On March 25, the Seventh Circuit Court of Appeals issued a decision in Sgouros v. TransUnion Corp. in which the appeals court rejected TransUnion's effort to compel arbitration of a putative class action. The appeals court found that no agreement to arbitrate had been formed because the plaintiff was not given notice that his claims against TransUnion might be subject to arbitration. The decision is notable because it offers important lessons to businesses everywhere in the still-emerging area of e-commerce law, and shows how a simple change in website copy would have resulted in individual arbitration, not class action litigation. It bucks the recent string of high-profile victories by defendants seeking arbitration of consumer class action claims.

Sgouros purchased a credit score package from TransUnion's website. Sgouros tried to use the TransUnion score to negotiate a deal on an auto loan, but when Sgouros went to a dealership, the score he obtained from TransUnion was 100 points higher than the score the dealer pulled up. Sgouros filed suit against TransUnion on behalf of himself and a putative class of consumers that had been "duped" into purchasing a useless credit score. TransUnion moved to compel individual arbitration on the basis of an arbitration and class waiver clause contained in TransUnion's "Service Agreement."

To make his purchase, Sgouros visited TransUnion's website. On the first page, he had to click a button that took him to a second page where he could input his personal information. After inputting that information, he clicked a button that took him to third page where he entered his credit card information and created a TransUnion website user account. On this page, there was a button that said "I Accept & Continue to Step 3." Text above the button informed customers that by clicking they were agreeing to allow TransUnion to collect personal and credit information, but the website said nothing about agreeing to the terms of the Service Agreement or agreeing to arbitration.

Moreover, TransUnion's website revealed only a snippet of the Service Agreement and the arbitration and class waiver clause was not visible unless customers scrolled through a scroll box or clicked on a hyperlink for a "Printable Version" of the Service Agreement. Critically, the website never prompted Sgouros to review the entire Service Agreement before charging him to purchase the credit score package.

Did He Know What He Was Agreeing To?

The question was whether Sgouros knew he was agreeing to arbitrate and waive his class-action rights by clicking the "I Accept & Continue to Step 3" button on the TransUnion website. Based on the facts above, the district court concluded that Sgouros and TransUnion had not formed an agreement to arbitrate, and on appeal the 7th Circuit agreed.

Writing for a unanimous court, Chief Judge Diane Wood asked whether the website adequately communicated all the terms and conditions of the arbitration agreement to consumers and whether the circumstances of the transaction supported an assumption that a purchaser received reasonable notice of those terms. Judge Wood concluded that Sgouros had not received notice of the terms and conditions by merely clicking the "I Accept & Continue to Step 3" box without being shown the full contents of the Service Agreement or being notified that he was agreeing to be bound by the Service Agreement.

While Sgouros arose under Illinois law, it serves as a good lesson to businesses everywhere in the still-emerging area of e-commerce law. Judge Wood's decision shows how a simple change in website copy would have resulted in individual arbitration, not class action litigation.

For example, TransUnion could have informed consumers that they were agreeing to be bound by the Service Agreement when they clicked the "I Accept & Continue to Step 3" button. Another alternative might be to program the website to prompt consumers to read and accept the Service Agreement in a pop-up window or new webpage when they clicked the button to finalize their purchase. These simple edits would likely have meant the difference between litigating a class action lawsuit in court and defending an individual arbitration claim.