The Franchise Memorandum

A California appellate court recently affirmed a trial court’s ruling that a customer had not agreed to arbitrate claims against a franchisor when she was presented with a “Terms of Use Agreement” at a franchised location. Doe v. Massage Envy Franchising, LLC, 2022 WL 17984107 (Cal. Ct. App. Dec. 29, 2022). Jane Doe alleged that she was sexually assaulted during a massage at a location owned and operated by a Massage Envy franchisee. She then brought a sexual battery and fraud claim in California state court against Massage Envy itself, who moved to compel arbitration. The trial court denied the motion, concluding that no agreement to arbitrate existed. Massage Envy appealed.

The appellate court affirmed the trial court’s ruling that no agreement to arbitrate existed. Massage Envy argued that the customer had used an electronic tablet to check in at the location, and that the agreement was available to her via hyperlink in one of the various acknowledgements during the check-in process. This, Massage Envy argued, constituted a valid and enforceable “clickwrap” agreement in which customers simply click “I agree” to a list of terms and conditions. The court rejected this argument, holding that the customer lacked reasonable notice of the terms of the agreement or even that she might be entering into any agreement at all with Massage Envy, because of the inconspicuous nature of the terms. Moreover, the majority of the check-in forms indicated that she was receiving services from a franchisee of Massage Envy, and that Massage Envy was not providing services. She thus had no reason to expect that checking in for her massage at a franchised location would involve her entering into any ongoing contractual relationship of any sort with Massage Envy.