Erik Knutson v. Sirius Xm Radio Inc.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

ERIK KNUTSON, individually and on No. 12-56120
behalf of all others similarly
situated, D.C. No.
Plaintiff-Appellant, 3:12-cv-00418-
AJB-NLS
v.

SIRIUS XM RADIO INC., OPINION
Defendant-Appellee.

Appeal from the United States District Court
for the Southern District of California
Anthony J. Battaglia, District Judge, Presiding

Argued and Submitted
February 7, 2014—Pasadena, California

Filed November 10, 2014

Before: Harry Pregerson, Michael R. Murphy*,
and Marsha S. Berzon, Circuit Judges.

Opinion by Judge Pregerson

*
The Honorable Michael R. Murphy, Senior Circuit Judge for the U.S.
Court of Appeals for the Tenth Circuit, sitting by designation.
2 KNUTSON V. SIRIUS XM RADIO

SUMMARY**

Arbitration

The panel reversed the district court’s order dismissing a
putative class action under the federal Telephone Consumer
Protection Act, and granting Sirius XM Radio Inc.’s motion
to compel arbitration pursuant to the Federal Arbitration Act.

The plaintiff purchased a vehicle from Toyota that
included a 90-day trial subscription to Sirius XM satellite
radio. About a month after his trial subscription was
activated, plaintiff received a “welcome kit” from Sirius XM
that contained a Customer Agreement with an arbitration
clause.

The panel held that Sirius XM failed to prove by a
preponderance of the evidence the existence of an agreement
to arbitrate. The panel held that a reasonable person in
plaintiff’s position could not be expected to understand that
purchasing a vehicle from Toyota would simultaneously bind
him or her to any contract with Sirius XM. The panel further
held that plaintiff’s continued use of the satellite radio service
after his receipt of the Customer Agreement did not manifest
his assent to the provisions in the Customer Agreement.
Because the arbitration clause in the Customer Agreement
was unenforceable for lack of mutual assent, the panel held
it need not decide whether the arbitration provision in the
Customer Agreement was unconscionable. The panel
remanded for further proceedings.

**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
 KNUTSON V. SIRIUS XM RADIO 3

COUNSEL

Abbas Kazerounian (argued) and Mohammad Kazerouni,
Kazerouni Law Group, APC, Costa Mesa, California, for
Plaintiff-Appellant.

Chad S. Hummel (argued), Becca Wahlquist, and Lydia M.
Mendoza, Manatt Phelps & Phillips, LLP, Los Angeles,
California, for Defendant-Appellee.

OPINION

PREGERSON, Circuit Judge:

Plaintiff Erik Knutson (“Knutson”) appeals the district
court’s order dismissing his putative class action and granting
Defendant Sirius XM Radio Inc.’s (“Sirius XM”) motion to
compel arbitration pursuant to the Federal Arbitration Act
(“FAA”). Knutson alleges that he did not consent to enter
into a binding Customer Agreement with Sirius XM, and that
the Customer Agreement as a whole, and the arbitration
provision specifically, are unconscionable.

In November 2011, Knutson purchased a vehicle from
Toyota that included a 90-day trial subscription to Sirius XM
satellite radio. About a month after his trial subscription was
activated, Knutson received a “Welcome Kit” from Sirius
XM that contained a Customer Agreement. Knutson alleges
that during his trial subscription, he received three
unauthorized calls from Sirius XM on his cellphone. In
response to these calls Knutson, in February 2012, brought a
class action suit against Sirius XM alleging violations of the
federal Telephone Consumer Protection Act. The district
4 KNUTSON V. SIRIUS XM RADIO

court found that both parties consented to enter into the
Customer Agreement and that the arbitration clause was valid
and enforceable under the FAA.

Knutson timely appealed the district court’s judgment.
We have jurisdiction under 28 U.S.C. § 1291. For the
reasons set forth below, we reverse.

