Metropolitan News-Enterprise


Wednesday, November 12, 2014


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Sirius XM Can’t Enforce Arbitration Clause—Ninth Circuit

Mutual Assent Found Lacking Where Contract Was Sent to Consumer After Service, Incidental to Truck Purchase, Began


By a MetNews Staff Writer


The Ninth U.S. Circuit Court of Appeals held yesterday that a man who received a 90-day subscription to Sirius XM, a satellite radio service, as part of his purchase of an automobile, is not bound by an arbitration clause contained in a contract the service later sent him.

The opinion, by Judge Harry Pregerson, reverses an order by a U.S. district judge in San Diego that the purchaser, Erik Knutson, submit to arbitration his dispute with Sirius over allegedly unauthorized telemarketing calls to his cell phone.

Knutson gained access to Sirius upon purchasing a Toyota truck. About a month later, he received a “welcome kit” from Sirius which included the contract—termed a “Customer Agreement”—containing the arbitration clause.

Sirius invoked that clause when Knutson brought a class action against the service for alleged violations of the federal Telephone Consumer Protection Act.

No Assent

Pregerson declared that Knutson “never assented to the Customer Agreement,” explaining:

“When Knutson purchased his vehicle from Toyota, he did not receive any documents from Sirius XM. and he did not know that he was entering into a contractual relationship with Sirius XM by using the service. Instead, he believed that Sirius XM’s trial subscription was a complimentary service ‘provided for marketing purposes.’

“As far as Knutson was concerned, then, he had not entered into an agreement for service with Sirius AM when he purchased the vehicle. He was, as far as he knew, only in a contractual relationship with Toyota. A reasonable person in Knutson’s position could not be expected to understand that purchasing a vehicle from Toyota would simultaneously bind him or her to any contract with Sirius XM, let alone one that contained an arbitration provision without any notice of such terms.”

Sirius’s Contention

The contract provided that unless the consumer cancelled the service within three days of receiving the contract, the terms became binding. By not cancelling the subscription, Sirius argued, Knutson thereby acquiesced in the terms.

Pregerson disagreed.

He said the record contains nothing to show that it was “clearly and effectively communicated to Knutson” that he would become bound by contractual terms if he did not promptly cancel the service.

“Knutson would only have had notice of his opportunity to cancel his subscription, or the effect of his continued use of the service, if he opened the Welcome Kit from Sirius and read all of the documents therein, which—in view of his lack of awareness of any contractual relationship with Sirius—he had no reason to do,” the jurist wrote. “He could not be obligated to act where there was no effective notice that action was required.”

Two Cases Cited

Sirius cited two U.S. District Court decisions from the Central District of California. In each case, a customer ordered services which the provider began supplying before sending out the contract, and the judge held that the terms were held binding.

But those cases, Pregerson pointed out, “turn on crucial facts not present here.” In particular, he said, the consumers contracted directly with the service providers.

 “Here, by contrast,” he wrote, “there is no evidence that Knutson purchased anything from Sirius XM, or ever knew that he was entering into a contractual relationship with the satellite radio service provider.”

Pregerson went on to say:

“There was only a transaction between Knutson and Toyota—Knutson purchased a Toyota truck that came with a pre-loaded Sirius XM radio receiver, and upon purchasing the vehicle Knutson received a trial subscription to Sirius XM. There is no information in the record about what, if any, language regarding the Sirius XM trial subscription was in the Toyota purchase contract.”

The case is Knutson v. Sirius XM Radio, No. 12-56120.


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