On September 17, 2019, Samsung Electronics received a double-helping of bad news with respect to efforts to force arbitration of consumer class actions related to the Galaxy smartphone. In the first case, the plaintiff filed a class action suit stemming from severe burns allegedly caused by his Samsung phone. See Samsung Electronics America, Inc. v. Ramirez, Case No. 18-16094 (US 9th Cir. September 17, 2019). In the second case, the plaintiff filed a class action alleging false advertising with respect to the marketing of Samsung’s phones. See Valesquez-Reyes v. Samsung Electronics America, Inc., Case No. 17-56556 (US 9th Cir. September 17, 2019). The legal lesson is simple: hire an experienced San Diego corporate attorney for advice and counsel when drafting your business and consumer contracts.
In nearly identical short opinions, federal Court of Appeals upheld decisions by trial courts to refuse to compel arbitration. At issue were booklets or brochures contained in the package for various Samsung phones. The face of the packaging stated that the package contained a “Product Safety & Warranty Brochure.” The brochure/booklet was actually titled “Product Safety & Warranty Information” and it was 101 pages long with two sections — health and safety information and Samsung’s limited warranty and the user’s software license agreement.
Buried in the second part of the booklet was an arbitration provision requiring all disputes — including disputes about marketing and disputes over safety — to be submitted to arbitration. The provisions also purported to waive any ability to file class arbitrations. To opt out of arbitration, the consumer had to notify Samsung within 30 days of purchase. In an earlier case, the Ninth Circuit ruled that the brochures/booklets did not create a valid agreement to arbitrate between Samsung and consumers who bought their phones. The brochure/booklet was not correctly titled giving consumers the impression that the information was about safety and warranties. That is, nothing about the title of the booklet or the section headings gave consumers notice about legal rights. Further, the arbitration-specific provisions were also not conspicuous as no bold or large fonts drew the consumer’s attention to the provisions. See Norcia v. Samsung Telecommunications America, LLC, 845 F.3d 1279 (US 9th Cir. 2017). That case involved alleged misrepresentations as to the performance of the Samsung Galaxy S4 phone.
In the two new cases, the Court of Appeals sitting in San Francisco reaffirmed the law it set down in the Norcia case. The court noted that, under California law, silence or inaction generally does not constitute acceptance of a contract. Some sort of action must be taken for courts to find “acceptance via conduct.” However, “acceptance via conduct” — such as using your Galaxy smartphone — cannot be demonstrated where the contractual provisions are “inconspicuous” and contained in a document whose contractual nature is not obvious. As described above, the Samsung booklet/brochure was not properly titled and did not set out the arbitration provisions conspicuously. The court concluded that “… the inaptly titled booklet containing the terms and conditions and the smartphone packaging’s vague reference to terms and conditions are insufficient to put a reasonable consumer (or a reasonably prudent smartphone user) on notice of the arbitration provision that Samsung seeks to enforce.”
California courts have been hostile to arbitration provisions in consumer contracts, so it is reasonable to expect California courts will require that any arbitration provision be conspicuous and not buried in a 101-page booklet without anything to draw the consumer’s attention to the arbitration provision.
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If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for four years running by SuperLawyers.com. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. He can be reached at (858) 483-9200 or via email. Like us on Facebook.