FACTUAL BACKGROUND

I. Knutson’s 90-day Trial Subscription to Sirius XM
Radio

Sirius XM is a satellite radio service that broadcasts
commercial-free channels to more than 20 million
subscribers. Sirius XM has arrangements with many major
automakers, including Toyota, to install satellite radio
receivers in new vehicles. Under these arrangements,
automakers, including Toyota, include a trial subscription to
Sirius XM for some fixed period of time with the purchase or
lease of a vehicle. In November 2011, Knutson purchased a
Toyota Tacoma truck, which came with a 90-day trial
subscription to Sirius XM satellite radio. Knutson’s Sirius
XM account was activated on November 7, 2011, for a trial
period ending February 7, 2012.

On November 29, 2011, Sirius XM mailed a “Welcome
Kit” to Knutson. The Welcome Kit arrived in the mail on or
about December 12, 2011, over a month after Knutson’s
satellite receiver was activated. The Welcome Kit contained
a Sirius XM Customer Agreement.
 KNUTSON V. SIRIUS XM RADIO 5

II. Sirius XM’s Customer Agreement

The Sirius XM Customer Agreement sets out the terms
and conditions of use during a 90-day trial subscription. The
Agreement states that failure to cancel the subscription within
three business days of activation legally binds the customer
to the agreement:

BY ACCESSING OR USING THE SITE OR
THE SERVICE, YOU AGREE TO BE
LEGALLY BOUND BY THIS
AGREEMENT. PLEASE DO NOT USE
THE SITE OR THE SERVICE IF YOU DO
NOT AGREE WITH THIS AGREEMENT.

IF YOU DO NOT ACCEPT THESE TERMS,
PLEASE NOTIFY US IMMEDIATELY
AND WE WILL CANCEL YOUR
SUBSCRIPTION. IF YOU DO NOT
CANCEL YOUR SUBSCRIPTION WITHIN
3 BUSINESS DAYS OF ACTIVATION OF
YOUR RECEIVER, IT WILL MEAN THAT
YOU AGREE TO THIS AGREEMENT
WHICH WILL BE LEGALLY BINDING ON
YOU.

A separate section entitled, “Cancellation,” provides: “You
may cancel your Subscription at any time by notifying
Listener Care. Your cancellation will become effective on
your next Subscription ‘cycle date.’”

Sirius XM also retains the right to modify the Customer
Agreement by “unilateral amendment . . . and the posting of
such amended version” on the Sirius XM website. Section
6 KNUTSON V. SIRIUS XM RADIO

B.1 of the Agreement reserves Sirius XM’s right to change
the terms of the agreement at any time, and makes the
changes effective once Sirius XM posts the revised terms on
its website. Customers are also advised to review the website
from time to time to check for revisions.

The Arbitration Provision

The arbitration provision of the Customer Agreement
states that “ANY DISPUTE MAY BE RESOLVED BY
BINDING ARBITRATION.”1 By agreeing to arbitration,
“YOU ARE HEREBY WAIVING THE RIGHT TO GO TO
COURT, INCLUDING THE RIGHT TO A JURY.” The
Agreement requires that “[t]he party initiating arbitration
must follow the rules and procedures of the American
Arbitration Association (“AAA”) . . . and the parties agree
that the arbitration shall be administered by the AAA.” A
copy of the AAA rules did not accompany the Customer
Agreement in the Welcome Kit.

Parties also waive their “right or authority for any claims
to be arbitrated on a class action basis.” The customer does
not “have the right to act as a class representative or
participate as a member of a class of claimants with respect
to any Claim submitted to arbitration (‘Class Action
Waiver’).” The Class Action Waiver is “material and
essential to the arbitration of any disputes . . . and is
nonseverable from this agreement to arbitrate.” But the
“validity and effect of the Class Action waiver” must be
decided by a court.

1
Alternatively, the parties may pursue a claim in small claims court.
 KNUTSON V. SIRIUS XM RADIO 7

Whoever files for arbitration pays the initial filing fee,
unless that party obtains a fee waiver. If the customer
prevails, Sirius XM will reimburse the filing fee. If there is
a hearing, Sirius XM will pay the arbitrator fees for the first
day of the hearing, and other fees “will be allocated as
provided by the rules of the arbitration firm and applicable
law.” The customer will not be “required to reimburse [Sirius
XM] for any arbitration filing, administrative, or hearing fees
in an amount greater than what [their] court costs would have
been if the Claim had been resolved in a state court with
jurisdiction.” Each party bears its own costs, regardless of
which party prevails, but “a party may recover any or all
expenses from another party if the arbitrator, applying
applicable law, so determines.”

