Najah Edmundson v. Klarna Inc.
22-557-cv (2023)
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Rule of Law:
For web-based contracts, an arbitration provision is enforceable if a reasonably prudent user is on inquiry notice of the terms and unambiguously manifests assent through conduct. Notice is reasonably conspicuous when terms are clearly presented on an uncluttered interface, spatially and temporally coupled with the mechanism for manifesting assent, and include language signaling agreement.
Facts:
- Klarna, Inc. (Klarna) offers a "buy now, pay later" service allowing customers to purchase items in four interest-free installments, with automatic deductions from their checking accounts.
- Najah Edmundson used Klarna for two online purchases in 2021.
- Klarna automatically deducted partial repayments for these purchases from Edmundson's checking account.
- Due to insufficient funds, Edmundson incurred $70 in overdraft fees from her bank, Nutmeg State Financial Credit Union, not from Klarna.
- During her interactions with Klarna, Edmundson engaged with three online interfaces: the Pay-with-Klarna Screen, the Klarna Widget, and the App Login Screen.
- The Klarna Widget, seen when finalizing a GameStop purchase, displayed "I agree to the payment terms" (with hyperlinked "payment terms" in contrasting color and underlined) directly above a "Confirm and continue" button.
- Klarna's Services Terms, accessible via these hyperlinks, contained a mandatory arbitration provision and a prohibition on class action litigation.
- Edmundson timely satisfied all her installment payments, and Klarna never charged her interest or fees.
Procedural Posture:
- On June 6, 2021, Najah Edmundson filed a putative class action against Klarna, Inc. in the United States District Court for the District of Connecticut, alleging common-law fraud and violations of the Connecticut Unfair Trade Practices Act (CUTPA).
- On August 16, 2021, Klarna moved to compel arbitration, arguing that Edmundson had assented to its Services Terms, which included a mandatory arbitration provision.
- The district court denied Klarna's motion, concluding that Edmundson did not have reasonably conspicuous notice of Klarna's terms and did not unambiguously manifest assent to them.
- Klarna, as defendant-appellant, appealed the district court's February 15, 2022 order to the United States Court of Appeals for the Second Circuit.
- On May 6, 2022, the district court granted Klarna's motion to stay all district court proceedings pending the resolution of the appeal.
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Issue:
Does an online user provide reasonably conspicuous notice and unambiguously manifest assent to an arbitration provision when an online payment service presents hyperlinked terms on an uncluttered interface directly adjacent to a "Confirm and continue" button during a purchase finalization?
Opinions:
Majority - Chin, Circuit Judge
Yes, an online user does provide reasonably conspicuous notice and unambiguously manifest assent to an arbitration provision when an online payment service presents hyperlinked terms on an uncluttered interface directly adjacent to a "Confirm and continue" button during a purchase finalization. The court held that Edmundson unambiguously manifested assent to Klarna's Services Terms, including the mandatory arbitration provision, by clicking "Confirm and continue" on the Klarna Widget. Applying a two-part test, the court first found that a "reasonably prudent" internet user would be on inquiry notice of Klarna's terms. The Klarna Widget interface was deemed "uncluttered," with the hyperlink to Klarna's terms being the only link, spatially and temporally coupled with the "Confirm and continue" button. Despite a smaller font, the link was underlined and in a contrasting color, meeting the standard of being "conspicuous in light of the whole [interface]." The language "I agree to the payment terms" further signaled the contractual nature. Second, the court found unambiguous manifestation of assent. A reasonable internet user would understand that selecting "Confirm and continue," placed directly below the "I agree to the payment terms" statement, constituted agreement. The transactional context, where Edmundson was finalizing a purchase and entering a continuing relationship with Klarna, reinforced this understanding. The court acknowledged that Klarna could have provided clearer instructions but concluded the interface "made clear" what clicking the button signified. It also reasoned that Edmundson was on inquiry notice that "payment terms" encompassed more than just the visible information, as crucial details like future payment dates were absent from the immediate screen.
Analysis:
This case clarifies the objective standards for "reasonably conspicuous notice" and "unambiguous manifestation of assent" in online contract formation, particularly for "sign-in-wrap" agreements. It provides essential guidance for companies designing online interfaces, emphasizing the need for uncluttered design, clear visual cues for hyperlinked terms, and precise spatial and temporal coupling of terms with the action signifying acceptance. The decision reinforces that courts will scrutinize the overall presentation to determine enforceability, significantly impacting the validity of arbitration clauses across various consumer-facing online services.
