Samsung Fights Smartphone Cases at the Ninth Circuit

SAN FRANCISCO (CN) — The Ninth Circuit on Monday heard arguments in two class actions involving Samsung's attempts to send class action claims over its Galaxy smartphones to arbitration, but did not indicate how it would rule in either case.

The first case, filed in 2014 by Daniel Norcia in San Francisco, claims 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 claims Samsung lied to consumers about how much storage capacity the phone has.

At issue is an arbitration agreement in the warranty booklet that came with Norcia's phone. Norcia says 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 based on the arbitration agreement, 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 U.S. District Judge James Donato 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.

Samsung attorney Sean Unger told a three-judge panel on Monday that warranties are "bilateral contracts," and that Norcia signed a customer agreement receipt when he paid for the phone, acknowledging he bought a warranty with his purchase.

"We have [presale notice] on the box and we also have a receipt that notes a warranty," Unger said. "He's bound by it."

But Norcia says he wouldn't have learned about the arbitration clause even if he had taken the box home, pointing in a brief to Donato's finding that although the box indicated it contained a warranty booklet, it did not mention an arbitration agreement. Nor did the customer agreement receipt mention a warranty, Norcia says.

Responding to Unger's argument Monday, Norcia's attorney John Hurley said Norcia received no presale notice because he didn't get the box until after he bought the phone. And, Hurley said, a warranty is merely a promise from the manufacturer, not a bilateral contract.

"It doesn't put an individual on notice they will be bound in any way or that they will owe any duties to the manufacturer," he said.

The second class action, filed in 2014 by Hoai Dang in San Jose, claims 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 says he never accepted the arbitration agreement in the product guide that came with his phone because he didn't know it existed. He says in a brief to the Ninth Circuit that he was never told 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.

U.S. District Judge Lucy Koh in August 2015 granted Samsung's motion to compel arbitration, finding that even if Dang did not read the arbitration clause, he was still bound by it.

Koh also found that Samsung adequately showed the arbitration clause was not "inconspicuous," and that Dang's acceptance of the agreement was implied because he didn't opt out of it.

Samsung contends in its brief to the Ninth Circuit that Dang agreed to the warranty, including its arbitration provision, as soon as he bought the phone.

Samsung attorney Mark Dosker told the panel Monday that it was "not any stretch of the law to rule as Judge Koh ruled."

"The contract was formed when Mr. Dang bought this single, unitary, shrink-wrapped, in-the-box product," Dosker said.

But Dang's attorney Karla Gilbride told the panel that Dang's booklet does not mention arbitration until page 15, and merely instructs the user to call Sprint to learn about the terms and conditions. She said the phone's box had just one word printed on it about a warranty and nothing about binding terms and conditions.

"Parties may not form contracts by burying a needle in a haystack and wait for the other party to find it," Gilbride said.

The appeal is before Chief Circuit Judge Sidney Thomas and Circuit Judges Carlos Bea and Sandra Ikuta.

Sean Unger is with Paul Hastings in San Francisco; Hurley with Prometheus Partners, also in San Francisco.

Mark Dosker is with Squire Patton Boggs in San Francisco; Karla Gilbride with Public Justice in Washington.

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