Nguyen v. Barnes & Noble Inc.

• Decision Date: 18 August 2014
• Docket Number: No. 12–56628.,12–56628.
• Parties: Kevin Khoa NGUYEN, an individual, on behalf of himself and all others similarly situated, Plaintiff–Appellee, v. BARNES & NOBLE INC., Defendant–Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

763 F.3d 1171

Kevin Khoa NGUYEN, an individual, on behalf of himself and all others similarly situated, Plaintiff–Appellee,

v.BARNES & NOBLE INC., Defendant–Appellant.

No. 12–56628.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted May 16, 2014.

Filed Aug. 18, 2014.

Michelle C. Doolin (argued), Leo P. Norton, and Erin E. Goodsell, Cooley LLP, San Diego, CA, for Defendant–Appellant.

Gretchen Carpenter (argued), and Brian R. Strange, Strange & Carpenter, Los Angeles, CA, for Plaintiff–Appellee.

Appeal from the United States District Court for the Central District of California, Josephine L. Staton, District Judge, Presiding. D.C. No. 8:12–cv–00812–JST–RNB.

Before: JOHN T. NOONAN and KIM McLANE WARDLAW, Circuit Judges, and ROSLYN O. SILVER, Senior District Judge.^*

OPINION

NOONAN, Circuit Judge:

Barnes & Noble, Inc. (“Barnes & Noble”) appeals the district court's denial of its motion to compel arbitration against Kevin Khoa Nguyen (“Nguyen”) pursuant to the arbitration agreement contained in its website's Terms of Use. In order to resolve the issue of arbitrability, we must address whether Nguyen, by merely using Barnes & Noble's website, agreed to be bound by the Terms of Use, even though Nguyen was never prompted to assent to the Terms of Use and never in fact read them. We agree with the district court that Barnes & Noble did not provide reasonable notice of its Terms of Use, and that Nguyen therefore did not unambiguously manifest assent to the arbitration provision contained therein.

We also agree with the district court that Nguyen is not equitably estopped from avoiding arbitration because he relied on the Terms of Use's choice of law provision.

We therefore affirm the district court's denial of Barnes & Noble's motion to compel arbitration and to stay court proceedings.

I. Background

A.

The underlying facts are not in dispute. Barnes & Noble is a national bookseller that owns and operates hundreds of bookstores as well as the website . In August 2011, Barnes & Noble, along with other retailers across the country, liquidated its inventory of discontinued Hewlett–Packard Touchpads (“Touchpads”), an unsuccessful competitor to Apple's iPad, by advertising a “fire sale” of Touchpads at a heavily discounted price. Acting quickly on the nationwide liquidation of Touchpads, Nguyen purchased two units on Barnes & Noble's website on August 21, 2011, and received an email confirming the transaction. The following day, Nguyen received another email informing him that his order had been cancelled due to unexpectedly high demand. Nguyen alleges that, as a result of “Barnes & Noble's representations, as well as the delay in informing him it would not honor the sale,” he was “unable to obtain an HP Tablet during the liquidation period for the discounted price,” and was “forced to rely on substitute tablet technology,which he subsequently purchased ... [at] considerable expense.”

B.

In April 2012, Nguyen filed this lawsuit in California Superior Court on behalf of himself and a putative class of consumers whose Touchpad orders had been cancelled, alleging that Barnes & Noble had engaged in deceptive business practices and false advertising in violation of both California and New York law. Barnes & Noble removed the action to federal court and moved to compel arbitration under the Federal Arbitration Act (“FAA”), arguing that Nguyen was bound by the arbitration agreement in the website's Terms of Use.

The website's Terms of Use are available via a “Terms of Use” hyperlink located in the bottom left-hand corner of every page on the Barnes & Noble website, which appears alongside other hyperlinks labeled “NOOK Store Terms,” “Copyright,” and “Privacy Policy.” These hyperlinks also appear underlined and set in green typeface in the lower lefthand corner of every page in the online checkout process.

