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The Federal Arbitration Act (FAA) provides that written agreements to arbitrate are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C.S. § 2. The FAA is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary. This policy is founded upon a desire to preserve parties' ability to agree to arbitrate, rather than litigate, their disputes. But despite the strong federal policy favoring arbitration, arbitration remains a creature of contract. It is a fundamental principle of the FAA that arbitration is a matter of contract. Thus, courts must still decide whether the parties to a contract have agreed to arbitrate disputes. The threshold question facing any court considering a motion to compel arbitration is whether the parties have indeed agreed to arbitrate. It is well-settled that a court may not compel arbitration until it has resolved the question of the very existence of the contract embodying the arbitration clause. That question is governed by state-law principles of contract formation.
Defendant-Appellant, SquareTrade, Inc., was selling protection plans for consumer products. Plaintiff-Appellee Adam J. Starke purchased one such protection plan. Starke filed the present putative class action, seeking to hold SquareTrade accountable for alleged violations of consumer protection laws. SquareTrade moved to compel arbitration, contending that its contract with Starke included an arbitration clause. Starke opposed the motion, arguing that the purported arbitration clause had not become part of the contract because he did not have reasonable notice of the clause and did not manifest assent to it. The district court denied SquareTrade's motion, and SquareTrade appealed.
Under the circumstances, should the court have granted defendant’s motion to compel arbitration?
The court held that the district court did not err in denying defendant's motion to compel arbitration, 9 U.S.C.S. § 2, because the online transaction did not reflect a meeting of the minds or a manifestation of mutual assent where the purchaser did not have reasonable notice of the arbitration provision, which had been provided via an inconspicuous hyperlink to terms and conditions following the purchase of the plan. According to the court, although N.Y. Ins. Law § 7903 permitted service contracts to be provided after the purchase, that regulatory regime did not alter New York law as to the manifestation of assent in contract formation, and there was little justification for the delay in this online transaction.