Earlier this month, the U.S. Court of Appeals for the Ninth Circuit issued its decision in Shanahan v. IXL Learning, Inc. Though unpublished, this decision will make it easier to enforce arbitration provisions contained in online terms and conditions and may have the added impact of making class action data breach and similar cases harder to sustain when those terms and conditions contain arbitration provisions.
Background of Shanahan v. IXL Learning, Inc.
The facts of the case are not complicated. The plaintiffs (three mothers and their minor children) brought a putative class action against defendant IXL alleging that IXL collected and monetized their and their children’s data without their consent. IXL provided its software to school districts for use in their curriculum. IXL’s standard terms and conditions included an arbitration clause. IXL also included a term in its SaaS license agreement by which the school districts represented that they had “authority to provide consent on behalf of parents for IXL to collect information from students under 13 before allowing such students to access” the software.
Tacit Acceptance Through Continued Platform Use
The Ninth Circuit did not agree that this contract language was sufficient to show that the school districts acted as the parents’ agent in agreeing to the arbitration provision. However, the plaintiffs’ complaint quoted extensively from those terms and conditions and affirmatively stated that the plaintiffs used the IXL platform. Because their own complaint suggested that the parents knew of the terms and conditions yet continued to let their children use the platform, the Court found that it was plausible that the parents tacitly accepted and became bound by those terms and conditions. The parents argued that any such acceptance was not voluntary as the school districts required their children to use that software at school. However, the Court held, as a matter of first impression, that the plaintiffs had the burden to prove a lack of voluntariness once the defendant had shown a plausible basis for assent.
Ninth Circuit's Remand for Mini-Trial on Assent Issues
Perhaps as importantly, the Ninth Circuit then remanded to the District Court for a mini-trial on the issues of whether and when each plaintiff became aware or reasonably should have become aware of the terms and conditions, what version of the terms and conditions applied to each plaintiff, and whether any plaintiff’s child continued to use the IXL software after the parent learned of the terms and conditions, whether such continued use amounted to retroactive ratification of the arbitration clause as to previous use, and whether each plaintiff’s (or presumably their child’s) continued use was voluntary. Only after deciding those issues based on the evidence could the trial court determine whether or not the parents (and derivatively their children) assented to the terms and conditions.
Commonality and Typicality Concerns May Defeat Class Treatment
By noting the individuality of that inquiry as to each plaintiff, with the ultimate outcomes potentially different for each set of parents, the Ninth Circuit also implicitly highlighted the lack of commonality, typicality, and possibly adequacy present already among the proposed plaintiffs and their proposed class, which ultimately may make it harder for the plaintiffs to proceed via class action. That individualized inquiry would need to be performed for each of the class members to decide whether their claims should proceed in arbitration or can be litigated in federal court.
Key Takeaways for Businesses Using Online Terms and Conditions
While the outcome in the trial court remains uncertain, this well-reasoned decision will make it easier for defendants to enforce arbitration clauses contained in their online terms and conditions.
If you have questions about this case or would like to evaluate your organization’s use of arbitration provisions in online terms and conditions, please reach out to Brian Esler or a member of Miller Nash’s intellectual property team.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
