Gracie Foster v. Walmart, Inc. ( 2021 )

United States Court of Appeals
For the Eighth Circuit
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No. 20-1787
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Gracie Foster; Pearlie Boyd; Monica Robinson; Jodie Roskydoll; Joe Esquivel;
Chris Pettit; Talitha Hofflerr-Frazier; Leonshay Tuller; John Almquist, Jr.;
Frederick Coffey; Gloria Czigle; Torrin Perry; Jessica Beall; Amanda Rhorer; Kris
Cunningham; Mary Susan Dubinsky; Dianne Walton; Amy Slane; Tina Brown;
Jennifer Edmark; Lillian Rudd; Donnie Brown; Justin Castilyn; Clarence Gaten;
Brenda Shaley; Ryan D’Angelo; Brian Rush; Heidi Horne; T. W. Prescott
Plaintiffs - Appellees
v.
Walmart, Inc.; Walmart Stores Arkansas, LLC; Walmart Stores East, LP
Defendants - Appellants
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Appeal from United States District Court
for the Eastern District of Arkansas - Central
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Submitted: February 18, 2021
Filed: October 8, 2021
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Before SMITH, Chief Judge, WOLLMAN and STRAS, Circuit Judges.
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STRAS, Circuit Judge.
The district court ruled that an arbitration clause found in Walmart.com’s
terms of use was unenforceable against purchasers of gift cards. Our view is
different, so we reverse and remand for a trial on the question. See 9 U.S.C. § 4.
I.
More than two dozen gift-card purchasers allegedly had the experience of
buying Walmart gift cards only to have them turn out to be worthless. According to
the complaint, third parties tampered with the gift cards and then stole the funds that
were loaded onto them. When Walmart refused to provide a refund, the plaintiffs
sued the company in federal court.
Hoping to have the case litigated elsewhere, Walmart filed a motion to compel
arbitration. See 9 U.S.C. §§ 3, 4. It relied on a notation on the back of the gift cards
directing purchasers to “[s]ee Walmart.com for complete terms.” If they did so,
Walmart explained, they would find an arbitration provision covering “ALL
DISPUTES ARISING OUT OF OR RELATED TO THESE TERMS OF USE OR
ANY ASPECT OF THE RELATIONSHIP BETWEEN YOU AND WALMART.”
Customers “accept[ed]” arbitration, according to the website, by “[u]sing or
accessing the Walmart Sites.”
The district court denied Walmart’s motion on the ground that the plaintiffs
never had notice of the arbitration clause. They could not assent to it, the court
explained, unless they saw it first. For that reason, there was no “need” to hold “a
trial on the question of arbitrability.”
II.
“[A]rbitration is a matter of contract,” Rent-A-Center, W., Inc. v. Jackson, 561
U.S. 63, 67 (2010), meaning that disputes are arbitrable only to the extent an
agreement between the parties says so, see Howsam v. Dean Witter Reynolds, Inc.,
537 U.S. 79, 83 (2002). The district court’s task in this case was to determine
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whether Walmart and the plaintiffs had an agreement to arbitrate, and, if so, what it
covered. See United Steelworkers v. Duluth Clinic, Ltd., 413 F.3d 786, 788 (8th Cir.
2005) (discussing the “two-part test” for evaluating motions to compel).
The district court never made it past the first question. There was no
agreement to arbitrate, the court concluded, because there was no proof that the
“plaintiffs saw the terms of use, were otherwise aware that the terms existed before
filing this lawsuit, or saw the notice on the gift cards that [the] terms applied.” It
reached this conclusion on the equivalent of a summary-judgment record: it had
Walmart’s motion, the plaintiff’s response, and the exhibits accompanying each. See
Neb. Mach. Co. v. Cargotec Sols., LLC, 762 F.3d 737, 743 (8th Cir. 2014)
(recognizing that a motion to compel arbitration accompanied by materials outside
the pleadings is evaluated under a summary-judgment standard).
Reviewing the district court’s decision de novo, Donaldson Co. v. Burroughs
Diesel, Inc., 581 F.3d 726, 731 (8th Cir. 2009), our job now is to determine if the
“record reveals a material issue of fact” on whether the parties had an agreement to
arbitrate. Neb. Mach. Co., 762 F.3d at 743; see also 9 U.S.C. § 4 (“If the making of
the arbitration agreement . . . be in issue, the court shall proceed summarily to the
trial thereof.”). If it does, the Federal Arbitration Act tells us what to do next: remand
for a trial on that issue. See Neb. Mach. Co., 762 F.3d at 743.
Neither side thinks a trial is necessary, though Walmart asks for one in the
alternative. Its view is that an agreement existed as early as the time of purchase and
no later than when the plaintiffs accessed Walmart’s website.
A.
The first possibility, which we call the point-of-purchase theory, is that the
parties had a binding arbitration agreement at the moment the plaintiffs purchased
their gift cards. The reason, according to Walmart, is that every card has a notation
on the back directing the customer to “[s]ee Walmart.com for complete terms.” The
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arbitration provision was one of those “terms,” so in Walmart’s view, the plaintiffs
had notice of it from the very beginning. See Halbach v. Great-W. Life & Annuity
Ins. Co., 561 F.3d 872, 876 (8th Cir. 2009) (“[A] writing may incorporate another
document if the terms of the incorporated document are known or easily available
to the contracting parties.”).