If any portion of the arbitration agreement or the Class
Action waiver is “limited, voided or cannot be enforced, then
the parties’ agreement to arbitrate . . . shall be null and void
with respect to such proceeding.” The parties have the “right
to appeal the limitation or invalidation of the Class Action
Waiver.” The limited or voided portion of the arbitration
agreement would then be severed, and “the rest of the
arbitration agreement will continue to apply.” If the entire
arbitration agreement is declared “null and void, then the
parties agree that any actions shall be brought in the State or
Federal courts of New York, New York.”

Knutson did not read the Customer Agreement when it
arrived in the mail because he did not think “that any of the
documents contained therein were a contract governing the
terms of Sirius’ service.” Knutson stated,

I did not realize that there was [an arbitration]
clause in the Customer Agreement until my
8 KNUTSON V. SIRIUS XM RADIO

attorneys so informed me . . . . I was not given
an opportunity to review the arbitration clause
or even the Customer Agreement itself at the
time that my receiver was activated given that
the Customer Agreement was not provided to
me at that time.

Knutson neither contacted Sirius regarding his subscription,
nor asked to end his trial subscription.

During the 90-day trial period, Knutson received three
telemarketing calls from Sirius XM. Knutson alleges that
these calls were “unauthorized and unsolicited,” and violated
the Telephone Consumer Protection Act. Knutson then
sought to become a representative plaintiff in a nationwide
class action asserting violations of the Telephone Consumer
Protection Act.

PROCEDURAL BACKGROUND

In February 2012, Knutson brought a class action suit
against Sirius XM, alleging violations of the federal
Telephone Consumer Protection Act. In response to
Knutson’s class action complaint, Sirius XM filed a motion
to compel arbitration on April 23, 2012. Sirius XM asserted
that the Customer Agreement is a binding contract that
governs the parties’ relationship. Thus, the Customer
Agreement “requires [Knutson] to arbitrate on an individual
basis and waive any right to participate as a class
representative . . . with respect to any claim against Sirius
XM.”

On May 9, 2012, Knutson filed an opposition to Sirius
XM’s motion to compel arbitration. Knutson responded that
 KNUTSON V. SIRIUS XM RADIO 9

the Customer Agreement was not binding because Sirius XM
mailed the Agreement over a month after the three-day
designated period in which Knutson could reject the terms of
the Agreement. Therefore, Knutson argued, there was no
mutual assent to the terms. Knutson also claimed that
enforcement of the arbitration clause would limit his potential
remedies, specifically his statutory right to seek damages
under the Telephone Consumer Protection Act. In addition,
Knutson alleged that Sirius XM’s Customer Agreement “is
unenforceable as it is an unconscionable adhesion contract.”

On May 20, 2012, District Judge Anthony J. Battaglia
held that there was a binding contract requiring arbitration
because the terms of the Customer Agreement are
conspicuous, and the contract is enforceable even though
Knutson received the Agreement over one month after the
service was activated. Although the arbitration provision in
the Customer Agreement had “elements of procedural
unconscionability” for failing to provide a copy of the AAA
rules, “the Agreement contains all the hallmarks of
substantive conscionability.” The district court granted Sirius
XM’s motion to compel arbitration, and dismissed Knutson’s
case. The instant appeal followed.

STANDARD OF REVIEW

“The district court’s decision to grant or deny a motion to
compel arbitration is reviewed de novo.” Bushley v. Credit
Suisse First Boston, 360 F.3d 1149, 1152 (9th Cir. 2004).
This court also “review[s] the validity and scope of an
arbitration clause de novo” and “the factual findings
underlying the district court’s decision for clear error.” Cape
Flattery Ltd. v. Titan Mar., LLC, 647 F.3d 914, 917 (9th Cir.
2011).
10 KNUTSON V. SIRIUS XM RADIO

DISCUSSION

The Federal Arbitration Act (“FAA”) provides that
arbitration agreements generally shall be “valid, irrevocable,
and enforceable.” 9 U.S.C. § 2. But where grounds “exist at
law or in equity for the revocation of any contract,” courts
may decline to enforce such agreements. Id. This provision
reflects both a “liberal federal policy favoring arbitration, and
the fundamental principle that arbitration is a matter of
contract.” AT&T Mobility LLC v. Concepcion, 131 S. Ct.
1740, 1745 (2011) (internal quotation marks and citations
omitted). Under the FAA, the basic role for courts is to
determine “(1) whether a valid agreement to arbitrate exists
and, if it does, (2) whether the agreement encompasses the
dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys.,
Inc., 207 F.3d 1126, 1130 (9th Cir. 2000); see also AT&T
Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648
(1986).

