For the past decade, many courts have found class action waivers in consumer contracts to be valid and enforceable under the Federal Arbitration Act. However, recently, the Allegheny Court of Common Pleas in Pittsburgh recognized not all clauses warrant enforcement in Pierce v. FloatMe Corp., No. GD 24-2169 (Pa. Com. Pl. 2024).
What You Need to Know
- Judge Hertzberg rejected loan provider FloatMe’s attempt to enforce arbitration and class action waiver clauses linked to in a mobile app.
- The opinion found the agreement failed to meet the standards of unambiguous consent and conspicuous notice required under Pennsylvania and Texas law.
- The FloatMe ruling relied in part on Chilutti v. Uber Technologies, Inc., which is on appeal to the Pennsylvania Supreme Court – a case that, like FloatMe, will likely be eagerly watched as in-app agreements continue to proliferate.
In a putative consumer class action filed against FloatMe, Corp. (FloatMe) alleging excessive fees for payday advances acquired through the company’s mobile application, Judge Alan D. Hertzberg denied the company’s attempt to enforce arbitration and class action waiver clauses contained in the in-app agreement. Judge Hertzberg ruled that the clauses, contained in an optional hyperlink on one of 16 screens plaintiff encountered while enrolling for the app, were too ambiguous and not reasonably conspicuous to satisfy the requirements for contractual consent under Pennsylvania and Texas law.
The FloatMe ruling relied in part on Chilutti v. Uber Technologies, Inc., 300 A.3d 430 (Pa. Super. 2023), which is currently on appeal to the Pennsylvania Supreme Court – a case that, like FloatMe, will likely be eagerly watched as in-app agreements continue to proliferate.
The Court’s Decision
Plaintiff Natalie Pierce (plaintiff) alleges that she used the company’s app to receive 26 instant monetary advances and that, despite promises of “interest-fee” loans, she was charged amounts exceeding Pennsylvania’s maximum interest rates. FloatMe filed preliminary objections asserting the plaintiff waived her right to bring a class action and agreed to resolve all disputes by arbitration based on screens she encountered in FloatMe’s app, which contained a hyperlink to the company’s terms and conditions (the terms). The terms also stated Texas law would govern all claims.
On December 19, 2024, Judge Hertzberg rejected the enforcement of those provisions under both Texas and Pennsylvania (where the plaintiff resides) law. With respect to Texas law, the Court found the clauses were not sufficiently conspicuous because they were only accessible from an in-app hyperlink that was on the third of 16 screens required for registration, was in a smaller font than the other words on the screen, and was not underlined or in capital letters. Further, the provisions themselves were on page 18 out of 22 of the linked document. The Court did note that while the link to the terms was in pink text, the words preceding the hyperlink – “by continuing, you agree to FloatMe’s” terms – were in gray text on a black background, which in Judge Hertzberg’s words, made “the entire sentence unlikely to draw the attention of a reasonably prudent smartphone user.” The Court also stated that because the plaintiff had to agree to the terms on the third of 16 sign-up screens and still had to provide information on at least seven additional screens before enrollment, her manifestation of assent was not “temporally coupled” with enrollment, as is required under Texas law to establish unambiguous consent.
Judge Hertzberg’s analysis of Pennsylvania law reached the same conclusion with respect to conspicuousness. He also explained there could not be an unambiguous manifestation of assent to the arbitration provision because there was no notification regarding waiver of a right to jury trial and that any such waiver should appear at the top of the first page in bold, capitalized text. The Pennsylvania portion of the opinion relied largely on Chilutti), an en banc opinion from the Pennsylvania Superior Court. There, the appellate court found that although it is permissible to disclose terms and conditions in a hyperlink, such hyperlink must be readily apparent and must clearly denote that the user is agreeing to the arbitration and class action waiver provisions.
While companies hoping to include arbitration and class action waivers in mobile apps should err on the side of conspicuousness, the FloatMe opinion may not end up being the last word in Pennsylvania. Both the FloatMe decision and the Chilutti opinion are currently being appealed; FloatMe is now in front of the Pennsylvania Superior Court, while Chilutti will be examined by the Pennsylvania Supreme Court.
Moreover, Chilutti’s status as a pending appeal already has been noted by federal courts. For example, a judge in the U.S. District Court for the Western District of Pennsylvania expressed hesitancy on relying on Chilutti given the pending appeal. See Happy v. Marlette Funding, LLC, 2024 WL 3744234, 2024 U.S. Dist. LEXIS 142212 (W.D. Pa. Aug. 9, 2024). However, the facts in Happy are distinguishable from Chilutti, as it involved a website and bold, underlined text stating that checking a box meant acknowledgement of the linked terms and conditions.
Similarly, the U.S. Court of Appeals for the First Circuit upheld the validity of website and app-based arbitration clauses in Emmanuel v. Handy Technologies, Inc., 992 F.3d 1 (1st Cir. 2021). However, as with Happy, the facts of Emmanuel are instructive though arguably distinguishable from FloatMe. In Emmanuel, the First Circuit, applying Massachusetts law, affirmed a bench trial verdict enforcing an arbitration clause. Unlike in FloatMe, the Emmanuel plaintiff agreed to the arbitration provision three times – on a web-based job application with a prominent hyperlink to the Terms of Use; during app-based enrollment to work for the company following orientation; and to accept updated terms on the same app. Based on a “totality of the circumstances” test, the First Circuit found Emmanuel had reasonable notice of the arbitration clause. Emmanuel, 992 F.3d at 10.
Because of the subjective nature of conspicuousness and lack of ambiguity, as well as the continuing updates to apps and mobile devices, it is likely that the issue of enforceability will continue to be litigated. Contrasting font colors, use of capital letters and larger font, and multiple confirmations are some ways companies may ensure awareness and enforceability of arbitration provisions and class action waivers, when delivered via hyperlink. It is also important for companies to remember that regardless of format – whether an app, website, or paper – a contract is a contract and as such all required elements of enforceability should be observed. While formatting and additional prompts may seem at first glance to be inconsequential or design-focused changes, the difference between individual arbitration and a class action outweighs the expense and burden of reviewing and refining the way in which website and app users are presented with potentially dispositive clauses.
