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Now that businesses have moved toward an increasing amount of e-commerce, courts have begun to address when an arbitration provision related to e-commerce is enforceable. Two questions arise. Can a valid agreement to arbitrate a dispute be made on the Internet? If so, under what circumstances will this arbitration agreement be considered valid? New Jersey jurisprudence has recognized arbitration as a favored method for resolving disputes. For decades, New Jersey courts have held that parties to an agreement may waive statutory remedies in favor of arbitration. Because of the support for arbitration, “an agreement to arbitrate should be read liberally in favor of arbitration.” See Marchak v. Claridge Commons, Inc., 134 N.J. 275 (1993). As the court stressed in Marchak, however, the favored status of arbitration is not without limits. In the absence of a consensual understanding, neither party is entitled to force the other to arbitrate their dispute. With respect to the specific contractual language, the court has stated that “[a] clause depriving a citizen of access to the courts should clearly state its purpose. The point is to assure that the parties know that in electing arbitration as the exclusive remedy, they are waiving their time-honored right to sue.” In this respect, a party’s waiver of statutory rights “must be clearly and unmistakably established, and contractual language alleged to constitute a waiver will not be read expansively.” See Red Bank Reg’l Educ. Ass’n v. Red Bank Reg’l High Sch. Bd. of Educ., 78 N.J. 122 (1978). New Jersey has not had the opportunity to decide a matter involving an e-commerce arbitration agreement. New Jersey courts, however, often face the issue of determining the validity of an arbitration agreement in the context of employment relationships. Courts first analyze the arbitration agreement under common law contract principles to determine if there is a valid agreement. If a valid agreement exists, the court then determines if the dispute at issue falls within the scope of the arbitration provision. In Garfinkel v. Morristown Obstetrics and Gynecology Assoc., 168 N.J. 124 (2001), the plaintiff doctor signed an employment agreement that included a clause providing that “any controversy or claim that arises from the agreement or its breach shall be settled by arbitration.” (The existence of the arbitration agreement was not in dispute in this action. The court only examined the scope of the agreement.) The plaintiff’s Law Against Discrimination claim did not fall into the scope of this arbitration provision because the provision was not broad enough to encompass statutory claims. This provision suggested that the parties intended to arbitrate “only those disputes involving a contract term, a condition of employment, or some other element of the contract itself. Moreover, the language did not mention, either expressly or by general reference, statutory claims.” The court noted that to include statutory claims in an arbitration provision, the language does not have to list every imaginable statute. The court further noted that the better course would be to use language reflecting: that the employee, in fact, knows that other options, such as federal and state administrative remedies and judicial remedies, exist; that the employee also knows by signing the contract, those remedies are forever precluded; and, regardless of the nature of the employee’s complaint, he or she knows that it can only be resolved by arbitration. Although the arbitration agreement at issue in Garfinkel did not meet the standards set forth by the Court, this decision demonstrated the court’s continued willingness to enforce arbitration agreements. In Martindale v. Sandvik, 173 N.J. 76 (2002), the court first found that the arbitration provisions contained in an application for employment, even in the absence of a separate employment agreement, constituted a valid and enforceable contract. The defendant’s willingness to consider the plaintiff’s employment provided the consideration to support the arbitration agreement in the signed employment application. The agreement was not a contract of adhesion, but even if it were, the court explained that it would not be void automatically. The court noted that courts must look to “the subject matter of the contract, the parties’ relative bargaining positions, the degree of economic compulsion motivating the ‘adhering’ party, and the public interests affected by the contract.” The employment application did not constitute a contract of adhesion because the defendant offered the plaintiff a chance to ask questions about the application and offered her the opportunity to take it with her for further review. Even if it were an adhesion contract, the agreement’s subject matter and the public interests affected led to the conclusion that it should not be invalidated. The terms of the agreement were not oppressive and agreements to arbitrate do not violate public policy, the court stated. Inserting the arbitration provision into an employment application put the prospective employee on notice before accepting employment that any disputes would be subject to arbitration. After finding that a valid arbitration agreement existed, the court examined the scope of the arbitration agreement and held that the agreement included both the common law and statutory claims. The Martindale arbitration provision was more expansive than arbitration provision in Garfinkel. The Garfinkel provision failed to contain a reference to waiver of a jury trial. Moreover, the Garfinkel provision provided that “any controversy or claim arising out of, or relating to, this Agreement or the breach thereof.” That language limited the scope of the provision to disputes arising out of the agreement itself. In contrast, the language in the Martindale provision “was clear and unambiguous” and “sufficiently broad to encompass plaintiff’s statutory claims of action.” The court noted that the plaintiff read and understood the agreement and, although her level of sophistication was not central to the inquiry, the plaintiff was an educated businessperson experienced in the field of human resources. Recently, in Leodori v. Cigna Corp., 175 N.J. 293 (2003), the court stressed the importance of actual acceptance of an offer to arbitrate. In Garfinkel and Martindale, the