In Norcia v. Samsung Telecommunications America, LLC, et al., No. 14-16994 (9th Cir. Jan. 19, 2017) (slip op. available here), the Ninth Circuit Court of Appeals sided with a consumer in denying Samsung’s attempt to enforce an “in-the-box” arbitration clause (contained within a warranty brochure) accompanying his purchase of a Galaxy S4 phone. In February 2014, Plaintiff Norcia filed a consumer class action lawsuit alleging Samsung made misrepresentations as to the storage capacity and performance of the Galaxy S4 phone. Samsung moved to compel arbitration based on an arbitration clause buried within the 101-page “Product Safety & Warranty Information” brochure that accompanied the phone inside the box. The district court denied the motion to compel arbitration, holding that no agreement to arbitrate claims had formed between the two parties, and Samsung appealed.
On appeal, Samsung principally argued that the inclusion of the arbitration provision in the “Product Safety & Warranty Information” brochure created a valid contract under California law between Samsung and the plaintiff to arbitrate all claims related to the Galaxy S4 phone. The Ninth Circuit disagreed, relying on well-established principles of California contract law that generally an offeree’s silence in response to an offer does not constitute assent to a contract when the offeree reasonably did not know that an offer had been made. Slip op. at 9.
The court indicated that the inclusion of an offer by Samsung to arbitrate “[a]ll disputes with Samsung arising in any way from . . . the sale, condition or performance of the products” in a “Product Safety & Warranty Information” brochure would not put a “reasonable person in [Plaintiff] Norcia’s position . . . on notice that the brochure contained a freestanding obligation outside the scope of the warranty” and that a “reasonable person [would not] understand that receiving the seller’s warranty and failing to opt out of an arbitration provision contained within the warranty constituted assent to a provision requiring arbitration of all claims against the seller, including claims not involving the warranty.” Slip op. at 19. Thus, because the evidence before the court demonstrated that the plaintiff had not expressly assented to any agreement in the brochure, and that he had not signed the brochure or otherwise acted in a manner that would show his intent to use silence, or failure to opt out, as a means of accepting the arbitration agreement, no valid agreement to arbitrate had been formed. The court also separately rejected Samsung’s argument that it was a third-party beneficiary of the customer agreement between Verizon and Norcia and that Norcia had agreed to arbitrate his claims by signing the Customer Agreement based on the complete absence of any evidence that the plaintiff and Verizon had intended Samsung to benefit from the arbitration agreement.
This ruling denying Samsung’s push for arbitration is a narrow victory for consumer rights in what is an otherwise unfavorable climate for defeating such industry efforts. This ruling may also bode well for those consumers whose Galaxy Note 7 phones exploded or caught fire. The Galaxy Note 7, like the Galaxy S4 in Plaintiff Norcia’s case, was accompanied “in the box” by an arbitration clause tucked away in the safety and warranty brochure. If so, absent any evidence that the consumer expressly assented to the arbitration clause and in the event California law is applied, the Ninth Circuit’s ruling in Norcia should provide support for defeating any motion to compel arbitration in those actions.
Lee Cirsch, Senior Counsel
CAPSTONE LAW APC