Third Circuit: Arbitration Agreement Not Validly Formed Through An “Interactive Voice-Response Telephone System”

In Bobbie James v. Global TelLink Corp, No. 16-1555 (Mar. 29, 2017), the Third Circuit held that the defendant telecom company had failed to create a binding arbitration agreement (click here for a copy of the decision).   As recognized by the Third Circuit, this case involves a unique fact pattern of “contract formation through an interactive voice-response telephone system.”

The defendant provides telecom services to inmates at correctional facilities so that the inmates can call their friends, family, and attorneys.  Users can deposit funds through an automated telephone service, with an interactive voice-response system.  When a user creates an account through a telephone, the user receives an audio notice stating that the account is governed by the terms of use on the defendant’s website.

In this case, the inmates filed a class action alleging that the defendant’s charges for phone calls were unconscionable.  The defendant tried to rely on the arbitration clause found in the online terms of use, and both the district court and Third Circuit rejected the defendant’s arguments and found that an arbitration agreement was never formed.

The Third Circuit acknowledged a body of caselaw involving online browsewrap agreements, and pursuant to this body of law, courts typically analyze whether the terms of use or hyperlinks to the terms of use are reasonably conspicuous on a website.   See, e.g., Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014).  However, this case involving the telephone notice of the online terms is one step removed from a browsewrap situation.  The Third Circuit reasoned that the online terms here were “neither conspicuous nor readily accessible” to the users creating an account through the telephone.  Also, the inmates “neither received GTL’s terms of use, nor were they informed that merely using GTL’s telephone service would constitute assent to those terms.”  In sum, the arbitration clause was not enforceable.

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