plaintiffs signed a document that noted acceptance of the written offer to arbitrate. In contrast, the Leodori court found that the plaintiff, an in-house attorney, never manifested his assent to the employer’s offer to arbitrate claims arising out of his employment. Cigna presented its employees with numerous arbitration provisions in various employee handbooks. Significantly, the plaintiff never signed or in any way manifested assent to the various arbitration provisions. The plaintiff only signed papers signifying his receipt of the handbooks, which made no mention of the arbitration provision. Although he was fully aware of the provision that the employer was presenting, a valid waiver of rights “results only from an explicit, affirmative agreement that unmistakably reflects the employee’s assent.” The court rejected the employer’s argument that continued employment is implied acceptance of the agreement to arbitrate. Similar to any other contract, the court stated that there must be an offer and an acceptance. There can be no implied acceptance of a waiver of rights. The plaintiff’s status as an attorney was irrelevant provided that he truly did not intend to waive his rights. While an employer need not negotiate individually with each employee, it must obtain each person’s individual assent. The acknowledgement of receipt form that the plaintiff did sign would have “sufficed as concrete proof of waiver had it stated that the employee had agreed to the more detailed arbitration provision contained in the handbook.” Whatever the means of assent, there must be an explicit indication that the employee intended to abide by the arbitration provision. RELEVANT INTERNET CONTRACT CASES Unfortunately, New Jersey has not had the opportunity to decide a case on the application of Internet-related contract law to arbitration agreements. Cases in other jurisdictions illustrate how the above-described New Jersey jurisprudence would apply in such cases. The Northern District of California held that the electronic arbitration provision in Comb v. Paypal, Inc., 218 F. Supp. 2d 1165 (N.D.Ca 2002), was substantively unconscionable and therefore unenforceable. Paypal is an online payment service that allows a business or individual to send and receive payments via the Internet. Numerous plaintiffs sued Paypal regarding their failure to adequately address customer disputes. PayPal argued that all of these lawsuits must be submitted to arbitration as stated in the User Agreement. To register for the service, a prospective Paypal customer must click a box at the bottom of an application page that read “[you] have read and agree to the User Agreement and [Paypal's] privacy policy.” This is a click-wrap agreement formed when the customer clicks “I Agree” or submits payment through the service. A link to the user agreement is located at the bottom of the application but need not be opened in order to submit the application. The user agreement is a 25-page document enumerating the parties’ respective obligations and duties. It contains the following arbitration clause: Any controversy or claim arising out of or relating to this Agreement or the provision of Services shall be settled by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. Any such controversy or claim shall be arbitrated on an individual basis, and shall not be consolidated in any arbitration with any claim or controversy of any other party. The arbitration shall be conducted in Santa Clara County, California, and judgment on the arbitration award may be entered in any court having jurisdiction thereof. The court found that the Paypal user agreement was both procedurally and substantively unconscionable. The Agreement was a contract of adhesion because it was a “standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” Paypal failed to persuade the court that competitors offered their services without requiring customers to enter into arbitration agreements. PayPal’s user agreement provided that when a customer disputed payment or withdrawal from a customer’s private funds, Paypal, in its “sole discretion, may restrict accounts, withhold funds, undertake its own investigation of a customer’s financial records, close accounts, and procure ownership of all funds in dispute unless and until the customer is later determined to be entitled to the funds in dispute.” The option to pursue arbitration to secure relief from PayPal’s unilateral decision was unrealistic for most customers. The arbitration provision expressly prohibited PayPal customers from joining their claims. The average amount of a transaction — $55 — made it prohibitively expensive to pursue arbitration. The provision required arbitration in accordance with the commercial rules of the American Arbitration Association, which can cost in excess of $5,000. Further, the arbitration provision established Santa Clara County, Calif., as the required venue for the arbitration, although PayPal served millions of customers all over the United States. These provisions were an unconscionable attempt by PayPal to insulate itself from any meaningful challenge to its business practices, according to the court. Moreover, the agreement was 25 pages of legalese that the customers would not be inclined to read. The average Paypal customer would not have known that they were waiving their rights because they chose not to read the agreement or they did not understand its contents. In short, a party must be aware that she is relinquishing judicial remedies and accept that waiver. In Specht v. Netscape Comm. Corp., 306 F.3d 17 (2d Cir. 2002), the Second U.S. Circuit Court of Appeals recently examined the manner of obtaining actual acceptance of an arbitration provision presented to a customer through the Internet. Applying California law, the Second Circuit found that the plaintiffs who downloaded Netscape’s free software over the Internet had not consented to the terms of the license agreement, including an agreement to arbitrate disputes. The court examined two pieces of free Netscape software in this action. When the plaintiffs clicked the download button to initiate installation of the first software, Netscape Communicator, a new screen automatically popped up on the plaintiffs’ computer screen displaying the license agreement. The plaintiffs’ could not complete the installation until they clicked on a “Yes” button to indicate their