Last week, the Ninth Circuit reversed a California federal court’s decision compelling individual arbitration of a putative class action alleging Sirius XM Radio violated the Telephone Consumer Protection Act (TCPA) by making unauthorized marketing calls to the plaintiff and other consumers. Knutson v. Sirius XM Radio Inc., No. 12-56120 (9th Cir. Nov. 10, 2014) (slip op. available here). The panel, comprised of circuit Judges Harry Pregerson, Marsha Berzon, and Michael Murphy (sitting by designation), held the at-issue arbitration agreement to be unenforceable due to lack of mutual assent, because the plaintiff was unaware he had entered into a contract with Sirius.
The plaintiff filed the suit as a class action in 2012, alleging that after he bought his new Toyota vehicle and began his 90-day free trial subscription for Sirius XM, he received three unsolicited marketing calls from Sirius to his cell phone, even though he had never provided his phone number to the company. Knutson alleged that the calls were a violation of the TCPA, a statute prohibiting the use of automatic dialing to cell phones. The defendant argued that the plaintiff’s failure to timely opt out of the agreement’s arbitration provision he had been sent just after his account activation, and failure to cancel his subscription, effected an implicit agreement to the customer agreement’s terms, including the binding arbitration provision. In June 2012, U.S. District Judge Anthony Battaglia sided with Sirius and sent the dispute to individual arbitration, dismissing the class action suit.
The Ninth Circuit reversed. In an opinion authored by Circuit Judge Pregerson, the panel wrote, “A reasonable person in Knutson’s position could not be expected to understand that purchasing a vehicle from Toyota would simultaneously bind him or her to any contract with Sirius XM, let alone one that contained an arbitration provision without any notice of such terms.” Slip op. at 13. The Court of Appeals found that Knutson had no reason to believe he was entering into a contract with Sirius when he purchased his car from Toyota and was given a Sirius trial subscription, because Sirius sent him the customer agreement over a month after the three-day period during which he could reject its terms. Moreover, because he never opened the welcome kit and therefore was not aware that he had ever entered into the contract, his continued use of the radio service after receiving the agreement did not constitute assent to the terms. Further, the panel rejected Sirius’ argument that Knutson could not avoid the terms of the contract simply because he had not read it and was similarly unconvinced by the defendant’s argument that the contract was enforceable even though it had only been sent after the service had already been activated, distinguishing it from other cases cited by Sirius, because Knutson had not specifically elected to receive the service. Since he did not initially receive any documentation from Sirius, the plaintiff was only aware of being in a contract with Toyota. Finally, finding that the arbitration clause in Sirius’ agreement was unenforceable for lack of mutual assent, the panel stated that it need not address whether the customer agreement was unconscionable.