Knutson v. Sirius XM Radio, Inc.

United States Court of Appeals for the Ninth Circuit · Contracts

ContractsArbitrationMutual AssentFAAarbitration agreementmutual assentobjective manifestation of assentsilence as acceptance

Facts

Knutson bought a Toyota truck that came with a 90-day trial subscription to Sirius XM, and his Sirius XM service was activated on November 7, 2011. More than a month later, Sirius XM mailed him a Welcome Kit containing a Customer Agreement stating that failure to cancel within three business days of activation meant he agreed to the agreement, including an arbitration clause. Knutson did not read the Customer Agreement, did not contact Sirius XM, and did not cancel the trial subscription. During the trial period, he received three allegedly unauthorized telemarketing calls from Sirius XM and then sued under the Telephone Consumer Protection Act.

Issue

Whether Sirius XM proved the existence of a valid agreement to arbitrate when Knutson received the Customer Agreement only after his trial service had already been activated and there was no clear notice that he had entered a contractual relationship with Sirius XM. More specifically, did Knutson objectively manifest assent to the arbitration provision by purchasing the Toyota vehicle or by continuing to use the Sirius XM service after receiving the mailed agreement?

Rule

Under the FAA, courts first determine whether a valid agreement to arbitrate exists, and state contract law governs that question. Under California law, mutual assent is required for contract formation; assent may be manifested by conduct, including in some circumstances inaction or retention of benefits, but a party is not bound by inconspicuous contractual provisions of which he was unaware when they are contained in a document whose contractual nature is not obvious. A consumer's silence or continued use does not manifest assent where the offer and the consequence of inaction were not clearly and effectively communicated.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lena Ortiz bought a new sedan from a dealership in Phoenix, and the car included a complimentary 60-day traffic-data service provided by Desert Signal Media. At the sale, Lena received no documents from Desert Signal and nothing in the dealership paperwork mentioned any separate contract with that company. Three weeks later, Desert Signal mailed a booklet stating that continued use of the service meant acceptance of an arbitration clause.

If Desert Signal moves to compel arbitration after Lena sues over unwanted marketing texts sent during the trial period, what is the strongest argument against arbitration?

Explanation. The majority held that the party seeking arbitration must prove a valid agreement to arbitrate under state contract law. Mutual assent is required, and a consumer is not bound by inconspicuous terms in a document whose contractual nature is not obvious. Here, as in the governing rule, Lena had no reason at purchase to think she was contracting with the service provider, and the later mailing did not clearly and effectively communicate that inaction or continued use would bind her. (Derived from Knutson v. Sirius XM Radio, Inc. (n.d.).)