Schnabel Goes Offline: Later‑Sent, Unflagged Arbitration Clauses in Mailed “Welcome Packages” Do Not Bind Absent Clear Notice and Assent

Introduction

In Sudakow v. CleanChoice Energy, Inc., the Second Circuit affirmed the denial of a motion to compel arbitration where an energy supplier mailed a “Welcome Package” with new dispute-resolution terms—including a mandatory arbitration clause—weeks after the customer had already enrolled under a written contract that contained no arbitration agreement. The Court held that the consumer was neither on inquiry notice of the later-sent arbitration provision nor did she implicitly assent to it by paying monthly bills.

The decision synthesizes and applies core New York contract-law principles—especially those governing notice and assent in “later-terms” contracting—to an offline, physical-mail context. It underscores that the Federal Arbitration Act (FAA) does not compel arbitration in the absence of an actual agreement and that “clear and conspicuous” notice and an objectively reasonable act of assent are prerequisites to binding consumers to subsequently transmitted dispute-resolution provisions.

Parties: Plaintiff-Appellee Joanne Sudakow (on behalf of herself and a putative class) sued CleanChoice Energy, Inc. for breach of contract and deceptive business practices concerning variable electricity rates. CleanChoice sought to compel arbitration based on terms mailed after enrollment. The district court denied that motion as to Sudakow, and CleanChoice appealed. The Second Circuit affirmed.

Summary of the Judgment

The Enrollment Agreement executed in October 2021 was a binding contract (effective November 9, 2021), and it contained no arbitration clause. It included a New York litigation venue clause, an integration clause, and a unilateral-modification clause limited to regulatory changes with 30 days’ written notice.
Three weeks after enrollment, CleanChoice mailed a “Welcome Package” that included “Subsequent Terms” with an arbitration clause tucked into a “Choice of Laws” section. The package did not require or receive the customer’s signature.
The Court held that Ms. Sudakow was not on inquiry notice of the arbitration clause because CleanChoice failed to present the provision in a clear and conspicuous way and did not tie it to the existing contract in a manner that would alert a reasonable consumer that her contract terms were being changed.
Even if there were inquiry notice, the consumer did not implicitly assent by paying monthly bills. The “Subsequent Terms” themselves indicated assent would be manifested “by signing,” and there was no communication that payments would be treated as acceptance.
Result: Affirmed. The motion to compel arbitration was properly denied as to Ms. Sudakow.

Analysis

Precedents Cited and How They Shaped the Ruling

Schnabel v. Trilegiant Corp., 697 F.3d 110 (2d Cir. 2012): The cornerstone. Schnabel held that later-sent arbitration terms delivered by email after enrollment did not put consumers on inquiry notice because they were “temporally and spatially decoupled” from contracting and not presented in a way that forced consumers to confront them. Sudakow applies this same principle to a physical mailer: method of delivery (email vs. hardcopy) does not change the core inquiry—whether reasonable people in the parties’ positions would have known about the terms and understood their conduct to manifest assent.
Meyer v. Uber Techs., Inc., 868 F.3d 66 (2d Cir. 2017): Emphasized fact-intensive, context-specific assessment of “reasonable notice” and the need for “clear and conspicuous” presentation of terms. The Court in Sudakow relied on this approach to evaluate how the arbitration clause was presented and labeled.
Nicosia v. Amazon.com, Inc., 834 F.3d 220 (2d Cir. 2016): Reaffirmed that the FAA does not require arbitration absent agreement and that the threshold question of agreement is governed by state contract law. Sudakow reiterates this foundation.
Zachman v. Hudson Valley Fed. Credit Union, 49 F.4th 95 (2d Cir. 2022): Cited for the “clear and conspicuous” standard under New York law and the emphasis on how terms are called to the user’s attention. Sudakow uses this rubric to find CleanChoice’s presentation lacking.
Soliman v. Subway Franchisee Advert. Fund Tr., Ltd., 999 F.3d 828 (2d Cir. 2021): Provides standards for drawing inferences in favor of the non-movant on motions to compel arbitration and for assessing conspicuousness “in context.” Applied in Sudakow to view the mailer, cover letter, and document structure from the consumer’s perspective.
Starke v. SquareTrade, Inc., 913 F.3d 279 (2d Cir. 2019): Articulates that even when actual notice is absent, binding later terms requires inquiry notice coupled with conduct that a reasonable person would understand as assent. Also stresses that the manifestation of assent must be sufficiently definite. Sudakow invokes Starke to reject “implicit assent” by payment in the absence of clear notice and a communicated acceptance mechanism.
Register.com, Inc. v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004): Cited to show that internet or delivery method does not alter contract principles and that binding later terms requires a basis to impute knowledge. Sudakow found no such basis.
Meckel v. Continental Res. Co., 758 F.2d 811 (2d Cir. 1985): The mailbox rule creates a presumption of receipt, but presumption of receipt is not the same as notice sufficient for assent to new terms. Sudakow emphasizes this distinction.
Davitashvili v. Grubhub Inc., 131 F.4th 109 (2d Cir. 2025): Reiterates New York law that inquiry notice plus conduct that reasonably signals assent is required where actual notice is lacking. Sudakow applies that framework in the offline setting.
Karlin v. Avis, 457 F.2d 57 (2d Cir. 1972): Silence rarely constitutes acceptance absent a duty to speak or a contemporaneous oral agreement. Sudakow uses this to rebuff the notion that passive inaction or bill payment manifested assent.

