Consumer is not bound by an arbitration clause contained in a satellite trial subscription that consumer received when he bought a car because it was not reasonable for him to understand that the use of the satellite would bind him to arbitrate

In Knutson v. Sirius XM Radio Inc., 771 F.3d 559 (9th Cir. 2014) (No. 12-56120) the Ninth Circuit Court of Appeals held the arbitration clause included in a standard “welcome kit” unenforceable for lack of mutual assent. The decision reversed a district court’s order granting Defendant’s motion to compel arbitration pursuant to the Federal Arbitration Act (“FAA”).

A consumer purchased a car that included a trial subscription to a satellite radio system. After the trial subscription was activated, the consumer received a “Welcome Kit” that contained a customer agreement that included an arbitration provision. After several unauthorized phone calls, the consumer attempted to bring a Telephone Consumer Protection Act (“TCPA”) class action against the satellite radio system provider. The provider sought to enforce the arbitration clause and the District court agreed. It held that both parties consented to enter into the Customer Agreement and that therefore the arbitration clause was valid and enforceable under the FAA. It granted motion to compel arbitration and dismissed the consumer’s case. An instant appeal followed.

The Ninth Circuit reminded that arbitration is “rounded in state contract law” and “under California law, mutual assent is a required element of contract formation. Mutual assent may be manifested by written or spoken words, or by conduct … and acceptance of contract terms may be implied through action or inaction” and also that “Courts must determine whether the outward manifestations of consent would lead a reasonable person to believe the offeree has assented to the agreement”. (internal citation omitted). Here the Court found that there was no evidence that plaintiff had assented to the arbitration clause. Therefore the Court reversed the lower court order and held that the arbitration clause was unenforceable because Defendant

 failed to prove by a preponderance of the evidence the existence of an agreement to arbitrate. The panel held that a reasonable person in plaintiff’s position could not be expected to understand that purchasing a vehicle from Toyota would simultaneously bind him or her to any contract with Sirius XM. The panel further held that plaintiffs continued use of the satellite radio service after his receipt of the Customer Agreement did not manifest his assent to the provisions in the Customer Agreement. Knutson v. Sirius XM Radio Inc., 771 F.3d 559 (9th Cir. 2014) (No. 12-56120)