Bank’s Clickwrap Agreement – Cross-Referencing Arbitration and Class Action Waiver Provisions – May Be Enforceable

The Second Circuit ruled that a “buried” hyperlink is not, alone, fatal to enforcing arbitration and class action waiver provisions contained in an agreement that is incorporated by cross-reference via a web-based contract.  Design, layout, and content of the webpage are significant factors to determining whether the contract terms were available and conspicuous, and thus enforceable.  Zachman v. Hudson Valley Federal Credit Union, No. 21-999 (2nd Cir. Sept. 14, 2022).

Clickwrap Agreement and Plaintiff’s Class Action Claims

In 2012, Plaintiff opened her bank account and received an Account Agreement.  In 2019, Plaintiff agreed to an Internet Banking Agreement (“IB-Agreement”) that incorporates by reference the revised Account Agreement.  The IB-Agreement requires the customer to click a button of the Agreement stating “I agree to the above terms and conditions.”

Plaintiff filed a class action complaint alleging that Defendant-Bank HVCU’s practice of collecting overdraft or insufficient funds on accounts that were not actually overdrawn violated: (1) New York General Business Law § 349 and (2) the Electronic Fund Transfer Act, 15 U.S.C. § 1693, et seq..

Clickwrap Agreement and Customers’ Access to Revised Account Agreement

HVCU filed a motion to dismiss and to compel arbitration, asserting:

  • the revised Account Agreement containing the arbitration agreement and class action waiver was published to its website which can be accessed via a hyperlink or via a “Resources” tab on HVCU’s website
  • a physical copy of the Account Agreement may be obtained by the customer requesting a copy be mailed or going to a brick-and-mortar HVCU branch.

HVCU did not:

  • implement a “banner” notification on the webpage
  • provide a summary of any changes to the Account Agreement on the webpage where the agreement is hyperlinked
  • otherwise indicate any changes had been made to the Account Agreement.

District Court: Did Plaintiff Have “Inquiry Notice” of the Provisions?

First, the District Court ruled that the district court, not an arbitrator, determines whether a valid arbitration agreement exists.  Second, the District Court ruled that HVCU did not establish that Plaintiff had actual notice or inquiry notice of the arbitration and class action waiver provisions.  The District Court concluded that the hyperlink to the revised Account Agreement appeared to be buried in the IB-Agreement and thus concluded that HVCU failed to establish that Plaintiff was put on inquiry notice of the arbitration and class action waiver provisions.  HVCU appealed.

Second Circuit: Website’s Layout, Content, and Design

The Second Circuit stated that the enforceability of a web-based agreement is a fact-intensive inquiry, which includes an evaluation of the visual evidence demonstrating “whether the website user has actual or constructive notice of the conditions” which often turns on “whether the design and content of th[e] webpage rendered the existence of terms reasonably conspicuous.”

Based on the evidence provided in support of the motion, the Second Circuit was unable to assess whether the relevant language and hyperlink are clear and conspicuous.  The Second Circuit ruled that the District Court’s conclusion that the provisions were “buried” in the IB-Agreement was inconsistent with the lack of evidence presented regarding the website’s layout and design.  The Second Circuit ruled that the District Court’s ruling was premature .

Significantly, the Second Circuit stated:

  • agreements may be incorporated by cross-reference via web-based contracts
  • as long as the layout and language of the website give the user reasonable notice that a click will manifest assent to an agreement, then clicking “I agree to the above terms and conditions” would bind Plaintiff to the IB-Agreement, along with the Account Agreements incorporated by reference
  • screenshots – of the webpage(s) used to register HVCU customers for online banking – will show the design and content of the IB-Agreement as presented to users and thus are relevant to whether Plaintiff assented to the agreement’s terms

In sum, a picture – or here, screenshots – is worth a thousand words and will help demonstrate that the parties mutually agreed to a clickwrap agreement.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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