James E. Cecchi, Esq., Lindsey H. Taylor, Esq., Carella, Byrne, Cecchi, Olstein, Brody & Agnello, 5 Becker Farm Road, Roseland, NJ 07068, James A. Plaisted, Esq., Lin C. Solomon, Esq., Pashman Stein Walder Hayden, 21 Main Street, Hackensack, NJ 07601, Counsel for Plaintiffs-Appellees Robert J. Herrington, Esq., Greenberg Traurig, 1840 Century Park East, Suite 1900, Los Angeles, CA 90067, Philip R. Sellinger, Esq., Aaron Van Nostrand, Esq., Greenberg Traurig, 500 Campus Drive, Suite 400, Florham Park, NJ 07932, Counsel for Defendants-Appellants
James E. Cecchi, Esq., Lindsey H. Taylor, Esq., Carella, Byrne, Cecchi, Olstein, Brody & Agnello, 5 Becker Farm Road, Roseland, NJ 07068, James A. Plaisted, Esq., Lin C. Solomon, Esq., Pashman Stein Walder Hayden, 21 Main Street, Hackensack, NJ 07601, Counsel for Plaintiffs-Appellees
Robert J. Herrington, Esq., Greenberg Traurig, 1840 Century Park East, Suite 1900, Los Angeles, CA 90067, Philip R. Sellinger, Esq., Aaron Van Nostrand, Esq., Greenberg Traurig, 500 Campus Drive, Suite 400, Florham Park, NJ 07932, Counsel for Defendants-Appellants
Before: CHAGARES, HARDIMAN, and SCIRICA, Circuit Judges
OPINION OF THE COURT
HARDIMAN, Circuit Judge
GTL provides telecommunications services that enable inmates at state and local correctional facilities to call family, friends, attorneys, and other approved persons outside the prisons. GTL is the sole provider of these services in New Jersey. Users can sign up for an account and deposit funds either through GTL's website or through an automated telephone service that uses an interactive voice-response system with standardized scripts and prompts.
Plaintiffs in this case are inmates and their relatives or friends who used GTL's services. Four of them opened accounts by telephone, and one opened an account through GTL's website. In August 2013, Plaintiffs filed a putative class action alleging that GTL's charges were unconscionable. They alleged violations of the New Jersey Consumer Fraud Act, the Federal Communications Act (FCA), the Takings Clause of the Fifth Amendment, and various New Jersey state laws. GTL moved to dismiss or stay the matter, arguing that the Federal Communications Commission (FCC) had primary jurisdiction. In September 2014, the District Court stayed the case until either the FCC made a determination or Plaintiffs withdrew their claims arising under the FCA. Plaintiffs decided to withdraw their FCA claims.
Bobbie James, Betty King, Barbara Skladany, and Milan Skladany opened accounts by telephone, and Crystal Gibson opened an account through the website. It is unclear how John Crow and Mark Skladany opened accounts.
GTL answered the complaint in November 2014 and filed an amended answer in March 2015, asserting as an affirmative defense that some of the Plaintiffs' claims were subject to binding arbitration. GTL moved to compel arbitration five months later.
The District Court had jurisdiction under 28 U.S.C. §§ 1331 and 1332(d). We have jurisdiction to review the District Court's order denying GTL's motion to compel arbitration under the Federal Arbitration Act (FAA), 9 U.S.C. § 16(a)(1)(B). "We exercise plenary review over questions regarding the validity and enforceability of an agreement to arbitrate." Puleo v. Chase Bank USA, N.A. , 605 F.3d 172, 177 (3d Cir. 2010) (en banc).
The FAA requires district courts to stay judicial proceedings and compel arbitration of claims covered by a written and enforceable arbitration agreement. 9 U.S.C. § 3. Thus, the first question is whether a valid arbitration agreement exists. Id. § 4. "Arbitration is a matter of contract between the parties and a judicial mandate to arbitrate must be predicated upon an agreement to that effect." Par-Knit Mills, Inc. v. Stockbridge Fabrics Co. , 636 F.2d 51, 54 (3d Cir. 1980). "[T]he FAA does not require parties to arbitrate when they have not agreed to do so." Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ. , 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989).
To determine whether a valid arbitration agreement exists, we "apply ordinary state-law principles that govern the formation of contracts." First Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Here, the District Court held that New Jersey law governs the question of contract formation, and the parties have not challenged that determination.
Under New Jersey law, "[a]n agreement to arbitrate, like any other contract, must be the product of mutual assent, as determined under customary principles of contract law." Atalese v. U.S. Legal Servs. Grp., L.P. , 219 N.J. 430, 99 A.3d 306, 312–13 (2014) (internal quotation marks and citation omitted), cert. denied , ––– U.S. ––––, 135 S.Ct. 2804, 192 L.Ed.2d 847 (2015). "Mutual assent requires that the parties have an understanding of the terms to which they have agreed." Id. at 313. As the New Jersey Supreme Court explained, this principle is especially important in arbitration cases. "[B]ecause arbitration involves a waiver of the right to pursue a case in a judicial forum, courts take particular care in assuring the knowing assent of both parties to arbitrate, and a clear mutual understanding of the ramifications of that assent." Id. (internal quotation marks and citation omitted).
