Tag: online


What Happens When You Sign an Online Consumer Contract? Understanding the Fine Print


Understandng the Fine Print

 

OpenAI. (2024). Digital contract illustration without text [AI-generated image]. DALL•E.

 

In today’s digital age, we often encounter online consumer contracts, whether signing up for a new app, making a purchase, or even browsing a website. Usually presented as “terms and conditions,” these agreements can seem like another obstacle to getting what you want. Most people quickly scroll through them and click “I agree” without a second thought. However, it is important to realize that these online  contracts are legally binding. That is why it is important to understand what you are agreeing to before you sign. This article breaks down the legal implications of online contracts, explaining common and standard clauses such as arbitration agreements, liability waivers, and data-sharing permissions and discussing how they might affect you in the event of a dispute.

 

The Legal Implications of Clicking “I Agree”

 

When you click “I agree” or “I accept” on an online consumer contract, you enter into a legally binding agreement as if you had signed a physical document. While this process may seem simple, these contracts often contain terms that govern how disputes will be resolved, what rights you may be giving up, and how your personal information will be used. It is important to thoroughly familiarize yourself with these terms because, in many cases, you may unknowingly waive your right to sue or allow companies to use your personal information unexpectedly.

 

The Second Circuit case Specht v. Netscape Communications Corp.1 illustrates the importance of being fully informed before agreeing to online terms. In this case, the court held that simply clicking “I agree” without adequate notice of the terms did not create a binding contract. The plaintiffs argued they were unaware of an arbitration clause buried in the terms and conditions when they downloaded free software from Netscape. The court emphasized that the user must have reasonable notice of the terms and unambiguously manifest their consent for a contract to be enforceable. The court stated, “Reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility.”

 

In contrast, the Meyer v. Uber Technologies, Inc.2 case discusses when online terms and conditions are considered enforceable. In Meyer, the Second Circuit ruled that Uber’s terms of service were enforceable because they were prominently presented to the user. The court noted that the terms were displayed on the screen, and the user had to click “I agree” to continue using the app. The ruling emphasized that a contract is binding when terms are clearly presented, and the user has a reasonable opportunity to review them. The court stated, “[w]hile it may be the case that many users will not bother reading the additional terms, that is the choice the user makes; the user is still on inquiry notice.”

 

Common and Standard Clauses in Online Consumer Contracts

 

A. Arbitration Agreements

 

Arbitration clauses are becoming increasingly common in online consumer contracts. By agreeing to arbitration, you agree to resolve any disputes with the company through arbitration rather than in court. This usually means you cannot sue the company in a traditional courtroom; any arbitration proceedings will be private. While arbitration can be faster and less expensive than going to court, the venue often favors the company because the arbitration process may limit your ability to gather evidence or appeal an unfavorable decision. You must also be clear on whether the decision from the arbitration will be binding or non-binding on the parties.

 

A recent case in the Southern District of New York, Teta v. Go New York Tours Inc.3 , highlights the complexities of arbitration agreements. In this case, the court examined the enforceability of an arbitration clause within the company’s terms and conditions. The court emphasized that the user must have reasonable notice of the terms and unambiguous consent for an arbitration agreement to be enforceable. The court stated, “A reasonably prudent user would have been on inquiry notice of the terms and manifested assent to them by proceeding.”

 

B. Liability Waivers

Liability waivers, or disclaimers, are a standard feature in online consumer contracts. They often require users to relinquish their right to hold companies accountable for damages or losses incurred while using a service or product. For example, an online fitness program may include a waiver that prevents users from suing the company if they are injured while following workout routines. Despite their prevalence, liability waivers are often understated in online agreements due to their inconspicuous placement and complex legal language.

 

These clauses are typically buried within lengthy terms and conditions that users rarely read in full. The design of many platforms, including “clickwrap” agreements, encourages swift acceptance of terms, leaving consumers unaware of the significant rights they may be waiving. This lack of transparency, coupled with the absence of clear and explicit language, makes it easy for users to overlook the implications of liability waivers, exposing them to potential risks without fully understanding the consequences.

 

A pertinent New York case that highlights the implications of such waivers is Gross v. Sweet4 . In this case, the plaintiff participated in a skydiving course and signed a waiver, releasing the defendant from liability for any injuries. After sustaining injuries during a jump, the plaintiff sued, arguing that the waiver was unenforceable. The New York Court of Appeals held that while liability waivers are generally enforceable, they must be clear, unambiguous, and not violate public policy. “An exculpatory agreement, no matter how flat and unqualified its terms, will not exonerate a party from liability under all circumstances.”

 

This case underscores the importance of understanding the implications of liability waivers in online contracts. While these waivers are often intended to protect companies from legal responsibility, their enforceability is not guaranteed. Courts may invalidate overly broad, ambiguous waivers or fail to provide adequate notice to users. Consumers must take the time to review these clauses carefully, as overlooking them can lead to unintended consequences and limit their ability to seek recourse in cases of harm.

