In a recent decision, the U.S. District Court for the Eastern District of Virginia denied a retailer’s motion to compel individual arbitration of a claim brought in a putative class action lawsuit. The complaint alleges that the retailer used deceptive sales tactics to induce the plaintiff to make an unnecessary online purchase. The court denied the retailer’s motion to compel arbitration, finding that a unilateral modification provision in its terms and conditions rendered the arbitration agreement illusory.

To make her purchase, the plaintiff had to click the “place order” button on the website’s check-out page. Directly below the button, the webpage stated, “[b]y placing an order, I agree to [the retailer’s] Terms and Privacy Statement.” Both were hyperlinked, and the terms included an arbitration provision. Notably, below the arbitration provision was a “changes to the terms” provision which authorized the retailer to “change, terminate, modify, add, end or delete any of these the terms and conditions (including, without limitation, the Terms) under which the Site is offered at any time and without notice to you.”

The court found that the plaintiff had constructive knowledge of the terms and conditions, but the unilateral modification provision rendered the arbitration agreement illusory. The court said that the unilateral change provision would effectively “force customers to constantly have to check [the retailer’s] website — in perpetuity — to see if [it] had exercised its unilateral power to modify the terms to which the customer had originally agreed.”

The retailer countered that an arbitrator should decide the question of whether the unilateral change provision voided the arbitration agreement but the court disagreed, citing Fourth Circuit precedent holding that a federal court may address such a challenge in deciding a motion to compel.

Our Take:

The decision reinforces the need for companies to consider consumer fairness (and potential judicial hostility to arbitration) when drafting change in terms and arbitration provisions, particularly in the retail context where a consumer may just be a one-time customer.