To manifest assent, an offeree must provide "unqualified acceptance," which can be express or implied by conduct. Weichert Co. Realtors v. Ryan , 128 N.J. 427, 608 A.2d 280, 284 (N.J. 1992) (citing Restatement (Second) of Contracts § 19(1) (1981) ). "Silence does not ordinarily manifest assent, but the relationships between the parties or other circumstances may justify the offeror's expecting a reply and, therefore, assuming that silence indicates assent to the proposal." Id. Nevertheless, the offeror must "give[ ] the offeree reason to understand that assent may be manifested by silence or inaction." Restatement (Second) of Contracts § 69 (1981). New Jersey law also recognizes that contract terms may be incorporated by reference. "In order for there to be a proper and enforceable incorporation by reference of a separate document ... the party to be bound by the terms must have had knowledge of and assented to the incorporated terms." Alpert, Goldberg, Butler, Norton & Weiss, P.C. v. Quinn , 410 N.J.Super. 510, 983 A.2d 604, 617 (2009) (internal quotation marks and citation omitted).
GTL's reliance on Carnival Cruise Lines v. Shute , 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991), is likewise misplaced. There, the Supreme Court held that a forum-selection clause printed on a cruise ticket was valid and enforceable. Id. at 594–95, 111 S.Ct. 1522. In contrast to this appeal, plaintiffs in Carnival Cruise received a copy of the contract with their tickets and conceded that they had notice of the forum-selection clause before contracting for passage. Id. at 590, 111 S.Ct. 1522. Here, Appellees were never presented with the terms available on GTL's website and therefore were unaware of the arbitration provision contained therein.
GTL also relies on decisions enforcing contract terms that consumers do not receive until after completing their purchases. These are known as "shrinkwrap-license" cases because of the plastic that is used to seal products such as computer software. See Schnabel v. Trilegiant Corp. , 697 F.3d 110, 121 & n.10 (2d Cir. 2012). In these cases, the license terms are typically provided inside the packaging, and consumers are deemed to accept those terms by opening or using the products. Id. at 122. Unlike this appeal, however, the consumers in the shrinkwrap-license cases received physical copies of the terms and conditions upon opening the products, and their subsequent use of the products manifested assent to the enclosed terms. See, e.g. , ProCD, Inc. v. Zeidenberg , 86 F.3d 1447 (7th Cir. 1996) (holding that terms inside a software box bind consumers who use the software after an opportunity to read the terms and reject them by returning the product).
This appeal presents an unusual hybrid of technology—offering services via one medium (an interactive telephone voice-response system) and purporting to bind users of those services to terms that are accessible only through a different medium (the internet). Because of the technology involved, particularly the internet, the District Court analogized GTL's method of notice and assent to that used in online "browsewrap" agreements. See James , 2016 WL 589676, at *5. In browsewrap agreements, a company's terms and conditions are generally posted on a website via hyperlink at the bottom of the screen. Unlike online agreements where users must click on an acceptance after being presented with terms and conditions (known as "clickwrap" agreements), browsewrap agreements do not require users to expressly manifest assent. See Nicosia v. Amazon.com, Inc. , 834 F.3d 220, 233 (2d Cir. 2016).
There is an evolving body of caselaw regarding whether the terms and conditions in browsewrap agreements are enforceable, often turning on whether the terms or a hyperlink to the terms are reasonably conspicuous on the webpage. See, e.g. , id. ; Nguyen v. Barnes & Noble Inc. , 763 F.3d 1171, 1177 (9th Cir. 2014) ; Specht v. Netscape Commc'ns Corp. , 306 F.3d 17, 30–32 (2d Cir. 2002) ; Hoffman v. Supplements Togo Mgmt., LLC , 419 N.J.Super. 596, 18 A.3d 210, 218–20 (2011). When terms are linked in obscure sections of a webpage that users are unlikely to see, courts have refused to find constructive notice. See Nicosia , 834 F.3d at 233 ; Specht , 306 F.3d at 30–32. On the other hand, "where the website contains an explicit textual notice that continued use will act as a manifestation of the user's intent to be bound, courts have been more amenable to enforcing browsewrap agreements." Nguyen , 763 F.3d at 1177.
* * *
Congress has made clear that arbitration is an important federal policy and the Supreme Court has vindicated that policy many times. Yet it remains axiomatic that a party cannot be required to arbitrate without its assent. On the facts as pleaded in this case, Appellees did not, through their words or deeds, agree to arbitrate their dispute with GTL. For that reason, we will affirm the order of the District Court denying GTL's motion to compel arbitration.