New Car Owners Not Bound by Sirius XM Arbitration Clause: 9th Cir.

Sirius XM -- boy, it's great, isn't it? Satellite radio gives you a separate station for every decade since the wax cylinder was invented (you'll love their "1880s on 80" station). Plus, there's Howard Stern.

But Sirius comes with a hidden price, other than listening to Howard Stern: An arbitration agreement that purports to bind the consumer, as part of the 90-day free trial that comes with a new car.

Your New Toyota, Now With Binding Arbitration

Erik Knutson bought a new Toyota, which came with a free 90-day subscription to Sirius satellite radio. "Great!" he must have thought, "I can listen to Pearl Jam 24 hours a day, which is awesome, for some reason!" Well over a month after Knutson bought his car, he received a "welcome kit" in the mail from Sirius, which contained the customer agreement.

And what had Knutson agreed to? Binding arbitration, apparently, during the 90-day trial period. Also, failing to cancel the service within three days of activation -- which, you'll remember, was over a month ago -- bound Knutson to the agreement, which he didn't receive until a month after he could have canceled the service.

If you're wondering why this case hasn't been kicked out for lack of an injury, this case is really about telemarketing calls. Knutson claims he received three "unsolicited and unauthorized" telemarketing calls; he brought a class action against Sirius for these telemarketing calls, but got rebuffed by Sirius, which said he was bound by the arbitration agreement.

You Have to Cancel the Contract Before You Know There's a Contract

In the first instance, wrote Judge Harry Pregerson, Knutson hadn't submitted to an arbitration agreement. He received no documents when he bought the Toyota telling him that there was an arbitration agreement -- or any agreement between him and Sirius, which would lead a reasonable person 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."

But what about the agreement Knutson received a month later? Generally, inaction doesn't constitute acceptance of an offer, unless there's a duty to act or a retention of an offered benefit. But even here, putting the offer in the ex post agreement wouldn't put him on notice that there was even an offer to accept. He had no reason to believe the welcome kit contained any contract because he didn't believe he had a contractual relationship with Sirius.

Nor was the agreement a valid "shrinkwrap" agreement because "the writing [did] not appear to be a contract and the terms [were] not called to the attention of the recipient." And it's not like Toyota couldn't include the Sirius contract in the stack of forms a person signs when buying a car. In this case, arbitration can't be compelled -- until the Supreme Court says otherwise, as it's wont to do.

Related Resources:

• Sirius XM cannot force vehicle owners to arbitrate: U.S. court (Reuters)
• Toyota Loses Bid to Force Arbitration in Prius, Lexus Class Action (FindLaw's U.S. Ninth Circuit Blog)
• Ark. Sup. Ct. Strikes Alltel Arbitration Agreement for Non-Mutuality (FindLaw's U.S. Eighth Circuit Blog)