 

C. Data-Sharing Permissions

 

Data-sharing permissions are also often buried in online consumer contracts, and you risk allowing companies to share your personal information with third parties. This can include your browsing history, purchasing habits, and even your location. By agreeing to these terms, you may be allowing the company to sell your information to advertisers or other third parties, which can result in targeted advertising or potential security risks.

 

A significant example of the risks and legal consequences associated with data-sharing permissions is the case of People v. Sephora.5 In this case, Sephora was penalized under the California Consumer Privacy Act (CCPA) for failing to disclose that it sold consumers’ personal information to third parties. The California Attorney General’s office found that Sephora did not properly inform consumers that their data, such as purchasing habits and online activity, was being sold to advertising networks and other third parties. As a result, Sephora faced legal penalties for violating the CCPA’s transparency requirements.

 

Given the legal implications of online contracts, here are some practical tips:

 

● Take Your Time: Don’t rush through online contracts. Take a few moments to read through the terms, especially sections related to arbitration, liability waivers, and data-sharing permissions.

 

● Understand Arbitration Clauses: Agreeing to arbitration might limit your ability to take legal action in court. Read the clause thoroughly to see if there are any restrictions as to jurisdiction where arbitration can take place and whether or not the decision will be binding on parties in case you would like to bring the matter to court.

 

● Check for Data Sharing: Review the privacy policy or data-sharing clauses to understand how the company and third-party affiliates will use your personal information. If you are uncomfortable with the terms, explore whether the service offers alternative privacy options or reconsider not agreeing to them entirely.

 

● Know When to Walk Away: If an online contract contains overly restrictive or unfair terms, remember you are not obligated to agree. Sometimes, it is worth seeking alternative services that offer more favorable terms.

 

Online consumer contracts are a staple of the digital era, yet they have significant legal implications that users often overlook. Clauses such as arbitration agreements, liability waivers, and data-sharing permissions can profoundly impact your rights. By understanding these provisions and carefully reviewing terms before agreeing, you can make informed decisions and protect yourself from potential risks. Scrutinizing these contracts safeguards your rights and ensures that you are not unknowingly forfeiting them.

 

1 Specht v. Netscape Communs. Corp., 306 F.3.d 17 (2d Cir. 2002).

2 Meyer v. Uber Tech., Inc., 868 F.3.d 66 (2d Cir. 2017).

3 Teta v. Go New York Tours Inc., No. 24-CV-01614, slip op. at 1 (S.D.N.Y. July 1, 2024).

4 Gross v. Sweet, 49 N.Y.2d 102, 400 N.E.2d 306 (1979).

5 People v. Sephora USA, Inc., 2022 Cal. Super. LEXIS 79250.



The Effect of Tax Laws on Commercial Real Estate


Recently the Supreme Court decided the case South Dakota v. Wayfair, Inc., in which they addressed whether remote sellers of goods and services can be required to collect and remit sales taxes imposed by the consumer’s State.[1] According to S. 106, 2016 Leg. Assembly, 91st Sess. (S. D. 2016) [hereinafter “the Act”], remote sellers are required to collect and remit sales tax to the State in which the goods are sold.[2] Plaintiff, the State of South Dakota, filed of an injunction requiring respondents to register for licenses to collect and remit sales tax.[3] Respondents Wayfair, Overstock.com, Inc., and Newegg, online merchants selling goods such as furniture and electronics, moved for summary arguing that the Act is unconstitutional.[4] The Supreme Court granted certiorari to determine how to interpret precedent cases “in light of current economic realities.”[5]

Wayfair, online shopping | Tax and Commercial Real Estate | The Effect of Tax Laws on Commercial Real Estate
Wayfair logo

 

In order to decide this issue, the court had to interpret and analyze the Commerce Clause and review the scope determined by two precedent cases, National Bellas Hess, Inc. v. Department of Revenue of Illinois and Quill Corporation v. North Dakota, which were decided in 1967 and 1992, respectively.[6] These cases determined that an out-of-state seller’s ability to collect and remit the tax depended on whether the seller had a physical presence in the State.[7] If the seller only permitted people to order from a catalog, it did not have a physical presence.

 

According to two key primary principles, state regulations cannot disfavor interstate commerce, and States cannot impose undue burdens on such commerce.[8] These principles, in combination with the

Commerce Clause, aid courts in determining outcomes in cases challenging state laws.[9] The Court laid out the guidelines for state taxation in Complete Auto Transit, Inc. v. Brady, where it held that a State can exclusively tax interstate commerce as long as the tax doesn’t create effects prohibited by the Commerce Clause. The Court determined that it would allow a tax as long as it applies to an activity with a significant connection to the taxing State, is fairly divided, doesn’t “discriminate against interstate commerce,” and is sufficiently connected to the services provided by the State.[10]

 

The concern about a significant connection arises from the established due process requirement that requires a business to have minimum contacts with the state in which they are selling goods or services.[11] Additionally, in Miller Brothers Co. v. Maryland, the Court held that there must be a connection between a state and the property or transaction it wishes to tax.[12]

 

The Court found that the physical presence rule is a flawed interpretation of the Commerce Clause in the ever-growing digital age as it gives online out-of-state businesses a significant advantage over companies with a physical presence in the state.[13] In addition, it creates market distortions.[14]

