Charissa Keebaugh v. Warner Bros. Entertainment Inc.
Not yet published in a reporter (Filed April 26, 2024) (2024)
Rule of Law:
The enforceability of a 'sign-in wrap' agreement for a mobile application under California law requires (1) reasonably conspicuous notice of the terms and (2) unambiguous manifestation of assent, where conspicuousness is determined by evaluating both the context of the transaction and the visual placement of the notice. While a contractual provision impermissibly foreclosing public injunctive relief in any forum is unenforceable, such unenforceability does not, by itself, render the arbitration agreement substantively unconscionable.
Facts:
- Plaintiffs, including a minor, downloaded and played the mobile application 'Game of Thrones: Conquest' (GOTC), developed by Warner Bros. Entertainment Inc.
- GOTC allows players to develop castles, raise dragons, and expedite game progression by purchasing in-app resources, and is described as a 'potentially endless' game.
- When opening GOTC for the first time, users see a sign-in screen, which for the relevant 2019 and 2020 versions, prominently features a 'Play' button.
- Directly beneath the 'Play' button, the screen displays a statement such as 'By tapping ‘Play,’ I agree to the Terms of Service' or 'By tapping ‘Play’ I accept the Terms of Use and acknowledge the Privacy Policy.'
- Below this statement, two distinct, interactive boxes labeled 'Privacy Policy' and 'Terms of Service' (or 'Terms of Use') hyperlink to the full text of those documents.
- Users must tap the 'Play' button to access the game but are not required to individually view or accept the Privacy Policy or Terms of Service before doing so.
- The GOTC Terms of Service contain provisions stating that they affect legal rights, include waivers of rights and limitations of liability, and require resolution of disputes through binding arbitration on an individual basis, waiving the right to a jury trial and class action relief.
- The Terms of Service also include an 'individualized relief provision' that limits an arbitrator's remedies to 'that party’s individual claim' and prohibits claims as a plaintiff or class member in any class, collective, or representative proceeding.
- Plaintiffs filed a putative class action against Warner Bros. Entertainment Inc., alleging false and misleading advertising within the GOTC app.
Procedural Posture:
- Plaintiffs Charissa Keebaugh, Stephanie Neveu, and Heather Mercieri filed a putative class action against Defendant Warner Bros. Entertainment Inc. in the United States District Court for the Central District of California, alleging false and misleading advertising related to the mobile application Game of Thrones: Conquest (GOTC).
- The original Plaintiffs, joined by new Plaintiffs Sophia Nicholson and P.W. (a minor), subsequently filed a First Amended Complaint, alleging various causes of action including fraud, negligent misrepresentation, and violations of consumer protection laws in multiple states.
- Warner Bros. moved the district court to compel arbitration of all claims, arguing that users had agreed to arbitration through the GOTC Terms of Service.
- The United States District Court for the Central District of California (Maame Ewusi-Mensah Frimpong, District Judge) denied Warner Bros.' motion to compel arbitration, concluding that a valid arbitration agreement did not exist because Warner Bros. failed to provide reasonably conspicuous notice of its Terms of Service.
- Defendant-Appellant Warner Bros. Entertainment Inc. timely appealed the district court's denial of its motion to compel arbitration to the United States Court of Appeals for the Ninth Circuit.
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Issue:
Does a mobile application's 'sign-in wrap agreement' provide reasonably conspicuous notice of its terms, and if so, does a provision within its arbitration agreement that impermissibly forecloses public injunctive relief render the entire arbitration agreement substantively unconscionable or otherwise unenforceable?
Opinions:
Majority - Bennett, Circuit Judge
Yes, a mobile application's 'sign-in wrap agreement' did provide reasonably conspicuous notice of its terms, and while a provision within its arbitration agreement impermissibly foreclosing public injunctive relief is unenforceable under California law, this unenforceability does not, by itself, render the entire arbitration agreement substantively unconscionable. The Ninth Circuit reversed the district court's denial of Warner Bros.' motion to compel arbitration, finding that Warner Bros. provided reasonably conspicuous notice of its Terms of Service. The court clarified that under California law, specifically drawing from Sellers v. JustAnswer LLC and B.D. v. Blizzard Entertainment, Inc., determining conspicuousness for sign-in wrap agreements requires evaluating both 'the context of the transaction' and the 'placement of the notice,' rather than focusing predominantly on context as the district court had done. Regarding the 'context of the transaction,' the court held that downloading and playing a mobile game like GOTC, which allows for potentially unlimited in-app purchases and implies ongoing access, reflects an 'ongoing relationship.' This expectation puts a reasonably prudent user on notice that terms of use would apply, distinguishing it from insular, discrete, one-time transactions. For the 'placement of the notice,' the court found the GOTC sign-in screens provided clear visual notice. The statement 'By tapping ‘Play’ I agree to the Terms of Service' was conspicuously displayed directly beneath the operative 'Play' button, used contrasting font color for legibility against the dark background, and the hyperlinks were visually distinguished with white font and borders, avoiding clutter. This design met the objective-reasonableness standard for mutual assent articulated in Berman v. Freedom Fin. Network, LLC. The court also addressed Plaintiffs' argument that the arbitration agreement was unconscionable due to its 'purported ban on public injunctive relief.' It acknowledged that the Terms of Service's individualized relief provision impermissibly foreclosed the opportunity to seek public injunctive relief in any forum, thereby violating California's McGill v. Citibank, N.A. rule and rendering that specific provision unenforceable. However, the court explicitly distinguished 'unenforceable' from 'unconscionable.' Citing Poublon v. C.H. Robinson Co., the court held that the unenforceability of a waiver of the right to seek public injunctive relief does not automatically make the entire arbitration agreement substantively unconscionable. The individualized relief provision, though invalid for public injunctive claims, could still apply to other representative, collective, or class action claims, and did not 'shock the conscience' to meet the high bar for substantive unconscionability. The court declined to address other unconscionability arguments or the minor's ability to disaffirm, leaving those for the district court on remand.
Analysis:
This case significantly refines the Ninth Circuit's framework for assessing the enforceability of online 'sign-in wrap' agreements under California law, by ensuring that courts consider both the transactional context and the visual presentation of terms without letting one factor be dispositive. It provides critical guidance for online service providers and app developers on how to structure their terms of service to enhance enforceability. Furthermore, the decision clarifies that while specific provisions within an arbitration agreement may be unenforceable due to public policy (e.g., the McGill rule regarding public injunctive relief), this unenforceability does not automatically invalidate the entire arbitration agreement on grounds of substantive unconscionability. This distinction may make it more challenging for consumers to void arbitration agreements wholesale, potentially leading to more disputes being channeled into arbitration even if certain remedies are foreclosed.
