SAN FRANCISCO (CN) – The Ninth Circuit on Thursday handed victories to two Galaxy smartphone users whose class action claims can now move forward in court, despite Samsung’s push to settle them through arbitration.
The first case, filed in 2014 by Daniel Norcia in San Francisco, claimed Samsung programmed its 16 gigabyte Galaxy S4 smartphone to give users the impression it runs faster and performs better than it actually does. Norcia also claimed Samsung lied to consumers about how much storage capacity the phone has.
Samsung challenged the lawsuit over an arbitration agreement in the warranty booklet that came with Norcia’s phone. Norcia said he never knew about the arbitration agreement because he left the booklet and the box at the store, taking home only the phone and other hardware.
Samsung moved to compel Norcia to arbitrate his claims anyway, arguing that even though Norcia didn’t take the booklet and box with him, he received the warranty and the arbitration agreement when he bought the phone.
But a federal judge denied Samsung’s motion to compel, finding that though Norcia voluntarily declined the box, he hadn’t entered into a contract for arbitration because he wasn’t aware of the arbitration clause before buying the phone.
The Ninth Circuit affirmed the district court’s ruling, rejecting Samsung’s argument that the warranty booklet that came in the box of Norcia’s Galaxy S4 created a binding contract between him and Samsung to arbitrate his claims.
“No contract was formed between Norcia and Samsung, and Norcia is not bound by the arbitration provision contained in the brochure,” wrote U.S. Circuit Judge Sandra Ikuta for a three-judge panel.
In a phone interview Thursday, Norcia’s attorney Eduardo Roy said the Ninth Circuit’s decision was an easy one.
“The court decided this based on basic, first-year contract principles you’ll find at any law school,” he said. “You can’t throw in after-the-fact terms and try to enforce them.”
Clarifying that Norcia’s complaint involved a non-warranty dispute, Ikuta said the court had analyzed Samsung’s arguments through the lens of California contract law, not warranty law.
California contract law, Ikuta said, generally states that “silence or inaction does not constitute acceptance of an offer,” and noted that courts have rejected the argument that a buyer’s silence means he or she has agreed to a contract even without knowing a contract was on offer.
Samsung failed to show any exception to that rule that would have saved its argument, Ikuta added in the 22-page opinion.
“In the absence of an applicable exception, California’s general rule for contract formation applies,” she said.
The panel further held that the warranty brochure that came with Norcia’s phone isn’t enforceable as an in-the-box contract, either, saying Samsung had misunderstood the difference between California warranty law and contract law.
Samsung had argued that the terms and conditions included in a brochure in a product box constitute a binding contract between the manufacturer and the consumer, and that Norcia had accepted Samsung’s arbitration offer in the warranty booklet.
But Ikuta said Samsung’s argument swung on a question of public policy, and that the legislature – not the courts – sets a state’s public policy.
“If the California Legislature believes that its current commercial code fails to strike an appropriate balance between consumer expectations and the burden on commerce, it can amend the law,” she said.
The second case, filed in 2014 by Hoai Dang in San Jose, claimed Samsung infringed on Apple’s patents in manufacturing the Galaxy S3, diminishing its intrinsic and resale value after patent infringement verdicts in Apple’s favor.
Dang, too, said he never accepted the arbitration agreement in the product guide that came with his phone because he didn’t know it existed. He told the Ninth Circuit in a brief that no one informed him the guide contained contractual terms he would be bound by if he didn’t opt out within 30 days of purchase, nor did the phone’s box alert him to the existence of those terms.
“Important contractual terms shouldn’t be hidden like a needle in a haystack or an afterthought deep in a product safety manual, and we’re glad that the Ninth Circuit enforced California law on this issue and allowed Mr. Dang to continue litigating the merits of his case in court,” Karla Gilbride, Dang’s attorney, said in an email Thursday.
Just as in Norcia’s case, Samsung had argued that Dang agreed to the warranty, including its arbitration provision, as soon as he bought the phone.
But unlike Norcia’s case, a federal judge in August 2015 granted Samsung’s motion to compel arbitration, finding that even if Dang didn’t read the arbitration clause, he was still bound by it.
On Thursday, the Ninth Circuit reversed and remanded the lower court’s decision, finding that Dang and Samsung didn’t form an agreement to arbitrate under California law.
Neither Dang’s failure to expressly agree to the arbitration clause in his brochure nor his failure to opt out of it constituted an agreement, Ikuta said in a three-page memorandum, because as in Norcia’s case, Dang’s silence didn’t amount to acceptance of a contract under state law.
And similar to Norcia’s case, including an arbitration clause in the product box didn’t constitute an exception to the law, she said.
Chief Circuit Judge Sidney Thomas and Circuit Judge Carlos Bea joined the opinion.
Gilbride, who is with Public Justice in Washington, said that both she and Dang were pleased with the court’s decisions in both cases.
Roy predicted Thursday’s decisions will make it more difficult for companies to compel consumers into arbitration based on warranty clauses they didn’t know about.
“They’ll have to change the process by which they sneak in arbitration agreements,” he said. “It will have to be open; consumers will have to consent to it.”
Roy is with Prometheus Partners in San Francisco.
Samsung was represented in the Norcia case by Sean Unger with Paul Hastings in San Francisco; and in the Dang case by Mark Dosker with Squire Patton Boggs, also in San Francisco.
Samsung’s attorneys did not return requests for comment Thursday.