United States: Another Example Of Why Online-Only Agreements Are Preferable

Richard Raysman is a Partner in the New York office.

Despite the increasing propensity of clickwrap agreements to include boilerplate language alongside the icon or button to be clicked, such as "By signing this form, you agree to all Terms and Conditions associated therewith," some entities continue to, whether intentionally or not, refuse to fall in line. As the following case illustrates, the absence of both this language and of an online-only user approval process can doom the enforceability of other contracts referenced by the clickwrap agreement. See Holdbrook Pediatric Dental, LLC v. Pro Computer Service, LLC, No. 14-6115 (NLH/JS), 2015 WL 4476017 (D.N.J. July 21, 2015)

Facts

Holdbrook Pediatric Dental, LLC (Holdbrook) operates a pair of pediatric dental practices in New Jersey. In April 2014, Holdbrook entered into an agreement with Pro Computer Service, LLC (PCS), whereby the latter would provide IT services to Holdbrook in exchange for a monthly fee.

On July 24, 2014, a representative of Holdbrook informed PCS that the company was displeased with PCS' services. Approximately 15 minutes later, PCS allegedly remotely accessed Holdbrook's computers and created new network passwords that it would not thereafter provide to Holdbrook. As a result, Holdbrook was locked out of its server, and despite a demand to PCS, Holdbrook's network was not restored until the next day. Holdbrook averred that while it was locked out of its network, it could not access its electronic records, including patient files, thereby forcing it to cancel 83 previously scheduled appointments for that day and the next.

In October 2014, Holdbrook sued PCS in part pursuant to the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030 et seq., based upon its contention that PCS knowingly transmitted into its network a "program, information, code, or command" that intentionally caused damage without authorization to a protected computer. Five days subsequent to the filing of this action, PCS filed a demand for arbitration with the American Arbitration Association (AAA). PCS claimed that the Managed Support Plan (the Plan) signed by Holdbrook ante to the beginning of the relationship included a mandatory arbitration clause.

The Plan did not itself include such a provision, and instead, the mandatory arbitration provision is contained in an independent Terms and Conditions document (the Terms). PCS argued that the Terms were automatically integrated into the Plan. Schematically, the Plan had been sent to Holdbrook in electronic form, and the Terms were attached as a clickable hyperlink to the last page of the Plan. The hyperlink, which included the text "Download Terms and Conditions," was located directly above the line where the Holdbrook signatory would signal assent to the Plan. Specifically, Paragraph 12 of the Terms stated that:

Holdbrook countered that it did not agree to the separate Terms, and could thus not be bound by the arbitration clause contained therein.

In a unique circumstance, the representative from Holdbrook received the Plan electronically but subsequently printed it so as to affix a signature, as was necessary to validate the agreement. Put another way, the document could not be signed electronically.

As anyone who has ever printed an electronic document has discovered, sometimes the document will print in a form noticeably different from how it appears in an electronic format. In this instance, whereas the electronic version of the Plan contained the "Download Terms and Conditions" text in a hyperlink, the printed version included only the HTML coding for the link. Here is how the printed version presented the link:

This difference proved to be important, as will be discussed below. The printed version of the Plan was signed by the Holdbrook representative, and neither party contested the legitimacy of Holdbrook's assent to the terms of the Plan.

PCS filed a motion to dismiss, or alternatively, a stay to the litigation and to compel arbitration, which is currently pending before the AAA. Only the adjudication of PCS' motion to dismiss is discussed here. As the claim arose under the CFAA, the District Court for New Jersey exercised subject matter jurisdiction in consonance with 28 U.S.C. § 1331.

Legal Analysis/Conclusions

The court first observed that the case presented a "unique scenario because it involved mixed media," as the Holdbrook representative had received the Plan electronically, but then printed it to sign it (as was required to effectuate the agreement).

PCS maintained that because the Plan was sent in electronic form with a clickable hyperlink to the Terms, the Holdbrook signatory should have been on notice of the existence of the Terms and assented to such terms, irrespective of whether the printed version of the Plan did not display a clickable link. Holdbrook countered that the Terms were not incorporated into the Plan, as the version endorsed by its representative contained only the coding for the Terms, and not the accompanying link. Therefore, according to Holdbrook, "it was not abundantly clear that there was a hyperlink which contained additional terms of the contract."

The court agreed with Holdbrook. It held that at the motion to dismiss stage, the Plan, which the court characterized as a "modified" clickwrap agreement, could not have afforded a signatory adequate notice that the Terms were part of the overall contractual relationship with PCS, and thus, there could not have been assent to the arbitration clause contained therein.

As background, a "pure" clickwrap agreement is an electronic agreement in which "all terms ... are collected in a dialog box and a user must click on an icon that affirmatively demonstrates assent to be bound" to those terms.  A "modified" clickwrap agreement requires the user to take an affirmative action designed to manifest intent to be bound, but it does not present the entirety of the terms to the user at such time. Rather, this "modified" version often includes only a conspicuous link to the relevant terms. Such link is often supplemented by language (often referred to as a "call-to action") situated close to it which further informs the user that clicking the icon is a sign that the user has read and agreed to the terms. This language, or lack thereof, is often dispositive when determining the validity of the agreement.

All told, the governing standard for assent to terms contained in hyperlink is that the user must be provided with "reasonable notice" that such additional terms apply to the agreement.

Notwithstanding the acknowledgement earlier in the opinion that the instant case presented a "unique scenario," the court concluded that "nonetheless" the Plan was "much like" the "modified" clickwrap agreements evaluated in other cases.  Instead of clicking a button, the Plan required the Holdbrook representative to affix a signature, and it also included a hyperlink to the Terms.

As referenced above, in some of the notable cases which have approved such a "modified" clickwrap agreement, the icon to be clicked to indicate assent is accompanied with text reiterating that the user is accepting the hyperlinked terms, e.g., "By clicking Sign Up, you are indicating that you have read and agreed to the Terms of Service").  See Fteja v. Facebook, Inc., 841 F. Supp. 2d 829 (S.D.N.Y 2012).

In contrast, the hyperlink on the Plan existed in isolation, bereft of any text designed to point the user to the reality that assent to the Plan incorporated of the separate provisions of the Terms. Specifically, the Plan neither contained a statement that signing evinced approval of the Terms, nor did it include an instruction to sign the Plan only if Holdbrook's representative agreed to the additional terms. The omission of such instructions was considered insufficient to demonstrate that Holdbrook had reasonable notice that the Terms were part of the Plan.

What the court may be deeming unique is that the Plan could not be accepted in electronic form, and instead must be printed. Such a protocol meant that the Holdbrook signatory did not need to read the electronic version to accept, and therefore could have easily missed the hyperlinked Terms and Conditions. Finally, the distortion of the Terms and Conditions text when printed further indicated that a hyperlink referencing the Terms was not explicitly included.

Conclusion

The court denied PCS' motion to dismiss based on the arbitration clause, albeit without prejudice.

As for lessons going forward, this is yet another case which shows that even one sentence guiding the user to the implications of signing a wrap agreement would likely have been sufficient to convince a court to validate it. It further indicates that a failure to use an online-only agreement process is mystifying in light of the ease with which such agreements can be memorialized without printing and affixing a manual signature. Finally, incorporating the Terms into the Plan itself would have made it more difficult for Holdbrook to disclaim the pertinence of the material located in the same file.

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