Third Circuit Clarifies How Arbitration Language Should be Presented to Consumers

The Third Circuit recently issued a precedential decision further explaining the requirements when presenting consumers with otherwise enforceable language requiring arbitration.

In Bacon v. Avis Budget Group Inc., six plaintiffs rented cars from defendant Payless Car Rental, Inc., a subsidiary of defendant Avis Budget Group, Inc. At the rental counter, plaintiffs each signed identical one-page rental agreements, which, among other things, itemized charges and fees and showed whether the customer had accepted or declined certain products and services. Each plaintiff signed below the final paragraph, which provided: “I agree the charges listed above are estimates and that I have reviewed & agreed to all notices & terms here and in the rental jacket.” The rental jackets were kept at the rental counter, typically near the rental associate’s computer terminal or printer. The rental associates were trained to give a rental jacket to each customer after the customer signed the agreement and to any customer who requested one, but the associates were not trained to alert customers to the additional terms in the rental jacket. The rental associates said nothing about the rental jacket when plaintiffs reviewed their agreements. After plaintiffs signed their agreements, the rental associate folded the agreement into thirds, placed it into the rental jacket, and handed the jacket to plaintiffs. The rental jacket bore the title “Rental Terms and Conditions” at the top of the front page, not the title “rental jacket,” and contained 31 paragraphs. The 28th paragraph contained an arbitration provision, which provided that “all disputes … arising out of, relating to or in connection with [the] rental of a vehicle from Payless … shall be exclusively settled through binding arbitration.” In 2016, plaintiffs, on behalf of a putative class, sued defendants for unauthorized charges. Defendants moved to compel plaintiffs to arbitrate their claims, which the District Court denied.

The Third Circuit affirmed the District Court’s decision and held that, under New Jersey law, the rental jackets were not adequately incorporated into the agreement, and thus, plaintiffs did not assent to the arbitration provision in the rental jackets. First, the agreement did not describe the rental jacket “in such terms that its identity may be ascertained beyond doubt[,]” because the agreement failed to specifically identify what constituted the rental jacket. Second, there was no evidence that plaintiffs knew about the arbitration provision in the rental jacket before they signed the agreement – they were not handed the rental jacket until after the agreement was signed and defendants’ rental associates did not discuss any terms contained in the rental jacket at any time. The Court also held that the rental jacket was not “sufficiently described,” as required by the more lenient standards under Florida law.

One plaintiff’s transaction, occurring in Costa Rica through a different sales process, presented slightly different facts. There, the rental agreement was double-sided and no rental jacket was used. That plaintiff was asked to review and sign only the front side of her agreement, but the arbitration clause appeared on the reverse side. The language on the front side did not direct renters to the reverse side, and a video of the transaction did not clearly portray the rental agent showing plaintiff the reverse side. The Third Circuit agreed with the District Court that whether plaintiff saw the reverse side was a disputed factual issue that precluded a ruling compelling arbitration. Finally, the court found insufficient evidence to conclude that any plaintiffs assented to arbitration provisions on the online booking platforms.

The Bacon decision provides important guidance to companies on how to present otherwise enforceable language to consumers so as to clearly notify them of, and bind them to, the agreement to arbitrate.