreement's choice of law provision. No. 03 Civ.8385(CSH), 2004 WL 376555, at *8 (S.D.N.Y. Feb. 26, 2004). But HD Brous is distinguishable because the agreement there served as the foundational document for the business relationship between the parties and explicitly named the petitioner as the intended beneficiary. Id. It can hardly be said here that the choice of New York law--chosen unilaterally by Barnes & Noble--was intended to benefit Nguyen. Any benefit derived by Nguyen under New York law--whether it be the possibility of statutory or treble damages on Nguyen's nationwide class claims--is merely incidental.
In light of these distinguishing facts, the district court did not abuse its considerable discretion in rejecting Barnes & Noble's estoppel argument.
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