James v. Global Tellink Corp

• Decision Date: 29 March 2017
• Docket Number: No. 16-1555,16-1555
• Citation: 852 F.3d 262
• Parties: Bobbie JAMES, on behalf of themselves and all others similarly situated; Crystal Gibson, on behalf of themselves and all others similarly situated; Betty King, on behalf of themselves and all others similarly situated; Barbara Skladany, on behalf of themselves and all others similarly situated; Mark Skladany, on behalf of themselves and all others similarly situated; Milan Skladany, on behalf of themselves and all others similarly situated; Dr. John F. Crow, on behalf of themselves and all others similarly situated v. GLOBAL TELLINK CORP; Inmate Telephone Service; DSI ITI LLC Global TelLink Corporation and DSI-ITI LLC, Appellants
• Court: U.S. Court of Appeals — Third Circuit

852 F.3d 262

Bobbie JAMES, on behalf of themselves and all others similarly situated; Crystal Gibson, on behalf of themselves and all others similarly situated; Betty King, on behalf of themselves and all others similarly situated; Barbara Skladany, on behalf of themselves and all others similarly situated; Mark Skladany, on behalf of themselves and all others similarly situated; Milan Skladany, on behalf of themselves and all others similarly situated; Dr. John F. Crow, on behalf of themselves and all others similarly situated

v.GLOBAL TELLINK CORP; Inmate Telephone Service; DSI ITI LLC Global TelLink Corporation and DSI-ITI LLC, Appellants

No. 16-1555

United States Court of Appeals, Third Circuit.

Submitted Under Third Circuit L.A.R. 34.1a November 3, 2016

Filed: March 29, 2017

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

Global Tel*Link Corporation, Inmate Telephone Service, and DSI-ITI LLC (collectively, GTL), appeal the District Court's order denying their motion to compel arbitration against Bobbie James and other putative class action plaintiffs who used GTL's prison phone services. The question presented is whether Appellees agreed to be bound by the terms of use contained on GTL's website, even though they never visited it. Because the District Court properly held that Appellees did not agree to arbitrate, we will affirm.

I

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.

People who create an account through the website are shown a copy of GTL's terms of use and must click a button that says "Accept" to complete the process. Those who create an account by telephone receive the following audio notice:

Please note that your account, and any transactions you complete ... are governed by the terms of use and the privacy statement posted at www.offenderconnect.com. The terms of use and the privacy statement were most recently revised on July 3, 2013.

App. 125. Unlike web users, those who set up accounts by telephone are not required to indicate their assent to the terms of use.

GTL's terms of use contain an arbitration agreement and a class-action waiver, and users have 30 days to opt out of both of these provisions. They also state that using the telephone service or clicking the "Accept" button on the website constitutes acceptance of the terms, and users have 30 days to cancel their accounts if they do not agree to the terms.

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.¹ 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.

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 denied GTL's motion to compel arbitration with respect to Plaintiffs who opened accounts by telephone.²

The Court found that, although Plaintiffs were notified that GTL's service was "governed by the terms of use," they were not informed that "use of the service alone constituted an acceptance of these terms." James v. Global Tel*Link Corp. , 2016 WL 589676, at *7 (D.N.J. Feb. 11, 2016). They therefore "had neither the knowledge nor intent necessary to provide ‘unqualified acceptance.’ " Id. (citation omitted). "Consequently, without an understanding that they were accepting to be bound by the [terms of use], which included an agreement to arbitrate, there was no ‘legally enforceable contract’ created between GTL and the Plaintiffs." Id. GTL filed this timely appeal.

II

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).

III

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).

A

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).

B

The parties have not cited and we are unaware of any decisions that address the issue of contract formation through an interactive voice-response telephone system. In this case, GTL informed telephone users each time they set up or deposited funds in their accounts that its service was governed by terms of use available on its website. However, users were not required to visit the website or demonstrate acceptance of the terms of use through any affirmative act. Nor were they notified by the automated telephone service that their use of GTL's service would constitute assent to the terms of use.

GTL argues that Appellees manifested assent by using its services after being repeatedly informed that their accounts were governed by its terms of use. In support of its argument, GTL relies on several cases finding assent to contract terms through use of a product or service. But in those cases, the purchasers manifested assent through the affirmative act of signing contracts that contained arbitration provisions. See, e.g. , Raynor v. Verizon Wireless (VAW), LLC , 2016 WL 1626020, at *3–4 (D.N.J. Apr. 25, 2016) (enforcing arbitration agreement where customer physically signed agreement containing arbitration clause and activated cell phone service); ...