CASE 9-1 ZAPPOS.COM INC., CUSTOMER DATA SECURITY BREACH LITIGATION UNITED STATES DISTRICT COURT OF NEVADA WL 4466660 (2013) FACTS: The defendant, Zappos.com, is a popular web- mandated in its Terms of Use listed on its website. The site known mainly for its discounted shoe sales. In 2012, defendant argued that it and its customers were in a bilar- a hacker hacked into the defendant website in an effort to eral agreement stating that arbitration must be used in the obtain the personal account information of Zappos shop- event of a dispute between the two parties, as supported by pers. After releasing news of the breach, the defendant its customer terms of use. However, also in the terms of use, faced numerous lawsuits from unhappy customers. Sub- the defendant stipulated that it could change its terms of sequently, the defendant moved to compel arbitration as use and all of its agreements anytime at its own discretion. 176 (continued) Hence, plaintiff customers argued that the agreement was notice to the plaintiff customers. On one side, the Terms not bilateral and was in fact unfairly unilateral. Specifi- of Use purportedly bound any user of the defendant cally, the plaintiff customers argued that the defendant was website to mandatory arbitration. However, if a cus- not actually agreeing to anything and made no promise to tomer sought to invoke arbitration pursuant to the Terms its customers regarding dispute resolution. Therefore, the of Use, nothing would prevent the defendant from uni- plaintiff customers argued that they should not have to use laterally changing the Terms and making those changes arbitration and instead should be able to file their class applicable to that pending dispute if it determined that action lawsuit against the defendant. arbitration was no longer in its interest. In effect, the agreement allowed the defendant to hold its customers ISSUE: Is an arbitration clause illusory, and therefore and users to the promise to arbitrate while reserving its unenforceable, when a defendant company can avoid its own escape hatch. By the provisions of the Terms of Use, promise to arbitrate by amending a provision, whereas cus- the defendant company was free at any time to require a tomers are simultaneously bound to arbitration? consumer to arbitrate and/or litigate anywhere it sees fit, REASONING: When the Terms of Use binds consum- while consumers are required to submit to arbitration in ers to arbitration while leaving the defendant company Las Vegas, Nevada. free to litigate or arbitrate whenever it sees fit, no mutu- DECISION AND REMEDY: The court denied the ality of obligation exists. When there is no mutuality of defendant's Motion to Comnel Arbitration (continued) Hence, plaintiff customers argued that the agreement was notice to the plaintiff customers. On one side, the Terms not bilateral and was in fact unfairly unilateral. Specifi- of Use purportedly bound any user of the defendant cally, the plaintiff customers argued that the defendant was website to mandatory arbitration. However, if a cus- not actually agreeing to anything and made no promise to tomer sought to invoke arbitration pursuant to the Terms its customers regarding dispute resolution. Therefore, the of Use, nothing would prevent the defendant from uni- plaintiff customers argued that they should not have to use laterally changing the Terms and making those changes arbitration and instead should be able to file their class applicable to that pending dispute if it determined that action lawsuit against the defendant. arbitration was no longer in its interest. In effect, the agreement allowed the defendant to hold its customers ISSUE: Is an arbitration clause illusory, and therefore and users to the promise to arbitrate while reserving its unenforceable, when a defendant company can avoid its own escape hatch. By the provisions of the Terms of Use, promise to arbitrate by amending a provision, whereas cus- the defendant company was free at any time to require a tomers are simultaneously bound to arbitration? consumer to arbitrate and/or litigate anywhere it sees fit, REASONING: When the Terms of Use binds consum while consumers are required to submit to arbitration in ers to arbitration while leaving the defendant company Las Vegas, Nevada. free to litigate or arbitrate whenever it sees fit, no mutu- DECISION AND REMEDY: The court denied the ality of obligation exists. When there is no mutuality of defendant's Motion to Compel Arbitration. agreement, said arbitration agreement is illusory and therefore unenforceable. In this case, The Terms of Use SIGNIFICANCE OF THIS CASE: This case provides gave the defendant the right to change the Terms of Use, explanation of when an arbitration clause is illusory and including the Arbitration Clause, at any time without therefore unenforceable. CRITICAL THINKING Is there enough ambiguity with the word agreement that Zappos could argue that it had an agree- ment 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 agreement to anything? ETHICAL DECISION MAKING When a court makes a decision in a contract case, what values are being elevated by the court? 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