Another Federal Court Denies Motion To Compel Arbitration

A pattern seems to be emerging among courts tasked with adjudicating attempts by defendant companies to force class action plaintiffs into arbitration, and the results are far more hopeful than initially expected of the post-AT&T Wireless v. Concepcion era. Most recently, a Nevada district court has joined this apparent trend, denying a motion to compel arbitration by the online retailer Zappos.com. See In re Zappos.com, Inc. Customer Data Security Breach Litig., No. 12-00325 (D. Nev. Sept. 27, 2012) (order denying motion to compel arbitration) (available here).

In the underlying lawsuit, the plaintiffs allege that they gave Zappos.com personal information in connection with purchases, and that the shoe retailer insufficiently protected their information from computer hackers. See Order at 2. The MDL proceeding that is pending in the District of Nevada comprises nine actions that were filed across the country. Earlier this year, Zappos.com moved to compel the totality of the proceedings to arbitration. Id. at 2 n.2.

Applying Nevada contract law to its analysis as to whether the parties did in fact agree to arbitrate, the court noted that the much-referenced “‘liberal federal policy regarding the scope of arbitrable issues is inapposite.’” Id. at 5, citing Comer v. Micor, Inc., 436 F.3d 1098, 1104 n.11 (9th Cir. 2006). On multiple grounds, Chief Judge Robert C. Jones found that there was no binding agreement to arbitrate. Foremost, he determined that the plaintiffs did not agree to the Zappos.com’s “Terms of Use,” which contained the at-issue arbitration clause. See id. at 7-10. In reasoning likely to influence other online retailers, Zappos.com was assailed for burying its Terms of Use “in the middle to bottom of every Zappos.com webpage among many other links,” with the court concluding that “[n]o reasonable user would have reason to click on the Terms of Use.” Id. at 8.

Moreover, in analysis akin to California’s unconscionability jurisprudence, the court also found the Zappos.com Terms of Use to be an illusory, and thus unenforceable, contract. See id. at 10-12. The court adopted the plaintiffs’ contention that the contract was illusory “because Zappos can avoid the promise to arbitrate simply by amending the provision, while Zappos.com users are simultaneously bound to arbitration.” Id. at 10.

California courts have similarly found such asymmetric contract terms to be unenforceable under the unconscionability doctrine, in cases such as Sanchez v. Valencia Holding Co. and Mayers v. Volt Management.