An interesting arbitration ruling out of Massachusetts reinforces the importance of careful arbitration drafting and serves as a reminder that just because an arbitration agreement exists on the website where a lead was generated does not mean you automatically have the right to enforce it. If you want to rely on someone else’s arbitration clause, the agreement had better make clear that you can.
In Katzeff v. Toyota of Dartmouth No. 1:25-cv-12022-JEK, the court granted Toyota’s motion to compel arbitration in a TCPA class action alleging National Do Not Call Registry and internal DNC violations—not because the plaintiff signed an agreement directly with Toyota, but because the dealership successfully invoked an arbitration clause contained in the lead generator’s Terms of Service. Critically, the court found that Toyota was an intended third-party beneficiary of that agreement. The arbitration provision expressly provided that “Participating Dealers” were intended third-party beneficiaries and specifically authorized them to enforce the arbitration agreement in disputes with consumers.
Toyota pointed to two separate lead generation sources through which the plaintiff had allegedly expressed interest in Toyota vehicles—AutoWeb and TrueCar. The court rejected Toyota’s reliance on AutoWeb because Toyota failed to produce evidence showing what website disclosures the plaintiff actually saw when submitting her information.
The court though did find that TrueCar’s enrollment process satisfied Massachusetts standards for online contract formation. Applying Massachusetts law, the court acknowledged that a consumer shopping online for vehicle pricing is not necessarily expecting to enter into a binding contract merely by submitting contact information.
But the court found that TrueCar’s site clearly communicated that binding terms were being presented. The phrase “Terms of Service” appeared multiple times, was prominently displayed, and was hyperlinked. Most importantly, the plaintiff was expressly advised that by checking a box she was accepting the Terms of Service and Privacy Policy before she could proceed. The arbitration agreement itself was prominently referenced within those terms and warned users that it affected important legal rights.
While the plaintiff argued she did not realize she was agreeing to arbitration, the court emphasized that the inquiry is objective. The relevant question is not what the plaintiff subjectively understood, but whether a reasonably prudent user would have been placed on notice of the terms.
TrueCar utilized a classic clickwrap process requiring the plaintiff to affirmatively check a box accepting the Terms of Service before requesting vehicle pricing. As the court noted, clickwrap agreements are the clearest manifestations of assent in the online context “because they require users to affirmatively signal their acceptance of the attached terms”—and here the “connection between checking the box and indicating assent to the terms was express and unambiguous, particularly as [Katzeff] could not proceed past the screen without so indicating [her] assent.”
Accordingly, the court held that the plaintiff formed a valid arbitration agreement with TrueCar.
This is where the opinion gets interesting. Plaintiff argued that she never expected Toyota specifically to be able to enforce the arbitration agreement and noted that Toyota was not identified by name in the contract. The plaintiff never entered into an agreement with Toyota directly, so the key issue became whether Toyota, as a nonsignatory, could enforce an arbitration agreement.
The arbitration provision expressly stated that “Participating Dealers” were intended third-party beneficiaries of the agreement and provided that Participating Dealers would be able to enforce the arbitration agreement in disputes with consumers:
Participating Dealers and Affinity Partners are intended third-party beneficiaries of the arbitration agreement and may enforce it in disputes with consumers.
The agreement also defined “Participating Dealers” broadly as any new or used automobile dealer participating in the TrueCar network.
So the relevant question to the court was not whether Toyota was individually listed, but whether it fell within a clearly identified category of entities that the parties intended to benefit. The record established that Toyota was a participating dealer in the TrueCar network, received the plaintiff’s lead through that network, so fit squarely within the definition of a “Participating Dealer.” Because the valid online agreement expressly addressed third-party beneficiary rights, the court granted Toyota’s motion to compel arbitration.
Now compare this result to the Fourth Circuit’s recent decision in Sessoms.
In Sessoms, the Fourth Circuit likewise allowed a nonsignatory marketing partner to enforce an arbitration agreement.
But in Sessoms, the Fourth Circuit focused on the purpose and structure of the lead generation platform. The website at issue openly operated as a lead generator, advised consumers that they would be contacted by third parties, and relied entirely on marketing partners to provide the insurance quotes consumers were seeking. Because those marketing partners were central to the platform’s business model and were the intended recipients of the consumer’s inquiry, the Fourth Circuit found they were intended beneficiaries of the agreement and could enforce its arbitration provision.
The Fourth Circuit found that the district court had interpreted the agreement too narrowly by focusing on the absence of defendant’s name in the Terms of Use. Instead, the Fourth Circuit examined the commercial purpose of the agreement as a whole and concluded that it was specifically designed to benefit downstream marketing companies that would receive and act upon consumer inquiries.
Because consumers visited the website for the purpose of obtaining insurance information from third-party providers, and because the website’s entire business model depended on transmitting consumer information to those providers, the Fourth Circuit held that the defendant qualified as an intended third-party beneficiary.
The Sessoms decision also provides support that a nonsignatory need not always be expressly identified in an arbitration agreement to enforce it. If the agreement exists to facilitate the transmission of consumer information to businesses that will engage with the consumer, those businesses may have a strong argument that they are intended beneficiaries entitled to enforce the agreement’s arbitration provisions.
The Toyota court reached the same conclusion but through more explicit contractual language. Rather than inferring beneficiary status from the structure of the transaction, the lead generator’s agreement expressly stated that “Participating Dealers” were intended third-party beneficiaries and specifically granted them the right to enforce the arbitration agreement. Once Toyota demonstrated that it was a Participating Dealer within the TrueCar network, the analysis was pretty straightforward.
Read together, the cases demonstrate two different paths to the same conclusion. Toyota demonstrates the importance of expressly identifying a category of entities that may enforce the arbitration agreement and expressly stating that they are intended third-party beneficiaries. Sessoms demonstrates that courts may still find third-party beneficiary status even without such explicit language or specifically naming the downstream party where the commercial purpose of the agreement clearly contemplates that downstream recipients of consumer information will benefit from and rely upon the transaction.
The lessons here:
- Any company hoping to rely on a third party’s arbitration agreement should ensure that the contract clearly identifies the category of entities entitled to enforce it and leaves no doubt that those entities are intended beneficiaries
- Queenie’s 10 matters
- Being on a “marketing partners” list may not be enough to enforce arbitration agreements
- As a lead buyer, ensure your entity actually falls within the defined contractual definition of the protected category
- Preserve evidence demonstrating the consumer received notice of and assented to the arbitration agreement
- Make sure you’re reviewing and approving your lead seller’s arbitration agreements prior to onboarding
xoxo
Queenie