 

The issue of competition from online vendors has been an important one for South Dakota and the States more generally due to the fact that the States have lost revenue in the amount of $8 and $33 billion each year as a result of the rulings in Bellas Hess and Quill.[15] As a result, South Dakota residents had to “foot the bill” and pay the use tax on their purchases from other states.[16] These taxes constitute an important income source for South Dakota in funding state and local services, such as police and fire departments, as it has no state income tax.[17] Some states, such as Colorado, have imposed notice requirements on remote vendors just below collecting taxes. As a result, in the

future courts may encounter arguments regarding the meaning of physical presence.[18] Courts may also face the issue presented by small businesses seeking relief from tax collection.[19]

 

online shopping, e-commerce | The Effect of Tax Laws on Commercial Real Estate | Commercial Real Estate
Consumers have moved increasingly towards online shopping in the past few years due to convenience and efficiency

 

Ultimately the Court overruled Quill and Bellas Hess, finding that the physical presence rule was untenable.[20] Subsequently, the Court analyzed the tax under the Complete Auto test and found that the connection between the activity and the taxing State was sufficient, as respondents had significant economic and virtual contacts with the State. However, it remains to be seen whether another Commerce Clause principle could nullify the Act.[21]

 

In his dissent, Chief Justice Roberts argued that Bellas Hess was incorrectly decided and that deference should be given to Congress (rather than the Courts) to determine interstate commerce issues, citing the importance of stare decisis.[22] Further, Roberts argues that the harm caused by the physical presence rule, if there is any being done, is decreasing over time.[23]

 

Additionally, Roberts asserts that the Court’s decision will disproportionately and arbitrarily impose unjustified costs on various goods, which will burden small businesses. He opines that imposing taxes on each sale will harm the market by increasing costs for businesses and thereby decrease the variety of goods available.[24] Roberts argues that Congress is most suited to determine competing interests of businesses and analyze the Commerce Clause and might be able to avoid such a drastic policy change and determine any retroactive effect the change might have.[25]

 

This ruling is vital for commercial real estate and states as stiff competition from online retailers has injured sales.[26] It will have far-reaching implications for large online venders such as Amazon, which does not currently collect state sales taxes on products of third-party sellers (in all states except Washington and Pennsylvania). Following the publication of the decision, Amazon shares tanked. Stocks of other large online marketplaces are expected to show similar decline.[27]

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Amazon

 

As a result of the decision, South Dakota can require online out-of-state vendors that conduct sales numbering over 200 transactions or generating revenues of over $100,000 to collect taxes on items purchased by South Dakota residents. It is anticipated that other states will change their laws regarding the physical presence requirement to align similarly with South Dakota’s new requirement. It is estimated that the decision could create as much as $13 billion in tax revenue.[28] As the online market grows and improves and more stores face bankruptcy, it will be important to keep an eye out for additional legal issues and tax policies that are likely to arise in the online marketplace arena.

 

[1] South Dakota v. Wayfair, 138 S. Ct. 2080, 2093 (2018).

 

[2] Id. at 2088.

 

[3] Id. at 2089; see U.S. Const., Art. I, §8, cl. 3.

 

[4] State v. Wayfair Inc., 901 N.W.2d 754, 759-60 (S.D. 2017).

 

[5] South Dakota, 138 S. Ct. at 2089.

 

[6] Id. at 2087-88. National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967); Quill Corp. v. North Dakota, 504 U.S. 298(199).

 

[7] South Dakota, 138 S. Ct. at 2089.

 

[8] Id. at 2084.

 

[9] Id.

 

[10] Id. at 2085.

 

[11] Id. at 2093.  See Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945); Burger King v. Rudzewicz,  

   471 U.S. 462, 476 (1985).

 

[12] Miller Brothers Co. v. Maryland, 347 U.S. 340, 344-45 (1954); South Dakota, 138 S. Ct. at 2093.

 

[13] South Dakota, 138 S. Ct. at 2092.

 

[14] Id.

 

[15] Id. at 2088.

 

[16] Id.

 

[17] Id. at 2097.

 

[18] Id. at 2098.

 

[19] Id. at 2099.

 

[20] Id.

 

[21] Id.

 

[22] Id. at 2101.

 

[23] Id. at 2103.

 

[24] Id. at 2104.

 

[25] Id.

 

[26] Erin Stackley, Supreme Court Ruling in Wayfair Case a Win for Real Estate and States, RISMEDIA (August 12, 2018), http://rismedia.com/2018/08/12/supreme-court-ruling-wayfair-case-win-real-estate-sales/#close.

 

[27] Erin Stackley, Supreme Court Ruling in Wayfair Case a Win for Real Estate and States, RISMEDIA (August 12, 2018), http://rismedia.com/2018/08/12/supreme-court-ruling-wayfair-case-win-real-estate-sales/#close.

 

[28] Jeff Mengoli, The Impact of the Supreme Court’s Ruling in South Dakota v. Wayfair, BigCommerce, https://www.bigcommerce.com/blog/south-dakota-v-wayfair/.