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Schnabel v. Trilegiant Corp. - 697 F.3d 110 (2d Cir. 2012)

Rule:

The threshold question facing any court considering a motion to compel arbitration is whether the parties have indeed agreed to arbitrate. Inasmuch as the arbitrator has no authority of any kind with respect to a matter at issue absent an agreement to arbitrate, the question of whether such an agreement exists and is effective is necessarily for the court and not the arbitrator. Under the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., if the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. 9 U.S.C.S. § 4. But a trial is warranted only if there exists one or more genuine issues of material fact regarding whether the parties have entered into such an agreement.

Facts:

Plaintiffs Edward Schnabel and Brian Schnabel purchased baseball memorabilia online from different websites. Brian was Edward's son. During each transaction, both Brian and Edward were led to a service owned and operated by defendants Affinion Group, LLC, and Trilegiant Corp., which offered discounts on goods and services in exchange for a "membership fee." Both Brian was Edward ultimately signed-up for the service, but each denied that they did so knowingly. Each were charged, unknowingly, membership fees for several years on their respective credit cards. After discovering the charges, Brian and Edward, joined by Edward's wife and Brian's mother, plaintiff Lucy Schnabel, filed a putative class action in federal district against defendants alleging unlawful, unfair and deceptive trade practices. Defendants filed a motion to compel arbitration pursuant to an arbitration clause that, they claimed, was disseminated to Brian and Edward via a hyperlink during the online enrollment process and presented in subsequent emails to them from defendants' discount service. The district court denied the motion, finding that the parties did not mutually assent to a valid arbitration provision. Defendants appealed.

Issue:

Were the Schnabels bound to arbitrate their dispute with defendants as a consequence of an arbitration provision that defendants asserted was part of a contract between the parties?

Answer:

No.

Conclusion:

The court of appeals affirmed the district court's judgment. The court ruled that despite some limited availability of the arbitration provision to Edward and Brian, they were not bound to arbitrate the dispute. The court ruled that the email linking to an arbitration provision did not provide sufficient notice to Edward and Brian of the arbitration provision, and they therefore could not have assented to it solely as a result of their failure to cancel their enrollment in defendants' discount service. The court further ruled that defendants forfeited the argument that Edward and Brian were on notice of the arbitration provision through a hyperlink in the email. Edward and Brian asserted that they were not on actual notice of the arbitration provision; there was no evidence in the record upon which a jury could rely to conclude otherwise.

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