Zappos - Foundations of Law and Dispute Resolution

Question 1

Facts

Answer 1

Hackers hit Zappos.com, downloading customer information, including names, addresses and partial credit card numbers for 24M people. Plaintiffs, who purchased goods online from Zappos, sought damages from the security breach in federal district courts across the US. Zappos moved to compel individual arbitration per the Terms of Use on their website. Plaintiffs argue that they cannot be compelled to arbitrate because they did not explicitly agree to the Terms of Use when making their purchases.

“Browse wrap agreement”

Question 2

Procedural History

Answer 2

9 suits across country were consolidated in a single class action transferred to D. Nevada.

Question 3

Issue

Answer 3

Is an arbitration clause enforceable if a party does not explicitly agree to it? Is it enforceable if one party may change the terms at their own discretion?

Question 4

Holding

Answer 4

Court ruled against Zappos’ request to compel arbitration. Contracts to arbitrate are not enforceable if a party does not consent (explicitly or constructively), or if obligation is illusory.

Question 5

Reasoning

Answer 5

(1) Plaintiffs did not agree to Terms of Use. No acceptance = no meeting of the minds = no K. Zappos had a ‘browsewrap’ agreement on its site whereby a customer does not have to click to agree or consent to the Terms of Use. While on website, customers not directed to the Terms of Use.
(2) Requirement to arbitrate is unenforceable because the Terms of Use constitutes an illusory contract.

Question 6

Business Takaway

Answer 6

MAKE ARBITRATION CLAUSE VERY CLEAR AND SUPPLY THE ARB RULES TO THE PERSON BEING ASKED TO SIGN. Don’t bury arbitration clause!