As explained below, applying well-settled principles of
contract law, we conclude that no valid agreement to arbitrate
exists between Knutson and Sirius XM because Knutson
never assented to the Customer Agreement.

No valid agreement exists between Knutson and Sirius
XM.

Sirius XM, as the party seeking to compel arbitration, has
the burden of proving the existence of an agreement to
arbitrate by a preponderance of the evidence. Rosenthal v.
Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 413 (1996).

“[A]rbitration is a matter of contract.” AT&T Techs., Inc.,
475 U.S. at 648 (internal quotation marks and citation
 KNUTSON V. SIRIUS XM RADIO 11

omitted). State contract law controls whether the parties have
agreed to arbitrate. Circuit City Stores, Inc. v. Adams, 279
F.3d 889, 892 (9th Cir. 2002) (noting that although the FAA
preempts state laws that are only applicable to arbitration
agreements, general contract principles and defenses
“grounded in state contract law, may operate to invalidate
arbitration agreements”) (citing Doctor’s Assocs., Inc. v.
Casarotto, 517 U.S. 681, 687 (1996)).

“[A] party cannot be required to submit to arbitration any
dispute which he has not agreed so to submit.” United
Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S.
574, 582 (1960). It is undisputed that under California law,
mutual assent is a required element of contract formation.
“Mutual assent may be manifested by written or spoken
words, or by conduct,” Binder v. Aetna Life Ins. Co., 75 Cal.
App. 4th 832, 850 (1999), and acceptance of contract terms
may be implied through action or inaction, see Carnival
Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593–95 (1991).
Thus, “an offeree, knowing that an offer has been made to
him but not knowing all of its terms, may be held to have
accepted, by his conduct, whatever terms the offer contains.”
Windsor Mills, Inc. v. Collins & Aikman Corp., 25 Cal. App.
3d 987, 991 (1972). Courts must determine whether the
outward manifestations of consent would lead a reasonable
person to believe the offeree has assented to the agreement.
Meyer v. Benko, 55 Cal. App. 3d 937, 942–43 (1976).

Knutson contends that there was no mutual assent to enter
into the Customer Agreement because he was never given the
opportunity to accept or reject the Agreement. Sirius XM
asserts that after Knutson received the Customer Agreement,
he had an opportunity to both review it and to notify Sirius
XM if he wished to cancel his subscription, but Knutson did
12 KNUTSON V. SIRIUS XM RADIO

neither. Instead, Sirius XM argues, Knutson continued using
Sirius XM’s service, which indicated his acceptance of the
Customer Agreement, and thus a valid contract between the
parties was formed. Accordingly, we consider (1) whether a
reasonable person in Knutson’s position would understand
that he had assented to the arbitration provision in the Sirius
XM Customer Agreement when he purchased the vehicle
from Toyota, and (2) whether failure to cancel the trial
subscription to Sirius XM after he received the Customer
Agreement constituted an objective manifestation of his
assent to the arbitration provision.

1. “[A]n offeree, regardless of apparent manifestation of
his consent, is not bound by inconspicuous contractual
provisions of which he was unaware, contained in a document
whose contractual nature is not obvious.” Windsor Mills,
Inc., 25 Cal. App. 3d at 993. “This principle of knowing
consent applies with particular force to provisions for
arbitration.” Id. “If a party wishes to bind in writing another
to an agreement to arbitrate future disputes, such purpose
should be accomplished in a way that each party to the
arrangement will fully and clearly comprehend that the
agreement to arbitrate exists and binds the parties thereto.”
Com. Factors Corp. v. Kurtzman Bros., 131 Cal. App. 2d
133, 136 (1955) (internal quotation marks and citation
omitted). That is not the case here.