The arbitration provision, however, tells a different story. A customer
“accept[s]” arbitration, it says, only by “using or accessing the Walmart Sites.”
Walmart was the “master of [its] offer” to arbitrate, Newman v. Schiff, 778 F.2d 460,
466 (8th Cir. 1985), so if it wished to have the arbitration agreement bind the parties
at the moment of purchase, it certainly could have said so, see Restatement (Second)
of Contracts § 60 (Am. L. Inst. 1981). Having chosen a different “manner of
acceptance,” Walmart cannot now change the terms and argue that acceptance
occurred at some other point. Id.; see also Hill v. Gateway 2000, Inc., 105 F.3d
1147, 1149 (7th Cir. 1997).
B.
The second possibility is that the plaintiffs gave their assent in exactly the way
the arbitration provision described: by accessing Walmart’s website. See
Restatement (Second) of Contracts § 50(1) (Am. L. Inst. 1981) (“Acceptance of an
offer is a manifestation of assent to the terms thereof made by the offeree in a manner
invited or required by the offer.”). For the point-of-purchase theory, we had to ask
whether the plaintiffs could manifest their assent that way. Now the question, given
what the arbitration provision says, is whether they did.
1.
Internet contracts, just like other agreements, require mutual assent between
the parties—a so-called “meeting of the minds.” Newman, 778 F.2d at 464; see also
Utley v. Donaldson, 94 U.S. 29, 47 (1876) (“There can be no contract without the
mutual assent of the parties.”). In the absence of direct communication between the
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parties, websites have employed some unique solutions to overcome the challenges
of making internet contracts. See Nguyen v. Barnes & Noble Inc., 763 F.3d 1171,
1176 (9th Cir. 2014). Broadly speaking, there are two ways for a website operator
to invite acceptance, with numerous “variations in between.” 1 Corbin on Contracts
§ 2.12[2]; see also Nguyen, 763 F.3d at 1175–76 (discussing the “two flavors” of
internet contracts).
The first, a so-called “clickwrap” arrangement, requires the user to explicitly
assent by clicking “I agree” (or something similar) before using the website or
purchasing a product. See Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 429 (2d
Cir. 2004); Nguyen, 763 F.3d at 1175–76. In these types of agreements, mutual
assent is rarely an issue because the user sees the list of the terms and conditions
before accepting them. See Nguyen, 763 F.3d at 1175–76. For that reason, courts
rarely find problems with clickwrap agreements. Meyer v. Uber Techs., Inc., 868
F.3d 66, 75 (2d Cir. 2017).
A “browsewrap” arrangement, on the other hand, imputes assent through the
user’s performance of some specific act—here, “using or accessing” Walmart’s
website. See Nguyen, 763 F.3d at 1176. In this scenario, “no [other] affirmative
action is required,” id. (quotation marks omitted), meaning that users are never asked
if they agree to the terms and conditions. The terms themselves are also usually
provided through a hyperlink rather than directly to the user. See id. So the validity
of a browsewrap agreement often depends on whether there is adequate notice to
create “actual or constructive knowledge of [the] website’s terms and conditions.”
Id. (quotation marks omitted); see also 1 Corbin on Contracts § 2.12[2] (“The user
of a website has a duty to read the site’s terms of use only if the user knew or
reasonably should have known about them.”).
The parties do not dispute that this case involves a browsewrap agreement.
None of the 29 plaintiffs were ever asked to agree to the terms and conditions on
Walmart’s website, so like most browsewrap cases, the key here is the adequacy of
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the notice. See Nguyen, 763 F.3d at 1176; Nicosia v. Amazon.com, Inc., 834 F.3d
220, 233 (2d Cir. 2016).
Notice can come in one of two forms. The first is actual notice, which occurs
when the user is actually aware of the terms of use, most commonly after clicking
on a hyperlink and reviewing them. See Nguyen, 763 F.3d at 1176. In those
circumstances, “courts have consistently enforced browsewrap agreements.” Id.
The other, inquiry notice, depends on “whether the website puts a reasonably
prudent user on inquiry notice of the terms.” Id. at 1177. Critical is the website’s
overall design and content, including whether “the existence of [the relevant] terms”
are “reasonably conspicuous” to the user. Nicosia, 834 F.3d at 233; accord Nguyen,
763 F.3d at 1177; see also 1 Corbin on Contracts § 2.12[2] (describing the factors
for determining whether the terms of use are sufficiently conspicuous). If they are,
then the user “is deemed to have notice of all facts that reasonable inquiry would
disclose,” including the terms themselves. 1000 Va. Ltd. P’ship v. Vertecs Corp.,
146 P.3d 423, 431 (Wash. 2006); see Nguyen, 763 F.3d at 1177.
2.
