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Nevada Federal Court Strikes Down Egregiously Unfair and Hidden Arbitration Clause

Nevada Federal Court Strikes Down Egregiously Unfair and Hidden Arbitration Clause

By Paul Bland, Senior Attorney @PBlandBland

In the wake of recent Supreme Court decisions, forced arbitration clauses are generally enforced unless a corporation sticks something particularly overreaching and unfair in its arbitration clause, or drafts an arbitration clause in an unusually stupid way. A U.S. district court in Nevada just found that Zappos did both in its arbitration clause in a privacy/security breach class action, and in a thoughtful opinion refused to enforce Zappos’ arbitration clause.

First, the unusually stupid part. Most on-line retailers require consumers to click on a button saying that they agree to all the fine print terms and conditions (what Elizabeth Warren famously called “word barf”), which generally included forced arbitration clauses. Zappos was lazier than the average bear, though, and as a result the court refused to enforce its arbitration clause. Zappos’ arbitration clause provided that “Accessing, browsing or otherwise using the site indicates your agreement to all the terms and conditions in this agreement, so please read this agreement carefully before proceeding.” Go back and read that sentence again. Really? According to this, if I simply BROWSE on a website, look, say, at one paragraph of text, that means I’ve agreed to word barf buried in some link on some other page or some other part of the clause?

Zappo's terms of use

Well, not so much, it turns out. In this case, the federal district court held that the consumer plaintiffs had not agreed to an arbitration clause merely because the arbitration clause was on the defendants’ website. The court noted that there was no evidence that the plaintiffs had actual knowledge of the arbitration clause (I suspect it would take someone with OCD, or perhaps a descendent of the Amazing Kreskin to have actual knowledge of the arbitration clause), and that there was not reasonable notice of the terms of the clause. The court noted that the clause was inconspicuous and buried.

In one striking passage, the court (quoting another recent case), remarked that “Very little is required to form a contract nowadays—but this alone does not suffice.”  More hopefully, the court stated that “the Internet has not changed the basic requirements of a contract, and there is no agreement where there is no acceptance, no meeting of the minds, and no manifestation of assent.”

Now for the particularly overreaching and unfair part. Zappos’ clause states, “We reserve the right to change this Site and these terms and conditions at any time.” In keeping with a long line of cases from around the country, the court held that this rendered the arbitration clause “illusory,” because Zappos had the sole power to unilaterally change the terms at any time.

It’s nice to see a court still paying attention to the idea that arbitration clauses, as much beloved as they are by the U.S. Supreme Court, still must meet certain extremely low minimums of fairness and consent. This decision is plainly right, and in accord with a lot of other cases, but it’s still very welcome.