LOS ANGELES (Legal Newsline) – A lawsuit against Samsung over allegations that storage and speed claims are misrepresented in its Galaxy S4 is not eligible for arbitration, the U.S. Court of Appeals for the Ninth Circuit has ruled.

On Jan. 19, the court denied Samsung’s claim that the plaintiff accepted the terms of arbitration based on the warranty brochure included with Galaxy S4.

In February 2014, Daniel Norcia filled a class action suit against Samsung contending that the company misrepresented the speed and storage capacity of the Galaxy S4. Norcia filed the claim citing common law fraud in addition to violation of the state's Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act. The putative class included all the owners of Samsung S4 in California.

Samsung moved to compel arbitration. However, the district court denied the motion.

Samsung based its argument on the grounds that there was an arbitration provision located in the warranty and product safety brochure in the Galaxy S4 box. However, the district court pointed out that receipt of the booklet does not form a binding agreement to arbitrate claims unrelated to product warranty. Samsung consequently appealed the court’s ruling.

Samsung used several theories and tactics to argue its point. However, a Ninth Circuit panel including Judge Sandra S. Ikuta was not swayed by its logic. One of Samsung's arguments hinged on the inclusion of the arbitration provision in the product warranty and safety information brochure.

Attorney Stephen Newman, partner at Stroock & Stroock & Lavan LLP of Los Angeles, said Samsung presented a viable argument.

“The argument was not a long shot," Newman said. "The Ninth Circuit recognized that decisions in other circuits (such as in the Seventh Circuit, which is based in Chicago) reach different outcomes. It has long been accepted that 'shrink-wrap,' 'browse-wrap' and 'click-wrap' agreements are enforceable. The argument to enforce the 'in box' agreement is similar to those that have been accepted in the shrink-wrap cases.”

Therefore, depending on the court, placement of the arbitration provision, and cited precedent, companies may be held liable more often.

The obvious takeaway is for companies to consider the location of any arbitration provisions carefully.

“The company appears to have done a lot already to put customers on notice of the agreement," Newman said. "Had this been packaged as a traditional ‘shrink-wrap’ agreement, (where the customer would have to tear through packaging that specifically called out the presence of the agreement) the court would have been more likely to enforce the agreement.

"It is ironic, however, that packaging the product in a way that is easier for the customer to get to the product, and that generates less packing waste, has resulted in diminished legal protection for the company.”

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