Soliman v. Subway Franchisee Advertising Fund Trust, Ltd.: Enhancing Standards for Conspicuous Arbitration Agreements

Introduction

In the case of Marina Soliman, on behalf of herself and all others similarly situated v. Subway Franchisee Advertising Fund Trust, Ltd., the United States Court of Appeals for the Second Circuit addressed crucial questions regarding the enforceability of arbitration agreements embedded within promotional materials. Decided on June 8, 2021, this case pivots on whether the arbitration provision referenced in a Subway print advertisement was sufficiently conspicuous to bind a consumer under the terms of the Telephone Consumer Protection Act (TCPA).

The primary parties involved are Marina Soliman, the plaintiff-appellee, who initiated a putative class action lawsuit against Subway Franchisee Advertising Fund Trust, Ltd., the defendant-appellant. The core issue revolves around Subway's attempt to compel arbitration based on terms and conditions purportedly agreed to by Soliman when she participated in a promotional text messaging campaign.

Summary of the Judgment

The Second Circuit affirmed the denial by the United States District Court for the District of Connecticut to Subway's motion to compel arbitration. The appellate court concluded that under California law, the arbitration clause was not reasonably conspicuous. The decision hinged on the inadequacy of Subway's efforts to notify consumers of the arbitration terms within the promotional material. Factors such as the size and placement of the URL leading to the terms and conditions, the design of the advertisement, and the accessibility of the website all contributed to the court's determination that a reasonable consumer would not have been adequately informed or aware of the arbitration agreement.

Analysis

Precedents Cited

The court extensively referenced several precedents to bolster its analysis. Key among them are:

• Meyer v. Uber Technologies, Inc. – This case established the standard for evaluating whether a notice is reasonably conspicuous, emphasizing the importance of clear and prominent presentation of terms and conditions.
• SPECHT v. NETSCAPE COMMUNICATIONS CORP. – Highlighted that merely providing access to terms via a hyperlink does not suffice unless the consumer is adequately notified.
• Starke v. SquareTrade, Inc. – Reinforced the necessity for clear signage of arbitration agreements, especially in mixed-media contexts.
• Nguyen v. Barnes & Noble Inc. – Demonstrated that cluttered interfaces and non-prominent links fail to provide sufficient notice of terms and conditions.

These cases collectively underscore the judiciary's increasing scrutiny of arbitration clauses, particularly in consumer transactions where the notice and consent processes may be inherently imbalanced.

Legal Reasoning

The court's legal reasoning centered on whether Subway's method of presenting the arbitration provision met the "reasonably conspicuous" standard under California contract law. The analysis was multifaceted:

• Design and Content of Advertisement: The advertisement had a small-print paragraph referencing the terms and conditions, which was not prominently displayed or emphasized. The font size was significantly smaller than the promotional content, and the reference was surrounded by unrelated information, diminishing its visibility.
• Accessibility of Terms and Conditions: Consumers were required to manually type a 37-character URL into their devices to access the terms and conditions. This added a layer of complexity that likely deterred consumers from reviewing the arbitration clause.
• Language and Clarity: The heading on the Subway website read "Terms of Use for this Website," which could misleadingly suggest that the terms pertained solely to website usage rather than to the promotional offer itself. This semantic choice diluted the explicitness of the arbitration agreement.

The court emphasized the necessity for explicit and conspicuous notification when seeking to bind consumers to arbitration agreements. The failure of Subway to make the arbitration clause clear and prominent meant that consumers like Soliman were not adequately informed or consenting to the terms upon participating in the promotion.

Impact

This judgment has significant implications for both businesses and consumers:

• For Businesses: Companies must ensure that arbitration agreements are presented in a manner that is clear, prominent, and easily understandable to consumers. Simply referencing terms and conditions in small print or burying arbitration clauses within lengthy documents is insufficient and may render such clauses unenforceable.
• For Consumers: Enhanced protection against unknowingly entering arbitration agreements strengthens consumer rights, ensuring that companies cannot obfuscate dispute resolution mechanisms within convoluted or hidden terms.
• Legal Landscape: Courts may continue to scrutinize the conspicuousness of arbitration clauses more rigorously, especially in multi-media contexts where consumers interact with promotional materials across different platforms.

The decision reinforces the judiciary's role in balancing the power dynamics between large corporations and individual consumers, ensuring that consent to arbitration is both informed and intentional.

Complex Concepts Simplified

• Reasonably Conspicuous: This refers to a standard where information, such as an arbitration agreement, must be presented in a way that an average person would notice and understand its significance without undue effort.
• Arbitration Clause: A contractual provision that requires disputes between the parties to be resolved through arbitration rather than through the court system.
• Inquiry Notice: A legal concept where a party is expected to be aware of certain facts or terms based on the circumstances, even if they do not have actual knowledge of them.
• Mixed-Media Communication: The use of different forms of media (e.g., print advertisements, websites, text messages) to convey information or contractual terms to consumers.

Understanding these concepts is crucial in recognizing how the enforcement of arbitration agreements can be contested based on the clarity and prominence of their presentation to consumers.

Conclusion

The Second Circuit's decision in Soliman v. Subway Franchisee Advertising Fund Trust, Ltd. underscores the judiciary's commitment to ensuring that arbitration agreements are neither hidden nor obscured within promotional materials. By affirming that the arbitration clause in Subway's advertisement was not reasonably conspicuous, the court reinforced the necessity for businesses to adopt transparent and prominent practices when seeking to bind consumers to dispute resolution mechanisms. This judgment serves as a pivotal reference point for future cases, emphasizing that the protection of consumer rights requires clear, deliberate, and noticeable consent to contractual obligations. Consequently, companies must reevaluate their communication strategies to align with these judicial expectations, fostering fairer and more equitable interactions with consumers.