Ninth Circuit reverses order compelling arbitration, reinstates proposed TCPA class action against Sirius XM

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by John Chapman

When Erik Knutson purchased a Toyota Tacoma truck in November 2011, it came with a 90–day trial subscription to Sirius XM satellite radio. Knutson’s Sirius XM account was activated for the trial period on November 7, 2011. Then, on November 29, 2011, Sirius XM mailed a “Welcome Kit” to Knutson that arrived in the mail on or about December 12, 2011, over a month after Knutson’s satellite receiver was activated.

The Welcome Kit contained a Sirius XM Customer Agreement that set out the terms and conditions of use during the 90–day trial subscription. The Agreement states that:

BY ACCESSING OR USING THE SITE OR THE SERVICE, YOU AGREE TO BE LEGALLY BOUND BY THIS AGREEMENT PLEASE DO NOT USE THE SITE OR THE SERVICE IF YOU DO NOT AGREE WITH THIS AGREEMENT.

IF YOU DO NOT ACCEPT THESE TERMS, PLEASE NOTIFY U.S. IMMEDIATELY AND WE WILL CANCEL YOUR SUBSCRIPTION. IF YOU DO NOT CANCEL YOUR SUBSCRIPTION WITHIN 3 BUSINESS DAYS OF ACTIVATION OF YOUR RECEIVER, IT WILL MEAN THAT YOU AGREE TO THIS AGREEMENT WHICH WILL BE LEGALLY BINDING ON YOU.

The Customer Agreement includes an arbitration provision: “ANY DISPUTE MAY BE RESOLVED BY BINDING ARBITRATION.” By agreeing to arbitration, “YOU ARE HEREBY WAIVING THE RIGHT TO GO TO COURT, INCLUDING THE RIGHT TO A JURY.” The Customer Agreement also provides that all parties waive their “right or authority for any claims to be arbitrated on a class action basis.”

Knutson did not read the Customer Agreement when it arrived in the mail. Knutson neither contacted Sirius regarding his subscription, nor asked to end his trial subscription.

During his 90–day trial period, Knutson received three telemarketing calls from Sirius XM. Alleging that these calls were “unauthorized and unsolicited” and in violation of the Telephone Consumer Protection Act, Knutson filed a proposed class action lawsuit against Sirius XM. He seeks to become a representative plaintiff in a nationwide class action asserting violations of the Telephone Consumer Protection Act.

Sirius XM responded to the lawsuit by filing a motion to compel arbitration. According to Sirius XM, the Customer Agreement that was mailed to Knutson is a binding contract between Knutson and Sirius XM. Accordingly, Sirius XM argued that Knutson should be required arbitrate his individual claim and has waived any right to participate as a class representative with respect to any claim against Sirius XM.

The district court agreed with Sirius XM. The court held that there was a binding contract requiring arbitration because the terms of the Customer Agreement are “conspicuous” and the contract is enforceable even though Knutson received the Agreement over one month after the service was activated. The district court granted Sirius XM’s motion to compel arbitration, and dismissed the case. Knutson appealed and the Ninth Circuit has now reversed the district court. Knutson v. Sirius XM Radio Inc., No. 12-56120 (9th Cir. Nov. 10, 2014).

The court of appeals found that Knutson never agreed to contract with Sirius XM—there were was no “mutual assent.” The court of appeals noted that when Knutson purchased his vehicle from Toyota, he did not receive any documents from Sirius XM, and he did not know that he was entering into a contractual relationship with Sirius XM by using the service. Instead, he believed that Sirius XM’s trial subscription was a complimentary service provided for marketing purposes. Knutson did not affirmatively enroll in a subscription service with Sirius XM, did not provide his personal information to Sirius XM, did not in any way indicate that he had read the terms of the Sirius XM Customer Agreement., and did not pay Sirius XM at any point during the trial subscription period.

As far as Knutson was concerned, then, he had not entered into an agreement for service with Sirius XM when he purchased the vehicle. He was, as far as he knew, only in a contractual relationship with Toyota. A reasonable person in Knutson’s position could not be expected to understand that purchasing a vehicle from Toyota would simultaneously bind him or her to any contract with Sirius XM, let alone one that contained an arbitration provision without any notice of such terms.

Knutson v. Sirius XM Radio Inc., No. 12-56120 In short, Knutson could not assent to Sirius XM’s arbitration provision because he did not know that he was entering into a contract with Sirius XM.

Thus, the Ninth Circuit reversed the district court’s ruling that granting the motion to compel arbitration. Instead of arbitration, Knutson’s proposed class action has been remanded to the district court.