The Court’s Legal Reasoning

The Court applied New York contract law to the threshold question of whether an agreement to arbitrate existed. Two independent defects doomed CleanChoice’s attempt to bind the consumer to the mailed arbitration terms.

No inquiry notice:
- Temporal and spatial decoupling: The arbitration clause arrived weeks after a fully formed contract and was not referenced or foreshadowed in the Enrollment Agreement. As in Schnabel, a reasonable consumer would not connect a later, unannounced mailer to a binding modification of existing terms.
- Not clear and conspicuous: The envelope was nondescript and did not identify CleanChoice; the cover letter did not mention the enclosed “Subsequent Terms”; and the arbitration clause was buried under “Choice of Laws” rather than “Complaint/Dispute Procedures,” obscuring its dispute-resolution significance. The presentation did not “raise a red flag” sufficient to alert a reasonable person to a material legal change.
- Original contract structure cut against later change: The Enrollment Agreement had an integration clause; a New York litigation venue clause; and a unilateral-modification clause allowing changes only for “Regulatory Change” with 30 days’ notice. Those terms would not lead a reasonable consumer to expect that CleanChoice would mail superseding terms within weeks absent any qualifying regulatory change.
- Mailbox rule insufficient: Even if the mailing was received, presumption of receipt does not supply the required notice that later-sent terms are part of the contract.
No implicit assent:
- Text of the mailed terms required a signature: The “Subsequent Terms” expressly stated “by signing this Agreement” and referred to the “undersigned customer,” signaling that signature—not payment—was the contemplated mode of assent. A reasonable consumer would not think bill payment constituted acceptance.
- Payments are too passive: Following Schnabel, continued payments are “too passive” to show a subjective understanding of later-sent arbitration terms and an intent to be bound—particularly where the customer pays under the original contract’s obligations and is not told that payments will be treated as acceptance of new terms.
- No duty to speak: Under Karlin, silence does not equal acceptance absent a duty or contemporaneous oral agreement. None existed here.

Standard of Review: The Court reviewed de novo the denial of the motion to compel arbitration and the legal question whether the parties agreed to arbitrate, drawing reasonable inferences in favor of the non-movant. The inquiry-notice assessment is fact-intensive and context-driven.

FAA Principle Reaffirmed: The FAA favors arbitration agreements but does not create them; courts must first find an actual agreement under state law before enforcing arbitration.

Impact and Practical Implications

This decision will influence how businesses—especially utilities, subscription services, and other consumer-facing enterprises—attempt to implement arbitration agreements or modify dispute-resolution terms after initial enrollment.

