Seventh Circuit Holds that Website Failed to Provide User Adequate Notice of Arbitration Clause

by Uri Abt

The Seventh Circuit recently issued an important opinion for any business that conducts transactions through a website.  In Sgouros v. TransUnion Corp., No. 15-1371, 2016 WL 1169411 (7th Cir. March 25, 2016), the Court held that TransUnion’s website did not provide users with adequate notice of the arbitration clause in its “Service Agreement” to bind them.  In addition to its important holding, the opinion is notable for reproducing screenshots of the webpages at issue to help illustrate exactly how the Court believed TransUnion went wrong.    

Sgouros sued TransUnion in federal district court after purchasing what turned out to be an incorrect report of his credit score on TransUnion’s website.  TransUnion moved to compel arbitration based on the arbitration clause contained in the “Service Agreement” that, according to TransUnion, Sgouros had agreed to when he purchased his credit report.  The critical webpage was the second of three pages a user had to click through in order to purchase a credit report.  You can view the screenshot from the Court’s opinion here

The webpage requests certain credit card information and, towards the bottom, contains a scroll box which shows the first three lines of the Service Agreement.  At the bottom of the page, there is a large button that reads “I Accept & Continue to Step 3.”  Just above the button there is a paragraph stating:

You understand that by clicking on the “I Accept & Continue to Step 3” button below, you are providing “written instructions” to TransUnion Interactive, Inc. authorizing TransUnion Interactive, Inc. to obtain information from your personal credit profile from Experian, Equifax and/or TransUnion.  You authorize TransUnion Interactive, Inc. to obtain such information solely to confirm your identity and display your credit data to you.

The Court noted that the webpage did not require Sgouros to click on the Service Agreement, scroll down to view the entire Service Agreement, or otherwise call his attention to the Service Agreement.  Sgouros clicked the “I Accept” button and completed his purchase. 

Illinois contract law governed, so the Court applied a modified version of the “reasonable communicativeness” test that Illinois courts have developed in the context of cruise-ship tickets.  The Court restated the test in the internet context as “whether the web pages presented to the consumer adequately communicate the terms and conditions of the agreement, and whether the circumstances support the assumption that the purchaser receives reasonable notice of those terms.”  The Court held that TransUnion’s website failed the test due to errors of both omission and commission. 

Contrasting TransUnion’s website with a website that was held to provide adequate notice in Hubbert v. Dell Corp., 835 N.E.2d 113 (Ill. Ct. App. 2005), the Court noted that nothing on the website informed users that transactions were subject to the Service Agreement.  For example, the webpages users had to click through did not state “All sales are subject to [the Service Agreement],” the visible portion of the Service Agreement did not indicate that it necessarily applied to purchases, and the hyperlink to the printable version of the Service Agreement stated “Printable Version” rather than “Terms of Use,” “Purchase,” or “Service Agreement.”  But even more importantly, in the Court’s view, the paragraph directly above the “I Accept” button affirmatively misled the user.  It stated that, by clicking on the button, the user authorized TransUnion to obtain information, not that the user agreed to the terms of the Service Agreement.  That “cinched” the case for Sgouros. 

The Sgouros case plants a flag in the developing area of internet adhesion contracts.  Any business that conducts transactions through its website should review its website with this case in mind.