When Knutson purchased his vehicle from Toyota, he did
not receive any documents from Sirius XM, and he did not
know that he was entering into a contractual relationship with
Sirius XM by using the service. Instead, he believed that
Sirius XM’s trial subscription was a complimentary service
“provided for marketing purposes.”
 KNUTSON V. SIRIUS XM RADIO 13

As far as Knutson was concerned, then, he had not
entered into an agreement for service with Sirius XM when he
purchased the vehicle. He was, as far as he knew, only in a
contractual relationship with Toyota. A reasonable person in
Knutson’s position could not be expected to understand that
purchasing a vehicle from Toyota would simultaneously bind
him or her to any contract with Sirius XM, let alone one that
contained an arbitration provision without any notice of such
terms. “[N]either expressly or impliedly, neither directly or
indirectly, did the parties ever discuss arbitration or bargain
about it, and certainly they reached no agreement thereon.”
Com. Factors Corp., 131 Cal. App. 2d at 136.

2. Sirius XM argues nevertheless that although there was
a delay between the activation of the service and Knutson’s
receipt of the Customer Agreement, Knutson’s continued use
of its service after that receipt constituted his assent to be
bound to the Customer Agreement. Sirius XM cites Golden
Eagle Ins. Co. v. Foremost Ins. Co., which states that “[a]s a
general rule, silence or inaction does not constitute
acceptance of an offer. There are several well-recognized
exceptions to this rule. Acceptance of an offer may be
inferred from inaction in the face of a duty to act . . . and from
retention of the benefit offered.” 20 Cal. App. 4th 1372,
1385–86 (1993) (citations omitted); see also Cal. Civ. Code
§ 1589 (“A voluntary acceptance of the benefit of a
transaction is equivalent to a consent to all the obligations
arising from it, so far as the facts are known, or ought to be
known, to the person accepting.”).

Nothing in the record, however, indicates that Sirius
XM’s offer was clearly and effectively communicated to
Knutson by mailing him the Customer Agreement. Knutson
would only have had notice of his opportunity to cancel his
14 KNUTSON V. SIRIUS XM RADIO

subscription, or the effect of his continued use of the service,
if he opened the Welcome Kit from Sirius and read all of the
documents therein, which—in view of his lack of awareness
of any contractual relationship with Sirius—he had no reason
to do. He could not be obligated to act where there was no
effective notice that action was required. Accordingly,
Knutson’s continued use of the service after his receipt of the
Customer Agreement did not manifest his assent to the
provisions in the Customer Agreement.

3. Sirius XM further argues that its Customer Agreement
is a valid “shrinkwrap” agreement—“where the consumer
purchases prior to getting the detailed terms of the contract.”
Meridian Project Sys. Inc., v. Hardin Const. Co., LLC, 426 F.
Supp. 2d 1101, 1107 (E.D. Cal. 2006). As a general rule, a
party cannot avoid the terms of a contract by failing to read
them before signing. See Marin Storage & Trucking v. Benco
Contracting & Eng’g, Inc., 89 Cal. App. 4th 1042, 1049
(2001). Yet “[a]n exception to this general rule exists when
the writing does not appear to be a contract and the terms are
not called to the attention of the recipient. In such a case, no
contract is formed with respect to the undisclosed term.” Id.
That is what happened here.

Sirius XM contends, nevertheless, citing Bischoff v.
DirecTV, Inc., 180 F. Supp. 2d 1097 (C.D. Cal. 2002), and
Lozano v. AT&T Wireless, 216 F. Supp. 2d 1071 (C.D. Cal
2002), order vacated on other grounds by Lozano v. AT&T
Wireless, 2003 WL 2558566 (C.D. Cal. Aug. 18., 2003), that
courts have held the fact that the customer purchased the
service and was later sent the contract terms does not render
the contract unenforceable. But even assuming, without
deciding, that such cases accurately reflect the law of our
circuit, these decisions are inapposite.
 KNUTSON V. SIRIUS XM RADIO 15

