Zappos.com is a popular website known mainly for its discounted shoe sales. In 2012, a hacker hacked into the Zappos website in an effort to obtain the personal account information of Zappos shoppers. After releasing news of the breach, Zappos faced numerous lawsuits from unhappy customers. Subsequently, Zappos moved to compel arbitration as mandated in its terms of use listed on its website. Zappos argued that it and its customers were in a bilateral agreement stating that arbitration must be used in the event of a dispute between the two parties, as supported by its customer terms of use. However, also in the terms of use, Zappos stipulated that it could change its terms of use and all of its agreements anytime at its own discretion. Hence, customers argued that the agreement was not bilateral and was in fact unfairly unilateral. Specifically, customers argued that Zappos was not actually agreeing to anything and made no promise to its customers regarding dispute resolution. Therefore, customers argued that they should not have to use arbitration and instead should be able to file their class action lawsuit against Zappos.
JUDGE JAMES The first paragraph of the Terms of Use provides [a] relevant part: “We reserve the right to change this Site and these terms and conditions at any time.” The Priera Plaintiffs argue that because the Terms of Use grants Zappos the unilateral right to revise the Arbitration Clause, the contract is illusory and therefore unenforceable. In other words, Plaintiffs argue that the Arbitration Clause is illusory because Zappos can avoid the promise to arbitrate simply by amending the provision, while Zappos.com users are simultaneously bound to arbitration.
Most federal courts that have considered this issue have held that if a party retains the unilateral, unrestricted right to terminate the arbitration agreement, it is illusory and unenforceable, especially where there is no obligation to receive consent from, or even notify, the other parties to the contract.
… The Terms of Use gives Zappos the right to change the Terms of Use, including the Arbitration Clause, at any time without notice to the consumer. On one side, the Terms of Use purportedly binds any user of the Zappos.com website to mandatory arbitration. However, if a consumer sought to invoke arbitration pursuant to the Terms of Use, nothing would prevent Zappos from unilaterally changing the Terms and making those changes applicable to that pending dispute if it determined that arbitration was no longer in its interest. In effect, the agreement allows Zappos to hold its customers and users to the promise to arbitrate while reserving its own escape hatch. By the terms of the Terms of Use, Zappos is free at any time to require a consumer to arbitrate and/or litigate anywhere it sees fit, while consumers are required to submit to arbitration in Las Vegas, Nevada. Because the Terms of Use binds consumers to arbitration while leaving Zappos free to litigate or arbitrate wherever it sees fit, there exists no mutuality of obligation. We join those other federal courts that find such arbitration agreements illusory and therefore unenforceable.
A court cannot compel a party to arbitrate where that party has not previously agreed to arbitrate. The arbitration provision found in the Zappos.com Terms of Use purportedly binds all users of the website by virtue of their browsing. However, the advent of 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. A party cannot assent to terms of which it has no knowledge or constructive notice, and a highly inconspicuous hyper link buried among a sea of links does not provide such notice. Because Plaintiffs did not assent to the terms, no contract exists, and they cannot be compelled to arbitrate. In any event, even if Plaintiffs could be said to have consented to the terms, the Terms of Use constitutes an illusory contract because it allows Zappos to avoid arbitration by unilaterally changing the Terms at any time, while binding any consumer to mandatory arbitration in Las Vegas, Nevada. We therefore decline to enforce the arbitration provision on two grounds: there is no contract, and even if there was, it would be illusory and therefore unenforceable.
IT IS, THEREFORE, HEREBY ORDERED that Defendant Zappos.com, Inc.’s Motion to Compel Arbitration and Stay Action (#3) is DENIED.
CRITICAL THINKING:
Is there enough ambiguity with the word agreement that Zappos could argue that it had an agreement with its customers? If Zappos could change any rule or promise it made to a customer at any time, how could Zappos argue that it was agreeing to anything?
ETHICAL DECISION MAKING:
When a court makes a decision in a contract case, what values is it elevating? In other words, the court is anchoring its reasoning on a preference for a particular value or set of values. What is that value or set of values in a contract case?