“Schnabel, offline”: method of delivery is neutral. Companies cannot evade Schnabel by mailing hardcopy “Welcome Packages.” Whether terms arrive by email or postal mail, the touchstone is the same: Did the consumer receive clear and conspicuous notice that the terms apply to their existing contract, and did they engage in conduct that reasonably signals assent?
Original contract terms matter. Integration clauses, litigation-venue clauses, and narrow unilateral-modification clauses will weigh heavily against finding notice or assent to later-sent arbitration provisions. Businesses should align any later-term process with the modification pathways permitted by the original contract.
Placement and labeling of arbitration terms are critical. Burying arbitration under “Choice of Laws” rather than under a dispute-resolution heading undermines conspicuousness. Clear headings such as “Arbitration Agreement,” boldface notices, and call-outs in cover letters are advisable.
Assent mechanisms must be explicit and consistent. Where documents state that assent occurs “by signing,” courts will hesitate to infer acceptance from passive conduct like paying bills. If acceptance by continued use or payment is intended, the communication must unambiguously say so and provide a meaningful opportunity to decline without penalty.
Class action exposure. Failure to secure valid arbitration agreements may leave defendants exposed to class litigation, as here. The Court’s approach will be cited by plaintiffs challenging “after-the-fact” arbitration rollouts.
Regulatory and industry-specific context. In regulated sectors (e.g., energy services), businesses often reference agency materials in welcome packets. Sudakow signals that including regulatory brochures does not substitute for clear contract modifications or consent procedures.

Practical compliance checklist for businesses contemplating later-sent arbitration or dispute-resolution changes:

Ensure the original agreement authorizes post-enrollment modifications in the manner proposed; comply strictly with any notice conditions.
Use conspicuous headings (e.g., “Arbitration Agreement—Action Required”) and highlight material changes in the cover letter and on the envelope.
Specify the mode of acceptance (signature, click-through, continued use) and align the document language consistently with that mode.
State expressly if continued service or payment will constitute acceptance, and allow a reasonable opt-out or termination window without penalty.
Record actual assent (e.g., signed acknowledgments or affirmative clicks) whenever feasible; avoid relying on passive conduct.
Synchronize notices with billing cycles and retain proof that consumers were required to confront the terms before continued use.

Litigation strategy notes:

Plaintiffs will marshal Sudakow to argue that welcome packets and unflagged mailers cannot create arbitration duties.
Defendants seeking arbitration should develop a robust evidentiary record of how terms were presented, how assent was sought, and why a reasonable consumer would understand that specific conduct constitutes acceptance.
The district court’s different outcome for the co-plaintiff Weinberg—who orally confirmed he understood terms would be mailed—illustrates that contemporaneous notice and acknowledgment can be outcome-determinative.

Complex Concepts Simplified

Inquiry notice: Even if a person does not actually read a term, the law may treat them as on notice if the term was presented in a clear, conspicuous way that would alert a reasonable person to its existence and relevance to their contract.
Implicit (implied) assent: Acceptance of a contract can sometimes be inferred from conduct (like continuing to use a service) if the person knew or should have known their conduct would be taken as acceptance. Without clear communication and an opportunity to decline, passive actions like paying bills usually are not enough.
Integration clause: A provision stating that the written contract is the complete and final agreement. It makes it harder for a party to argue that additional, later-sent terms became part of the contract absent a proper modification mechanism.
Unilateral modification clause: A clause allowing one party to change terms in specific circumstances (here, only for “Regulatory Change” with 30 days’ written notice). Such limits must be respected; they cannot be bypassed by sending new terms outside the permitted circumstances.
Mailbox rule: A legal presumption that a properly mailed document is received. However, receipt alone does not establish that the recipient is on notice of, or has assented to, new contract terms.
FAA baseline: The Federal Arbitration Act supports enforcing arbitration agreements but does not create them. Courts must first find an agreement to arbitrate under state contract law.

Conclusion

Sudakow v. CleanChoice Energy, Inc. cements a clear rule: later-sent arbitration clauses—especially those embedded in unflagged “welcome” mailings and not tied expressly to the existing agreement—do not bind consumers under New York law without clear, conspicuous notice and an objectively reasonable manifestation of assent. Payments made under the original contract are too passive to signal acceptance where the mailed document indicates assent must occur “by signing” and where the consumer was not told that payments would be treated as agreement to new terms.

By extending Schnabel’s reasoning to physical mail, the Second Circuit confirms that the medium of delivery does not alter the core contract-law inquiry. The opinion provides a practical roadmap for businesses: if you want arbitration, obtain true agreement. That means transparent presentation, proper timing, adherence to existing modification clauses, and a clear acceptance mechanism. In the absence of those safeguards, arbitration provisions sent after the fact will not displace consumers’ rights to litigate in court.