• Davis v. HSBC: Based on Clickwrap Agreement and Other Disclosures, 9th Circuit Rejects False Advertising, Fraud and Unfair Competition Claims
  • September 18, 2012 | Authors: Nima Javaherian; J. Warren Rissier; James G. Snell
  • Law Firms: Bingham McCutchen LLP - Los Angeles Office ; Bingham McCutchen LLP - Palo Alto Office
  • In Davis v. HSBC Bank Nevada, et al., the Ninth Circuit recently reaffirmed that clickwrap agreements - on-line agreements where a consumer must click, “I agree” to terms and conditions (“T&Cs”) before proceeding further - are enforceable, even when a plaintiff fails to read the T&Cs before agreeing to them. The plaintiff in Davis alleged that HSBC and Best Buy defrauded California consumers by offering credit cards without adequately disclosing that cardholders would be charged an annual fee. The Ninth Circuit upheld the district court’s dismissal of the complaint, reasoning in part that the advertisement stated that “other restrictions may apply,” and the plaintiff clicked “I agree” to the T&Cs which disclosed the possibility of an annual fee.

    Summary of Facts

    After reading a newspaper advertisement stating that applicants would receive $25 worth of reward certificates with their first purchase, Plaintiff Gary Davis applied online for a Reward Zone Program MasterCard credit card. When applying, Davis checked a box stating, “I agree” to the T&Cs which were available in a scrolling text box on Best Buy’s website. Davis was approved for, and later received, the card. Enclosed with the card was an “Additional Disclosure Statement” stating that there was a $59 annual fee for use of the card. Upon reading that statement, Davis referred back to the T&Cs on the website (which he had not previously read) and discovered the disclosure of the possible annual fee. Davis complained that the disclosure was insufficient because, among other reasons, the portion regarding an annual fee was not viewable in the text box without scrolling down.

    Davis alleged four causes of action: (1) false advertising in violation of the California Business & Professions Code § 17500, et seq. (“FAL”), as to Best Buy; (2) fraudulent concealment as to both Defendants; (3) “unlawful” business practices in violation of the California Business & Professions Code § 17200, et seq. (“UCL”) as to HSBC; and (4) “unfair” and “fraudulent” business practices in violation of the UCL as to Best Buy. Defendants filed a Rule 12(b)(6) motion to dismiss the complaint, along with a request that the Court take judicial notice of three disclosure documents that were referenced in, but not attached to, the complaint.

    The Court Found That a Reasonable Consumer Was Unlikely To Be Deceived

    Davis contended that the omission of the annual fee was misleading under the FAL because the promise of reward certificates beginning with the first purchase implied that no offsetting charges would operate to “nullify” those rewards. The Ninth Circuit rejected this argument because, among other reasons, the same tradeoff may exist with the numerous other fees that may be associated with owning a credit card, including late fees, monthly interest charges, and over-the-limit fees. Additionally, the advertisement disclosed that “other restrictions may apply.” A reasonable consumer, the Court found, was not likely to be deceived by the advertisement into believing that no annual fee would be imposed. The Court then applied the same reasoning to dispose of Davis’ claims under the UCL that the advertisement was unlawful, unfair and constituted a fraudulent business practice. In doing so, the Court further reasoned that the annual fee was avoidable because Davis could have abandoned the application instead of clicking “I agree” to the T&Cs or by closing the account within 90 days. Because Davis failed to read the T&Cs before agreeing to them, and because he refused to cancel his card within 90 days, the Court concluded “any harm he suffered was the product of his own behavior, not the advertisements.”

    Davis also alleged that HSBC and Best Buy fraudulently concealed the annual fee in the advertisements and marketing for the credit card. However, the Ninth Circuit held that Davis failed to demonstrate justifiable reliance on the purported failure to disclose the annual fee in light of the disclosure of the annual fee in the T&Cs. Davis’ failure to scroll down to read the T&Cs before checking the “I agree” box and accepting them was immaterial; Davis could not demonstrate justifiable reliance in light of his agreement to the T&Cs.

    The Court Properly Took Judicial Notice of the T&Cs and Other Disclosure Documents

    Along with their motion to dismiss the complaint, Defendants requested that the Court take judicial notice of three disclosure documents that were referenced in, but not attached to, the complaint: (1) a copy of the complete T&Cs contained in the scrolling box from the online application; (2) a copy of an “Additional Disclosure Statement” sent to Davis after he applied for the credit card; and (3) a copy of a “Cardmember Agreement and Disclosure Statement”, again sent to Davis after he applied for the credit card. The Ninth Circuit reviewed for abuse of discretion the district court’s decision to incorporate by reference the documents outside the pleadings. The Ninth Circuit held that the district court properly considered the disclosure documents because courts may consider at the pleadings stage documents whose contents are, in part, described in a complaint, even if such documents are not attached to a complaint. Further, the Ninth Circuit held that Davis waived a challenge on authenticity grounds because he failed to challenge the authenticity of the documents, instead only arguing about whether he saw or had access to the documents.