When Talk America changed the terms of its long-distance telephone service agreement, it posted the new contract on its Web site. Among the changes was an arbitration clause and a choice-of-law provision that subjected customers to New York state law. But Joe Douglas, a California customer Talk America acquired from AOL in 2001, didn't learn about those changes until 2006, when he brought a breach-of-contract class action against Talk America.
The Pennsylvania-based phone company, which recently merged with Cavalier Telephone, moved to compel arbitration, per its service agreement. A California district court agreed with the defendant and ordered the parties into arbitration in October 2006. But Douglas brought a mandamus petition to the 9th Circuit, and in July 2007 the appeals court vacated the district court order, allowing the class action to proceed. The court said Talk America could not expect its customers to visit the company's Web site to check for changes in terms.
"Just because a contract is online doesn't mean you don't need to follow regular contract principles," Stoll says. "You still need to have an offer and acceptance to have a binding contract."
Choice of Law
While Talk America's contract fell short of the court's expectations, the 9th Circuit in Douglas said implied consent might be sufficient in other situations. For example if a credit card company notified cardholders of revised terms of service, customers could agree to the new terms just by continuing to use their credit cards.