Unreported / Non-Citable
Background
Plaintiff Devin Rose filed a putative class action alleging that SpaceXAI LLC and X.AI Corp. (collectively xAI) used deceptive automatic-renewal tactics to enroll consumers in paid SuperGrok subscriptions. Rose created a free Grok account on March 11, 2025, by clicking "Sign up with email" on xAI's website, then purchased a one-month SuperGrok subscription on July 12, 2025. He contends the subscription auto-renewed without clear disclosure and that cancellation was deliberately obstructed, resulting in three additional $30 charges. xAI moved to compel arbitration based on an arbitration clause in its Terms of Service, arguing Rose agreed to those terms when creating his free account.
The Terms of Service contain a mandatory arbitration provision and a delegation clause assigning arbitrability questions to the arbitrator. xAI submitted a declaration showing the sign-up screen presented four sign-up options (email, X, Google, Apple) in a single column, with the terms-of-service hyperlink appearing at the very bottom in small gray-and-white text on a black background. Rose does not dispute the sequence of events but argues the notice was not reasonably conspicuous and he never assented to the terms. The court applied California contract-formation law, as Rose is a California resident and the transaction occurred in California.
The Court’s Holding
The court denied the motion to compel arbitration. Applying the Ninth Circuit's two-prong inquiry-notice test from Berman v. Freedom Financial Network and Chabolla v. ClassPass, the court first found that the transactional context — creating a free account for ongoing use of an AI chatbot — signaled a continuing relationship, so a user would expect terms to govern. However, the visual aspects of the notice failed the conspicuousness requirement. The terms-of-service hyperlink was placed at the bottom of the page, well below all four sign-up buttons. Because a user selects only one sign-up method, the remaining buttons and any text below the chosen button become superfluous; Rose, who clicked the second button ("Sign up with email"), had no reason to continue scrolling. The notice was therefore outside the user's natural flow, as in Chabolla and Skaggs.
The court also found the notice's design insufficient: it used the smallest text on the screen, appeared in muted gray-and-white font on a black background, and was aesthetically identical to surrounding non-contractual text. xAI argued the page was "uncluttered," citing Keebaugh, Massel, and Patrick, but those cases involved explicit acknowledgment mechanisms (checkboxes or "By tapping Play I agree" language) that xAI omitted. The court adopted the reasoning of Skaggs v. X.AI, LLC, which evaluated an identical sign-up screen and held the notice not reasonably conspicuous. Because Rose lacked reasonably conspicuous notice, he could not unambiguously manifest assent, and the court did not reach the second prong of the test.
Key Takeaways
- A sign-in wrap agreement requires both reasonably conspicuous notice and an unambiguous manifestation of assent; failure on either prong defeats enforcement.
- Placement of a terms-of-service hyperlink below all sign-up options in a single-column layout renders it outside a reasonable user's natural flow, especially when the user selects an upper-button option.
- Muted font colors, small text size, and low contrast against the background weigh against conspicuousness, even on an otherwise uncluttered page.
- The absence of an explicit acknowledgment mechanism (checkbox, "I agree" button, or similar) distinguishes a sign-in wrap from a clickwrap and heightens the conspicuousness burden.
- Courts in the Northern District of California are following Skaggs v. X.AI as persuasive authority for identical xAI sign-up screens, creating consistent precedent against enforcement of xAI's current arbitration clause.
Why It Matters
This decision reinforces the Ninth Circuit's fact-intensive, context-specific approach to online contract formation and signals that companies using sign-in wrap agreements must do more than merely hyperlink terms at the bottom of a sign-up page. The ruling aligns with Berman, Chabolla, and Godun in requiring that notice be positioned where a reasonable user will actually see it — not merely where it could theoretically be found. For xAI, the ruling means its arbitration clause (and likely its forum-selection clause, as in Skaggs) cannot be enforced against users who signed up through the current web interface. The decision also highlights the growing judicial scrutiny of "dark patterns" in subscription flows, as Rose's underlying claims about automatic renewal and difficult cancellation remain pending. Practitioners should audit client sign-up flows for conspicuous notice, affirmative assent, and device-specific visibility (desktop vs. mobile).