Nguyen neither clicked on the “Terms of Use” hyperlink nor actually read the Terms of Use. Had he clicked on the hyperlink, he would have been taken to a page containing the full text of Barnes & Noble's Terms of Use, which state, in relevant part: “By visiting any area in the Barnes & Noble.com Site, creating an account, [or] making a purchase via the Barnes & Noble.com Site ... a User is deemed to have accepted the Terms of Use.” Nguyen also would have come across an arbitration provision, which states:

XVIII. DISPUTE RESOLUTION

Any claim or controversy at law or equity that arises out of the Terms of Use, the Barnes & Noble.com Site or any Barnes & Noble.com Service (each a “Claim”), shall be resolved through binding arbitration conducted by telephone, online or based solely upon written submissions where no in-person appearance is required. In such cases, arbitration shall be administered by the American Arbitration Association under its Commercial Arbitration Rules (including without limitation the Supplementary Procedures for Consumer–Related Disputes, if applicable), and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

....

Any claim shall be arbitrated or litigated, as the case may be, on an individual basis and shall not be consolidated with any Claim of any other party whether through class action proceedings, class arbitration proceedings or otherwise.

....

Each of the parties hereby knowingly, voluntarily and intentionally waives any right it may have to a trial by jury in respect of any litigation (including but not limited to any claims, counterclaims, cross-claims, or third party claims) arising out of, under or in connection with these Terms of Use. Further, each party hereto certifies that no representative or agent of either party has represented, expressly or otherwise, that such a party would not in the event of such litigation, seek to enforce this waiver of right to jury trial provision. Each of the parties acknowledges that this section is a material inducement for the other party entering into these Terms of Use.

Nguyen contends that he cannot be bound to the arbitration provision because he neither had notice of nor assented to the website's Terms of Use. Barnes & Noble, for its part, asserts that the placement of the “Terms of Use” hyperlink on its website put Nguyen on constructive notice of the arbitration agreement. Barnes & Noble contends that this notice, combined with Nguyen's subsequent use of the website, was enough to bind him to the Terms of Use. The district court disagreed, and Barnes & Noble now appeals.

II. Standard of Review

“We review the denial of a motion to compel arbitration de novo.” Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir.2008). Underlying factual findings are reviewed for clear error, Balen v. Holland Am. Line Inc., 583 F.3d 647, 652 (9th Cir.2009), while “[t]he interpretation and meaning of contract provisions” are reviewed de novo, Milenbach v. Comm'r, 318 F.3d 924, 930 (9th Cir.2003).

III. Discussion

A.

The FAA, 9 U.S.C. § 1 et seq., requires federal district courts to stay judicial proceedings and compel arbitration of claims covered by a written and enforceable arbitration agreement. Id. § 3. The FAA limits the district court's role to determining whether a valid arbitration agreement exists, and whether the agreement encompasses the disputes at issue. See Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir.2000). The parties do not quarrel that Barnes & Noble's arbitration agreement, should it be found enforceable, encompasses Nguyen's claims. The only issue is whether a valid arbitration agreement exists.

In determining whether a valid arbitration agreement exists, federal courts “apply ordinary state—law principles that govern the formation of contracts.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Federal courts sitting in diversity look to the law of the forum state—here, California—when making choice of law determinations. Hoffman v. Citibank (S.D.), N.A., 546 F.3d 1078, 1082 (9th Cir.2008) (per curiam). Under California law, the parties' choice of law will govern unless section 187(2) of the Restatement (Second) of Conflict of Laws dictates a different result. Id.

Here, the parties agree that the validity of the arbitration agreement is governed by New York law, as specified by the Terms of Use's choice of law provision. But whether the choice of law provision applies depends on whether the parties agreed to be bound by Barnes & Noble's Terms of Use in the first place. As the district court acknowledged in its order, we need not engage in this circular inquiry because both California and New York law dictate the same outcome. Thus, in evaluating the validity of Barnes & Noble's arbitration agreement, we apply New York law, to the extent possible.

For the reasons that follow, we hold that Nguyen did not enter into Barnes & Noble's agreement to arbitrate.

B.

“While new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract.” Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir.2004). One such principle is the requirement that “[m]utual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract.” Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 29 (2d Cir.2002) (applying California law).

Contracts formed on the Internet come primarily in two flavors: “clickwrap” (or “click-through”) agreements, in which website users are required to click on an “I agree” box after being presented with a list of terms and conditions of use; and “browsewrap” agreements, where a website's terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen. SeeRegister.com, 356 F.3d at 428–30. Barnes & Noble's Terms of Use fall in the latter category.

“Unlike a clickwrap agreement, a browsewrap agreement does not require the user to manifest assent...