The district court got ahead of itself when it concluded, on this “meager
record[],” that inquiry notice was absent. Specht v. Netscape Commc’ns Corp., 306
F.3d 17, 28 (2d Cir. 2002). As we have recognized, the existence of mutual assent
is generally a “factual question” that is resolvable at this stage only if the material
facts are not in dispute. See Grandoe Corp. v. Gander Mountain Co., 761 F.3d 876,
882–83 (8th Cir. 2014); see also 9 U.S.C. § 4 (“If the making of the arbitration
agreement . . . be in issue, the court shall proceed summarily to the trial thereof.”);
Meyer, 868 F.3d at 74 (“If a factual issue exists regarding the formation of the
arbitration agreement, . . . remand to the district court for trial is necessary.”). Here,
they are.
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One disputed fact is whether any of the plaintiffs actually “use[d] or
access[ed]” Walmart’s website. In addition to suggesting that four of the plaintiffs
may have, the complaint references specific parts of the website, which Walmart
views as a “binding admission[]” that at least some of them did. The plaintiffs,
meanwhile, claim that only their lawyers accessed it, and even then, only in the
course of preparing the complaint. See Meyer, 868 F.3d at 77 (concluding that “the
pleading” was “not obviously a concession” because it made “no reference to [the
plaintiff’s] knowledge”). Further complicating the matter is that the gift cards
themselves were redeemable in-store or online, meaning that some of the plaintiffs
might have tried to use them through the website. The bottom line is that, without
more information, we are left to guess. See Neb. Mach. Co., 762 F.3d at 742
(remanding for a trial on whether a contract existed when “there were facts left to
try”).
Nor is the record clear about the structure and design of the website itself. In
an exhibit to its motion to compel arbitration, Walmart provided a printed copy of
the website’s online terms and conditions, which provides some insight. But without
more, it is difficult to determine whether a reasonably prudent user would have
known to inquire further. Among the yet-unanswerable questions are the exact
location and prominence of the terms-of-use hyperlink, how many clicks it would
have taken for the user to discover the arbitration provision, and whether the website
changed during the relevant period. See Nguyen, 763 F.3d at 1177–78 (reviewing a
record containing similar evidence); Specht, 306 F.3d at 23–24 (same). “[A]nswers
to factual questions like these” are essential to determining whether “this case
belongs in arbitration or litigation.” Howard v. Ferrellgas Partners, L.P., 748 F.3d
975, 979 (10th Cir. 2014).
Similar questions exist about the gift cards themselves. According to the
complaint, the back side of the cards had a notation directing customers to
“Walmart.com for complete terms.” In theory, this directive could have put the
plaintiffs on notice to inquire further by telling them where to go for more
information. Cf. Starke v. SquareTrade, Inc., 913 F.3d 279, 292 (2d Cir. 2019)
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(concluding that an online agreement was not enforceable in part because the
company “never directed” the user’s “attention to the Terms & Conditions
hyperlink” (internal quotation marks omitted)). But the record is lacking in
specifics, including the size and placement of the notation on the back, which are
relevant to determining whether the plaintiffs would have been on notice to inquire
further.1 Cf. Cicle v. Chase Bank USA, 583 F.3d 549, 554–55 (8th Cir. 2009)
(concluding that the terms of an arbitration agreement were printed in a sufficiently
conspicuous fashion).
In sum, “material disputes of fact . . . exist on the question [of] whether the
parties agreed to arbitrate.” Howard, 748 F.3d at 978. In these circumstances, the
Federal Arbitration Act required the district court to “proceed summarily to [a] trial.”
9 U.S.C. § 4; Neb. Mach. Co., 762 F.3d at 742–44.
1
It also does not appear that the district court ever made a choice-of-law
determination. To be sure, the plaintiffs filed the lawsuit in Arkansas, and the forum
state’s choice-of-law rules govern. Whitney v. Guys, Inc., 700 F.3d 1118, 1123 (8th
Cir. 2012) (“In determining which state’s law applies, we generally employ the
forum state’s choice-of-law rules.”). But the record says nothing about where the
plaintiffs purchased their gift cards or tried to use them, which were critical facts in
choosing which states’ laws would apply. See Scottsdale Ins. Co. v. Morrow Land
Valley Co., 411 S.W.3d 184, 189 (Ark. 2012) (discussing “the place of contracting,”
“the place of negotiation of the contract,” and “the place of performance [of the
contract]” as factors in determining the choice of law in a breach-of-contract case
(quotation marks omitted)); see also Howard, 748 F.3d at 982 (concluding that there
were “material factual disputes” that “preclude[d] a definitive [choice-of-law]
ruling” on a contract-formation question).
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III.
We accordingly reverse the judgment of the district court, remand for a trial,2
and deny the pending motion to consolidate as moot.
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2
Based on our decision to send this case back for a trial, we decline to answer
whether the parties’ agreement to arbitrate, if it existed, would cover this particular
dispute or be unconscionable if it did. See BNSF Ry. Co. v. Seats, Inc., 900 F.3d
545, 549 (8th Cir. 2018) (declining to consider arguments that the district court never
analyzed).
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