District Court Holds Blockbuster Arbitration Provision Unenforceable
A District Court in Texas recently held Blockbuster’s website terms and conditions arbitration provision illusory and therefore unenforceable due to Blockbuster’s right to unilaterally modify it. The District Court cited to established Texas precedent to argue that nothing in the website terms prevented the arbitration provision's retroactive application.
The plaintiff sued blockbuster in connection with the controversial Facebook beacon program and its integration with Blockbuster as a violation of “the Video Privacy Protection Act, 18 U.S.C. § 2710, which prohibits a videotape service provider from disclosing personally identifiable information about a customer unless given informed, written consent at the time the disclosure is sought.” The plaintiffs argued and the court held that the arbitration provision was illusory and therefore unenforceable.
The district court analyzed the Blockbuster Terms and Conditions under Texas law. The terms and conditions state:
More specifically, the District court relied on Morrison v. Amway where the distributors signed Amway’s standard distributorship agreement. Facing disputes relating to the calculation of profits, Amway instituted an arbitration provision and published it in its magazine as well as other media sent to the distributors. Amway required that the distributors sign an acknowledgement form and send it back to Amway. Though all distributors renewed their agreements with Amway, two different groups sued Amway in federal as well as state court, both of which were stayed pending litigation. The arbitrator issued judgments and awards without opinions and the district court confirmed these opinions. The parties appealed their case to the Circuit Court.
The Circuit Court examined Amway’s arbitration policy to determine whether it was a valid agreement to arbitrate under Texas law. While the distributors had agreed to conduct their business according to Amway’s Code of Ethics, which would be amended from time to time, “the only express limitation on that unilateral right [was] published notice.” The Circuit Court was concerned that this unqualified right to amend the arbitration policy might apply to disputes arising before as well as after its publication. The Circuit Court held that this unqualified right to modify the Code of Ethics was unenforceable.
The Circuit Court relied on two Texas Supreme Court decisions. In one case, Texas Supreme Court had concluded that application of the arbitration policy 10 days after reasonable notice would be enforceable. In another case, however, the Texas Supreme Court plainly stated that “if the defendant-employer retained the right to ‘unilaterally abolish or modify’ the arbitration program, then the agreement to arbitrate was illusory and not binding on the plaintiff-employee.”
The cases are Harris v. Blockbuster Inc., No. 09-217, (N.D. Texas Apr. 15, 2009) and Morrison v. Amway, 517 F.3d 248 (5th Cir. 2008).