Judge Sides With Samsung, Grants Motion to Compel Fraud Case to Arbitration

Plaintiff Tiffany McDougall’s argument that she shouldn't be compelled to arbitration in a fraud suit against Samsung because the arbitration agreement is unconscionable “is without merit,” said U.S. District Judge Lorna Schofield for Southern New York in Manhattan in a Tuesday order (docket 1:23-cv-00168).

Schofield granted Samsung’s motion to compel McDougall’s suit to arbitration and stayed the case, which alleges Samsung misrepresented the storage capacity on her Galaxy smartphone. The judge denied Samsung’s motion to dismiss the case because the court must stay proceedings once parties have agreed to arbitrate, she said, citing Nicosia v. Amazon.com, Inc.

McDougall bought her S21 Ultra 5G smartphone with 128 gigabytes of storage in September 2021, said the order. The complaint alleges Samsung misled McDougall because part of the phone’s advertised 128 GB storage space is occupied by the phone’s operating system and preinstalled applications, leaving only 101.4 GB of available memory for a user to store applications, photos, videos and music on the device. McDougall claims any disclosures about lower available memory aren’t “conspicuous” to buyers at the point of sale. She claims she wouldn’t have bought the phone, or paid as much, if the “true facts had been known.”

Samsung asserted McDougall’s claims must be resolved through arbitration. McDougall argued there was no binding agreement to arbitrate because she wasn’t put on notice of the terms; the arbitration agreement was unconscionable and therefore unenforceable; and if the court found an enforceable agreement to arbitrate, the court, not an arbitrator, should determine whether the agreement encompasses the claims at issue, the order noted.

McDougall’s arguments “are unpersuasive,” Schofield said, and the parties’ agreement to arbitrate “is enforceable” because McDougall “was on inquiry notice” of the agreement’s terms. Arbitration is a “creature of contract,” Schofield said. In instances where an offeree doesn’t have actual notice of certain contract terms, “he is nevertheless bound by such terms if he is on inquiry notice of them and assents to them through conduct that a reasonable person would understand to constitute assent,” said the order, citing Starke v. SquareTrade. Offerees “are on inquiry notice ‘where the notice of the arbitration provision was reasonably conspicuous and manifestation of assent unambiguous as a matter of law,’” the order said, citing Meyer v. Uber Technologies.

The same principles that apply to paper contracts apply to smartphone-based contracts, the order said, citing Starke. For web-based contracts, whether a “reasonably prudent user” would be on inquiry notice depends on the clarity and conspicuousness of arbitration terms, which “are a function of the design and content of the relevant interface,” it said, citing Meyer. An “electronic 'click’ can suffice to signify the acceptance of a contract,” it said. Courts “routinely uphold” such “clickwrap” agreements, the order said, citing Meyer.

Comparing Samsung’s screen to that of Uber’s in Meyer, Schofield said Samsung’s interface provided “clearer and more conspicuous notice to users than Uber’s screen.” Both screens were “entirely visible without scrolling, while [Samsung's] page was less cluttered.” Samsung’s interface “drew attention to ‘legal items’ in large, bold font near the top of the page"; therefore, McDougall had “reasonably conspicuous notice” of the terms and conditions, including the arbitration agreement, said the order.

McDougall said she should “be forgiven for assuming” that terms and conditions refers to a description of the types of services that Samsung “intends to provide, not to the user’s waiver of h[er] constitutional right to a jury trial” or her right to pursue legal redress in court, the order noted. But the U.S. 2nd Circuit Court of Appeals “abrogated this holding, finding Uber’s Terms of Service hyperlink put users on inquiry notice of the arbitration provision therein,” it said. Also, whether a contract is offered “on a ‘take it or leave it basis’ . . . is not sufficient under New York law to render the [arbitration] provision procedurally unconscionable,” Schofield said, citing Ragone v. Atlantic Video at the Manhattan Center.

McDougall argued if the court finds mutual assent and an enforceable arbitration agreement, the court, not the arbitrator, should decide the issue of arbitrability. Schofield called the argument “unpersuasive” because the parties agreed to delegate the issue of arbitrability to the arbitrator. Samsung’s arbitration agreement “expressly and implicitly delegates the issue of arbitrability to the arbitrator,” it said.