In Bischoff, the district court held that a valid and
enforceable arbitration agreement existed between the parties
even though the plaintiff received the customer agreement
after initiating a purchase from DirecTV, the service provider.
180 F. Supp. 2d at 1103–06. The DirecTV customer
agreement arrived by mail after the plaintiff purchased
DirecTV equipment, after he elected to receive DirecTV
programming, and after the activation of satellite television
service. Id. at 1101. The district court reasoned that the time
between the receipt of the agreement and the activation of
services was not “dispositive on the issue of whether a valid
arbitration agreement exists.” Id. at 1105. Instead, “[t]he
more controlling issue is the economic and practical
considerations involved in selling services to mass consumers
which make it acceptable for terms and conditions to follow
the initial transaction.” Id.; see also Lozano, 216 F. Supp. 2d
at 1073 (“providing customers with terms and conditions after
an initial transaction is acceptable, and [] such terms and
conditions are enforceable, including arbitration clauses.”).

But Bischoff and Lozano turn on crucial facts not present
here. In Bischoff, unlike with Knutson, the customer
specifically elected to receive the service directly from the
service provider:

To obtain [television programming] services,
a potential DirecTV customer first purchases
from a retailer the equipment necessary to
receive a satellite signal. The potential
customer then calls DirecTV and becomes a
subscriber by electing to receive one or more
of DirecTV’s numerous programming
packages. A “Customer Agreement,” which
governs the relationship formed between
16 KNUTSON V. SIRIUS XM RADIO

DirecTV and the customer, is then mailed to
each customer along with the first billing
statement.

Bischoff, 180 F. Supp. 2d at 1101 (internal citations omitted).
Likewise in Lozano, the customer signed a contract for
service from the service provider, AT&T, and a Welcome
Guide was provided in the box with the newly purchased
phone. Lozano, 216 F. Supp. 2d at 1073 n. 1.

Here, by contrast, there is no evidence that Knutson
purchased anything from Sirius XM, or ever knew that he
was entering into a contractual relationship with the satellite
radio service provider. Unlike in Bischoff, there was no
initial transaction between Knutson and the service provider,
Sirius XM. There was only a transaction between Knutson
and Toyota—Knutson purchased a Toyota truck that came
with a pre-loaded Sirius XM radio receiver, and upon
purchasing the vehicle Knutson received a trial subscription
to Sirius XM. There is no information in the record about
what, if any, language regarding the Sirius XM trial
subscription was in the Toyota purchase contract. As
discussed above, it was never clear to Knutson that he was
entering into an agreement with Sirius XM—he received no
documents about his relationship with Sirius XM at the
outset, nor ever understood that his use of the satellite radio
service bound him to the terms of the Customer Agreement
he would later receive from Sirius XM. Thus, neither
Bischoff nor Lozano supports Sirius XM’s argument that the
Customer Agreement is supported by mutual assent.

4. Even considering the “economic and practical
considerations involved in selling services to mass
consumers,” Bischoff, 180 F. Supp. 2d at 1105, lack of notice
 KNUTSON V. SIRIUS XM RADIO 17

regarding the terms of the Sirius XM Customer Agreement
could be easily remedied by Toyota. The Toyota purchase
agreement could clearly state that Toyota has a relationship
with Sirius XM to provide Toyota customers with a trial
service, and that therefore the Toyota customer is entering
into a contractual relationship with Sirius XM. Toyota could
also provide its customers with literature that similarly
explains the agreement between Sirius XM and the Toyota
customer and ask for assent to such agreement. Because
Sirius XM’s offer was not effectively communicated, there
was no knowing consent to the Customer Agreement,
including the arbitration clause within it.

Applying California law, the Second Circuit has similarly
held that a party to a contract cannot be held to the contract’s
arbitration provision where the plaintiff does not know a
contract exists. In Schnabel v. Trilegiant Corp., 697 F.3d 110
(2d Cir. 2012), plaintiffs made purchases using the travel
website Priceline.com and the sports memorabilia website
Beckett.com, and then separately enrolled in a discount
subscription service with a separate merchant, id. at 114. The
enrollment webpage from the original merchant indicated that
the customer had received a “Special Award.” Id. at 115.
The plaintiffs were then “presented with separate ‘enrollment
offer’ [web]pages and entered personal information into the
fields on those pages.” Id. In small print, the enrollment
page stated that the customer would receive membership
information, and that there was no obligation to continue to
receive benefits: “[The purchaser can] call us to cancel
before the end of . . . [the] FREE trial and owe us nothing.”
Id. at 115–16 (alterations in original). The plaintiffs’ credit
cards were then auto-debited during the months of their
membership.
18 KNUTSON V. SIRIUS XM RADIO