acceptance of the license terms. The court found this click-wrap agreement valid and the license terms enforceable against those who downloaded Netscape Communicator using this method. Nevertheless, when downloading another software program, SmartDownload, no additional screen popped up displaying and requiring a click-wrap acceptance of the license terms to continue. Once the plaintiffs clicked the download button on the computer screen, they encountered no information about the license agreement. The license agreement information was located below the download button on the first screen. It was not visible on a normal size computer screen unless the consumer scrolled down past the download button. Even if a consumer had scrolled down past the download button, the license terms would not have been immediately apparent. There was only a notice of the existence of license terms, and one must have clicked on an invitation to view the terms in order for another screen to pop up. This is an example of a browse-wrap agreement, in which only a notice appears of the agreement’s existence and the consumer must browse through other pages to view its terms. The second screen, titled “License and Support Agreements,” listed different Netscape software products. A consumer then would have to find the specific product he was downloading and click on another hypertext link in order to view the full license agreement. The license terms included an agreement to arbitrate all disputes. The plaintiffs wanted to proceed in court with their action and, therefore, challenged the arbitration provision. The court found that simply clicking on a download button “does not communicate assent to contractual terms if the offer did not make clear to the consumer that clicking on the download button would signify assent to those terms.” A reasonably prudent recipient of the software would not have learned of the license terms, including the arbitration agreement, given the position of the notice of the license terms on the screen below the download button. Any reasonable consumer would have thought that everything of importance to the transaction was indicated above the download button to proceed with the transaction. The court concluded that “where consumers are urged to download free software at the immediate click of a button, a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those claims.” The plaintiffs’ downloading did not constitute acceptance of the defendant’s license terms. The court emphasized that “reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility.” Thus, the Netscape customers were not aware of the offer to arbitrate because it was not presented to them in a conspicuous manner. Proof of the parties’ acceptance is required to enforce an arbitration agreement. NEW JERSEY ANALYSIS When examining New Jersey arbitration decisions in the context of the Internet contract cases, it seems likely that New Jersey courts will enforce an electronic arbitration provision if it is provided clearly, the person is aware that they are giving up a right, and the dispute falls within the scope of that arbitration agreement. In sum, Garfinkel, Martindale and Leodori set forth two overriding tenets. First, a court only can examine an arbitration provision under its regular common law contract scrutiny. Second, an arbitration provision must reflect that the parties unambiguously agreed to arbitrate the specific dispute. The language of the arbitration agreement must be broad enough to include both common law and statutory claims and any and all disputes between the parties involving the electronic transaction. In addition, it must indicate clearly that the parties give up the right to a jury trial. The language in Martindale was found acceptable to the New Jersey Supreme Court and could easily be adapted to whatever e-commerce transaction was contemplated. Notwithstanding, in drafting the provision, one must be careful to not step over the line into the realm of unconscionability. The New Jersey Supreme Court has held that it will consider common law contract principles when evaluating the enforceability of arbitration provisions. PayPal provides valuable lessons on the importance of drafting a sound arbitration provision. An overriding principle in PayPal is that a business must be able to justify any one-sided or unilateral decisions that affect the legal rights of its customers. In Leodori, the court recently made it crystal clear that a waiver of the right to a jury trial “results only from an explicit, affirmative agreement that unmistakably reflects the [consumer's] assent to the contractual agreement.” In the Internet context, the best way to evidence a consumer’s acceptance of an agreement is to have an electronic record of that person’s unequivocal actual acceptance. The best method for this is a click-wrap agreement. The consumer should affirmatively click on a button indicating his acceptance. The business should then electronically store that information for every consumer who completes an e-commerce transaction. A click-wrap agreement is better than a browse-wrap agreement because, in the latter, there is no record of the consumer’s unequivocal acceptance of the terms of the agreement. In Leodori, the court found that the employee’s actual knowledge of the offer was irrelevant and that only a manifestation of acceptance could bind him to the agreement. Continued employment was not considered implied acceptance of the arbitration agreement. Likewise, in a browse-wrap agreement, the consumer may have actually read the offered agreement, but the consumer’s continuation of the e-commerce transaction may not be considered implied acceptance of the arbitration agreement. Although New Jersey has not had the opportunity to address this interesting and novel issue, it is imperative to consider the New Jersey court’s guidance on arbitration provisions in the area of employment relationships. As long as a business has a clear and broad provision, which includes the particular dispute and a record of an actual acceptance of that agreement, an arbitration agreement in an e-commerce transaction should withstand scrutiny by the courts. Winters is counsel in the commercial litigation practice group and Sweeney is an associate in the group at Porzio, Bromberg & Newman (www.pbnlaw.com) of Morristown.

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