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Be Transparent! Obscured Arbitration Terms Risk Unenforceability in Court
Tuesday, January 23, 2024

Hello everybody! I hope you’re all having a productive week thus far and I hope you all had a great weekend. Last week, I wrote about Terms and Conditions, specifically Arbitration Agreements, and how important it is to have clear and concise consent between contractual parties.

This week, we are going to look at a recent ruling in Pennsylvania federal court, in which the defendant did not present clear and concise Terms and Conditions.

Wendy Schuchmann, Pl. v. Great American Power, LLC, Def., No. 3:23-CV-1604, 2024 WL 219267 (M.D. Pa. Jan. 19, 2024)

The complaint begins with the plaintiff claiming violations of the TCPA, stating that she received prerecorded calls from the defendant despite being on the Do Not Call registry.

Interestingly enough, during the initial phone call with the defendant’s representative, the plaintiff agreed to enroll in the defendant’s electricity service.

Additionally, the plaintiff was informed that within seven days, if she no longer desired services, she could rescind her contract with the defendant. At some point during that seven-day grace period, the plaintiff rescinded from the contract and instructed the defendant not to call anymore. Despite this request, the defendant continued to call the plaintiff.

The defendant timely filed a motion to dismiss or in the alternative to stay proceedings and compel arbitration, stating that after the plaintiff’s enrollment, the plaintiff received a “welcome letter” which contained a bolded Arbitration Clause in the Terms and Conditions. This clause required Arbitration of any dispute and prohibited class actions.

The plaintiff countered, stating that the Arbitration Agreement was never discussed or presented on the initial call, and that the representative only generally mentioned the defendant’s “Terms and Conditions” verbally prior to receiving the “welcome letter”.

The court agreed with the plaintiff’s argument. Because the plaintiff was never made aware of an Arbitration Clause during the original call, there was no mutual assent or “meeting of the minds” on the Arbitration Agreement itself. Subsequently, the court denied the defendant’s motion in full.

Why did the court come to this conclusion?

The court explained that under Pennsylvania contract law, an Arbitration Clause must be explicitly explained and cannot arise in a way that is not clearly presented. Without seeing or discussing the terms, the plaintiff could not have explicitly agreed to arbitrate prior to receiving the welcome letter.

The court referenced Quiles v. Fin. Exch. Co., 879 A.2d 281, 283 (Super. Ct. Pa. 2005) to back their decision, which was a Supreme Court of Pennsylvania case where the plaintiff sued the defendant for defamation.

The defendant in that case stated that the plaintiff signed an employee handbook which contained an Arbitration Clause and moved to compel Arbitration against the plaintiff. However, the plaintiff argued that although she signed a form that stated that she received the handbook, she never received an actual copy. As she was not given the opportunity to review the handbook beforehand, the court ruled that the Arbitration process was not fully communicated.

So what can we take away from this ruling?

A few things. Though Arbitration Agreements are generally enforceable, this case highlights that courts will still examine the manner of how an Arbitration Agreement is presented and whether sufficient mutual assent is present.

If your terms are not clearly presented or accessible before a contract is agreed upon, a court could render your Arbitration Clauses unenforceable. It is imperative that companies always present Arbitration Clauses openly and confirm that the consumer understands the Terms and Conditions before any agreement or contract is to be enforced. Otherwise, you may find yourselves in a long, drawn-out litigation process.

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