Takeaway
In short, this case permits layered, shrinkwrap-style consumer contracting in principle, but requires the seller to give clear notice that the buyer may reject the proposed terms by returning the goods; Dell’s notices did not do so.
Dell sold computers and optional on-site service contracts to Rhode Island consumers through internet, catalog, and telephone transactions. Dell charged plaintiffs taxes on the service contracts, which plaintiffs alleged were not taxable under Rhode Island’s Deceptive Trade Practices Act. Dell did not allegedly retain the tax; it remitted it to the state, directly or through service providers.
After the purchases, Dell relied on a Terms and Conditions Agreement containing a broad mandatory-arbitration clause. Dell asserted that customers could encounter the terms through a website hyperlink, an acknowledgment or invoice sent after the order, and a copy included with the delivered computer. The terms stated that a customer who accepted delivery agreed to be bound, but the versions sent to the remaining plaintiffs, Nicholas Long and Julianne Ricci, did not clearly state that the customer could reject the terms by returning the computer within a specified period.
The Superior Court denied Dell’s motion to stay the case and compel arbitration. It concluded that the website link was inconspicuous and that the post-order documents did not adequately notify customers that returning the product would reject Dell’s proposed terms. The hearing justice also discussed, but did not need to rely on, arguments that the agreement was illusory and unconscionable. Dell appealed.
Issue #1
Whether the Federal Arbitration Act required enforcement of Dell’s arbitration clause despite plaintiffs’ challenge to contract formation.
Holding
No. Although the Federal Arbitration Act applied because the transactions involved interstate commerce, it required arbitration only if the parties actually formed an agreement to arbitrate.
Reasoning
The FAA reflects a strong federal policy favoring enforcement of privately negotiated arbitration agreements. But arbitration remains a matter of consent: a party cannot be compelled to arbitrate a dispute that the party did not agree by contract to submit to arbitration.
Whether an agreement to arbitrate was formed is determined under applicable state contract law, and the Rhode Island Supreme Court reviewed the denial of Dell’s motion to compel arbitration de novo. Thus, the dispositive question was not whether arbitration is generally favored, but whether Dell proved that these consumers accepted its Terms and Conditions Agreement.
Issue #2
Whether Texas law governed the formation question under Dell’s choice-of-law clause.
Holding
The Court assumed, without deciding, that Texas law governed formation of the purported arbitration agreement.
Reasoning
Dell’s terms selected Texas law, and the hearing justice had applied that provision. Neither side meaningfully contested the choice-of-law ruling on appeal, and both Rhode Island and Texas had adopted the relevant UCC provisions.
Because nothing material turned on further refinement of the conflict-of-laws question, the Court proceeded under Texas law for purposes of deciding whether Dell had formed a contract containing the arbitration clause.
Issue #3
Whether a consumer sales contract may be formed through a post-delivery, shrinkwrap-style offer that permits the buyer to accept the terms by keeping the goods.
Holding
Yes, in principle. The Court adopted the ProCD and Hill “layered contracting” approach, under which formation may occur after delivery if the seller clearly gives the buyer a reasonable opportunity to review and reject the complete terms.
Reasoning
The Court rejected the view that the contract necessarily became complete when the customer placed the order, Dell processed payment, and Dell promised or made shipment. Under UCC provisions permitting contracts to be formed in any manner sufficient to show agreement, a seller may structure its offer so that a buyer accepts by conduct after receiving the goods and the accompanying terms.
The Court found that this approach better fits modern consumer transactions. Sellers cannot realistically read every standard contractual provision to consumers during telephone or other remote sales, and consumers ordinarily neither expect nor want a full oral recitation of such terms at the point of order.
Adopting layered contracting did not relieve Dell of its burden of proving assent. To make retention of delivered goods an acceptance, the seller must clearly communicate both that keeping or accepting the product signifies acceptance of the enclosed terms and that the buyer may reject those terms by returning the product.
Issue #4
Whether Dell’s Terms and Conditions Agreement gave Long and Ricci sufficiently clear notice that they could reject its terms, including arbitration, by returning their computers.
Holding
No. Dell did not establish that a reasonably prudent consumer would understand that retaining the computer accepted the Terms and Conditions Agreement or that returning it within a specified period rejected those terms.
Reasoning
Dell’s introductory language said that, by “accepting delivery,” the customer agreed to be bound by the terms. But it did not explain when acceptance became final or identify a specific period during which the consumer could decide to reject the terms. The Court noted that “acceptance of goods” has a technical UCC meaning that an ordinary consumer would not readily understand.
The more serious defect was Dell’s failure to connect acceptance of the terms with a right to reject them by returning the goods. Unlike other enforceable approve-or-return agreements, the materials sent to Long and Ricci did not plainly tell customers that they could refuse the contractual terms by returning the computer under Dell’s return policy.
Dell referred separately to its Total Satisfaction Return Policy, and that provision itself directed consumers to another document for the policy’s details. The Court concluded that this arrangement required too many inferences and did not clearly explain that a return could be based on unwillingness to accept the Terms and Conditions Agreement.
Because Dell failed to prove that plaintiffs assented to the Terms and Conditions Agreement, plaintiffs could not be compelled to arbitrate. Having affirmed on lack of assent, the Court did not decide whether Dell’s unilateral right to change terms made the agreement illusory or whether other defenses would bar enforcement.