Contracts I, Pages 392–394

Douglas v. Talk America

United States Court of Appeals, Ninth Circuit, 2007

Facts:

Plaintiff contracted for long distance telephone service with America Online. Defendant subsequently acquired this business from AOL and continued to provide service to AOL's customers. Defendant then added four provisions to the service contract:

  1. Additional service charges
  2. A class action waiver
  3. An arbitration clause
  4. A choice-of-law provision pointing to New York law

Defendant posted the revised contract on their website, but never notified plaintiff of the changes. Plaintiff continued using Talk America's services for four years, until he became aware of the additional charges. Plaintiff then filed a class action lawsuit in district court.

Procedural History:

Defendant moved to compel arbitration in accordance with the revised contract, which the district court granted. Plaintiff then petitioned for a writ of mandamus.

Issue:

Whether a service provider may change the terms of its service contract by merely posting a revised contract on its website.

Rules:

  • Five factors govern whether or not a writ can be granted. The most important is whether they were clearly erroneous as a matter of law.

  • A revised contract is merely an offer and does not bind the parties until it is accepted.

Reasoning:

  • An offeree cannot assent to an offer unless he knows of its existence. This satisfies the requirement that the court was clearly erroneous as a matter of law.

  • The fifth factor of whether it raises new an important issues of law is also satisfied.

Holding:

No, a service provider must notify of contract changes. Petition granted.

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