Third Circuit Rules that Samsung Cannot Compel Arbitration Based on Clause “Buried” in Safety and Warranty Guide

The Third Circuit Court of Appeals recently held that Samsung cannot force arbitration in a consumer fraud class action about the battery life of its Galaxy Gear S Smartwatch.  Noble v. Samsung Electronics America, Inc.

Plaintiff had purchased a smartwatch but found, after trying three of them, that the battery lasted for only a few hours, compared to the advertised “24 to 48 hours with typical use.” Finding that others were in a similar position, Noble filed a class action complaint in federal court in New Jersey. Samsung sought to compel arbitration based on an arbitration clause in the company’s 143 page “Health and Safety and Warranty Guide,” included in the Samsung Smartwatch box.

Affirming the district court’s decision denying Samsung’s motion to compel arbitration, the Third Circuit found that Noble had no actual or constructive notice of the arbitration provision because it was not “reasonably conspicuous.”  The “Guide” in which the arbitration clause was included, “buried” the terms on page 97 of the document.  Unlike previous cases involving “shrinkwrap” or “clickwrap” agreements, Samsung’s “Guide” did not clearly inform customers that they are agreeing to certain terms upon purchase and use of the product.

The Third Circuit’s decision is a reminder to businesses to ensure not only the visibility of their terms and conditions, but also an indication that the terms are a contract to which a consumer is binding himself.

For assistance in editing your company’s agreements or product enclosures, or for further information on the Noble decision, please contact Kathleen Barnett Einhorn, Esq., Chair of the Firm’s Complex Commercial Litigation Group, at keinhorn@genovaburns.com or Jennifer Borek, Esq., Partner in the Complex Commercial Litigation Group, at jborek@genovaburns.com.

Third Circuit Rejects Class Certification for Widener Law Grads

A panel of the Third Circuit Court of Appeals refused to allow class certification for a group of Widener University School of Law Graduates who allege that the law school inflated postgraduate employment rate statistics in Harnish v. Widener Univ. Sch. of Law, No. 15-3888 (3d Cir. Aug. 16, 2016). The law graduates claimed that, between 2005 and 2011, Widener advertised that up to 97% of students obtained employment after graduation, when, in fact, only 50-70% of graduates obtained full-time legal employment. This misrepresentation, the plaintiffs argued, violated New Jersey and Delaware consumer fraud statutes.

The circuit court rejected the plaintiffs’ theory of damages, predicated on the report of their expert economist, Dr. Donald Martin. Dr. Martin attempted to show a statistically significant relationship between employment rates and tuition prices across 64 private law schools. The analysis, though compelling, was flawed, the Court held. Because the plaintiffs did not present a theory of class-wide damages, they failed to establish that common questions of fact with respect to damages “predominate” over individual questions or that the named plaintiffs’ claims were “typical” of the class—both requirements for class certification under Federal Rule of Civil Procedure 23.

Specifically, the plaintiff’s theory was that Widener’s misrepresentations empowered the school to charge higher tuition across the market. This type of “price inflation” theory is similar (though not identical) to the “fraud on the market” concept that has been accepted in federal securities class actions. Although the Court found that Mr. Martin’s expert approach held some merit since law schools operate in a largely fixed-price market, both the New Jersey and Delaware Supreme Courts have rejected this type of theory of proof outside of the securities context. Because this theory was the only one presented to establish damages on a class-wide basis for the plaintiffs’ state-law consumer fraud claims, the Court found that class certification was inappropriate.

Harnish highlights the importance of expert evidence at the class certification phase. Although plaintiffs are not required to prove their case, they must present a coherent theory showing damages on a class-wide basis, and one that is cognizable under substantive law.

For more information on class certification or consumer fraud claims or the Court’s decision in Harnish v. Widener University School of Law, please contact Kathleen Barnett Einhorn, Esq., Chair of the firm’s Complex Commercial Litigation Group, at keinhorn@genovaburns.com or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.