The Schnabel plaintiffs claimed that they did not
intentionally or knowingly enroll in the second merchant’s
discount service, and thus their failure to cancel the service
did not indicate their assent to the arbitration provision
included in the second merchant’s contract terms. Id. at 114.
As in the present case, the Schnabel plaintiffs argued that it
was not clear that the second merchant’s enrollment form was
an offer from “a party other than the merchant with whom the
[customer was] in the process of completing a purchase.” Id.
at 115.

Unlike the present case, the Schnabel plaintiffs
affirmatively elected to receive the second merchant’s
services—plaintiffs provided their personal information into
a separate enrollment form, and clicked a “Yes” button to
indicate that they had read the “Terms & Conditions” of the
agreement. Id. at 115–16. If the purchaser clicked on the
“Terms & Conditions” hyperlink, the purchaser would see a
webpage that included the arbitration provision at issue. Id.
at 116. A separate email was also sent to the plaintiffs that
included the terms of the agreement with the second
merchant. Id.

Even though the plaintiffs in Schnabel had more notice of
the terms of their agreement than Knutson, the Second Circuit
held that the arbitration provision was unenforceable.
Although the second merchant sent the agreement containing
the arbitration provision after the customer’s enrollment in
and use of the service,

there was no prior relationship between the
parties that would have suggested that terms
sent . . . after the initial enrollment were to
become part of the contract. . . . Nor would a
 KNUTSON V. SIRIUS XM RADIO 19

reasonable person likely understand in some
other way that disputes arising between him
or her and [the service provider] were to be
resolved by an alternative dispute resolution
procedure.

Id. at 126. The Second Circuit also determined that the auto-
debiting of the plaintiffs’ credit cards was “too passive for
any reasonable fact-finder to conclude that they manifested a
subjective understanding of the existence of the arbitration
and other emailed provisions and an intent to be bound by
them in exchange for the continued benefits [the second
merchant] offered.” Id. at 128–29.

As in Schnabel, Knutson could not assent to Sirius XM’s
arbitration provision because he did not know that he was
entering into a contract with Sirius XM. We find the
reasoning of the Second Circuit persuasive, especially
because Knutson provided even less indication of his assent
than the customers in Schnabel. Knutson did not
affirmatively enroll in a subscription service with Sirius XM.
He did not separately provide his personal information to
Sirius XM. He did not indicate that he had read the terms of
the Sirius XM Customer Agreement. And he did not pay
Sirius XM at any point during the trial subscription period.
Instead, “[Knutson] respond[ed] to an offer that did not carry
an immediately visible notice of the existence of [contract]
terms or require unambiguous manifestation of assent to
those terms.” Specht v. Netscape Com. Corp., 306 F.3d 17,
31 (2d Cir. 2002) (applying California law to hold that
defendants did not provide reasonable notice of software
license terms where a reasonably prudent Internet user would
not have known or learned of the existence of the terms
before responding to defendant’s invitation to download free
20 KNUTSON V. SIRIUS XM RADIO

software); see also Nguyen v. Barnes & Noble, Inc., 763 F.3d
1171, 1176 (9th Cir. 2014) (“[C]ourts have consistently
enforced [terms of use] agreements where the user had actual
notice of the agreement . . . [or] where the user is required to
affirmatively acknowledge the agreement before proceeding
with use of the [service],” but not where “there is no evidence
that the [service] user had actual knowledge” or that a
reasonably prudent user would have been on inquiry notice
that a terms of use agreement existed.).

For the reasons stated above, Sirius XM has failed to
prove by a preponderance of the evidence the existence of an
agreement to arbitrate. Because the arbitration clause in the
Customer Agreement is unenforceable for lack of mutual
assent, we need not decide whether the arbitration provision
in the Customer Agreement is unconscionable.

CONCLUSION

For the foregoing reasons, we reverse the district court’s
granting of Sirius XM’s motion to compel arbitration. We
remand to the district court for further proceedings consistent
with this disposition.

REVERSED and REMANDED.