The Importance of Enforceable Arbitration Provisions in a TCPA Defense

Published: Jul. 12, 2016

Updated: Oct. 05, 2020

When you offer a website with services and offerings that are accessible to millions of people with a simple click of a mouse, one important way to reduce risk is to craft an enforceable arbitration provision with a class action waiver. Requiring arbitration would theoretically prevent litigants from maintaining costly class action lawsuits.

To be effective, however, the provision needs to be enforceable. This requires: (1) a carefully drafted provision; and (2) consumer assent to its terms.

Lacking either (or both) of these could render your arbitration provision unenforceable. This is the lesson from Nghiem v. Dick’s Sporting Goods, Inc., where the court denied Dick’s Sporting Goods’ (“DSG”) motion to compel arbitration of a TCPA class action. The plaintiff, Phillip Nghiem, had signed up to receive text alerts from DSG. According to the complaint, he opted out of the program but continued to receive text messages. Nghiem was no stranger to the TCPA. He was an attorney at a law firm specializing in TCPA litigation, and his firm had been sending demand letters to DSG when Nghiem himself elected to enroll for text alerts.

DSG moved to compel arbitration based on an arbitration and class action waiver provision in the DSG terms of use. Unfortunately for DSG, the terms of use were presented in a browsewrap fashion, meaning that Nghiem was not required to click or otherwise affirmatively acknowledge acceptance of the terms. The court noted that browsewrap contracts are generally enforceable only where a consumer has actual or constructive knowledge of the terms. The court ruled that neither existed, because Nghiem denied actual knowledge, and the location of the hyperlink to the DSG terms of use was not sufficiently conspicuous to give rise to constructive knowledge. Though the hyperlink to the terms of use was located on the homepage and within close proximity to the DSG Mobile Alerts hyperlink, mere close proximity of the two did “not, without more, put consumers on inquiry notice of those terms.”

Thus, even if DSG had an otherwise enforceable arbitration provision with a class action waiver, it made no difference, because DSG could not establish that a consumer actually assented to those terms. The lesson? If you make marketing calls or send marketing texts, have consumers affirmatively agree to your terms by clicking a button, checking a box, or taking some other affirmative action before sending texts or making calls.

As the case presses forward though, DSG may have some unique defenses based on the recent dismissal in Stoops v. Wells Fargo Bank, where the court determined that a professional TCPA plaintiff had not suffered injury-in-fact sufficient to maintain a claim when she purchased telephone numbers for the sole purpose of baiting TCPA violations and seeking compensation. DSG may, for example, argue that, just like Stoops, Nghiem has not suffered injury-in-fact because he deliberately enrolled in text message programs to manufacture TCPA claims. Stay tuned.