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Courts Continue to Restrict Ease of Modifying Service Subscription Agreements

July 26, 2007    

A recent court decision serves to underscore the care that providers of services on a monthly subscription basis must take to effectuate enforceable changes to customer service agreements.  In Douglas v. United States District Court for the Central District of California and Talk America Inc., No. 06-75424 (9th Cir. July 18, 2007), the Court held that changed terms of a customer service agreement were not enforceable where the only notice of change was the posting of the revised contract on the provider’s website.

This case involved a consumer who subscribed to telephone service through an affiliate of AOL, a service subsequently acquired by Talk America.  Talk America sought to revise its service agreement to add service charges, a class action waiver, an arbitration clause and a different choice-of-law provision.  The customer was never notified of the changes; rather, the revised customer service agreement was simply posted on the Talk America website.  The Court held that even if the customer had visited the website regularly (e.g., to pay his bill), a consumer has no obligation to check the posted agreement on a periodic basis to learn whether the provider has made any changes.  Thus, the revised contract remained merely an unaccepted offer and the revised terms were unenforceable.

The Court also highlighted the tension between differing state laws with respect to enforceability of contract terms.   The Court addressed whether the addition of an arbitration clause was procedurally unconscionable.  Under New York law, for example, the lower court reasoned that because the customer had “meaningful alternative choices for telephone services,” a claim that the arbitration clause was procedurally unconscionable could not be sustained.  In contrast, the Court held that under California law, a contract can be “procedurally unconscionable if a service provider has overwhelming bargaining power and presents a ‘take-it-or-leave-it’ contract to a customer – even if the customer has a meaningful choice as to service providers.”

This decision continues the recent evolution of law guiding the actions that service providers must take to ensure the enforceability of modifications to service agreement terms. But even then, requirements may vary from state to state.  For example, in some states, separate notice by mail may not be sufficient.  An Oregon court refused to find “mutual assent” by a cable subscriber’s continued use of a service after receiving notice of changes to the customer service agreement.  In that case, the court required that conduct accepting the change be “unequivocal,” not just continued use.  Martin v. Comcast of Oregon I, Inc., 146 P.3d 380 (Or. Ct. App. 2006).  In another similar case, the Superior Court of Pennsylvania found a change by Comcast to the former AT&T form of service agreement that added an arbitration and class action waiver to be unconscionable because of failure to provide proper notice of the change (the contracts looked almost identical and changes were “buried on page 8 of the 10-page document. . . ”).  Thibodeau v. Comcast Corp., 2006 PA Super. 346 (2006).  The enforceability of modifications to service agreement terms may also vary dependent upon the substance of the change.  For example, California bars the enforceability of a contract revised to include an arbitration agreement, even if the customer was notified of the changes via mail.  Badie v. Bank of America, 67 Cal. App. 4th 779 (1998).     

The customer agreement remains vitally important to establish the limits of service provider liability.  Not only should service providers be concerned with the efficacy of modifications to their legacy agreements, but also their ability to successfully migrate acquired subscribers to their form of customer agreement.  As the instances of class actions rise, the enforceability of these terms becomes even more important and defects that occurred years ago may come to light.  

Providers of recurring monthly services such as cable, internet and voice services face the reality that many facets of their relationships with customers are governed not by federal law, but by a web of complex and sometimes conflicting state laws.  These laws range from consumer protection to the manner in which personal information is managed.  We welcome any questions regarding these cases, remediation of the enforceability of customers’ service agreements or any other aspect of the customer relationship.

 

 

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