Fagerstrom v. Amazon.com, Inc.
2015 U.S. Dist. LEXIS 143295, 2015 WL 6393948, 141 F.Supp.3d 1051 (2015)
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Rule of Law:
An arbitration agreement is not illusory, despite a clause allowing one party to unilaterally change its terms, if the core obligation to arbitrate is fixed and the party's discretion is limited by the implied duty of good faith and fair dealing.
Facts:
- Andrea Fagerstrom and Allen Wiseley purchased products from Amazon.com.
- Amazon's website advertised products by displaying a struck-through 'list price', a lower 'Amazon price', and the purported savings.
- Fagerstrom purchased a blender, believing she was receiving a discount, but alleges the 'Amazon price' was the standard retail price available from other retailers.
- Wiseley purchased an audio converter, believing he was saving 64% off the list price, but alleges similar products were available for substantially less.
- Plaintiffs allege this pricing practice constitutes false advertising.
- To complete their purchases, both plaintiffs had to click a 'Place your order' button on a checkout page.
- Directly above the button, a notice stated, 'By placing your order, you agree to Amazon.com’s privacy notice and conditions of use,' with the latter phrase hyperlinked to the full document.
- The 'Conditions of Use' document contained a binding arbitration agreement and a provision reserving Amazon's right to 'make changes to our site, policies... and these Conditions of Use at any time.'
Procedural Posture:
- Andrea Fagerstrom and Allen Wiseley filed a putative class action lawsuit against Amazon.com, Inc. in a California state court.
- Plaintiffs alleged violations of California's False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act.
- Amazon removed the case to the U.S. District Court for the Southern District of California, asserting federal jurisdiction under the Class Action Fairness Act.
- Amazon filed a motion to compel arbitration and dismiss the plaintiffs' claims.
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Issue:
Is an arbitration agreement contained within a website's 'conditions of use' unenforceable as either illusory or unconscionable when the company reserves the right to unilaterally change the terms at any time?
Opinions:
Majority - Bashant, J.
No, the arbitration agreement is not unenforceable because it is neither illusory nor unconscionable. The agreement is not illusory because although Amazon reserves the right to change the terms, its core obligation to arbitrate disputes is fixed, and its discretion is constrained by the implied duty of good faith and fair dealing under Washington law. This duty prevents Amazon from arbitrarily modifying the agreement to evade its arbitration obligations. The agreement is not procedurally unconscionable because the notice on the checkout page, with its conspicuous hyperlink, provided reasonable notice of the terms, giving plaintiffs a meaningful choice. It is not substantively unconscionable because its terms are not overly harsh or unfairly one-sided; the unilateral right to amend is limited by good faith, the exemption for intellectual property claims is not wholly one-sided, and the provision for attorney's fees in frivolous cases merely reflects and is made reciprocal by state law.
Analysis:
This decision reinforces the high judicial bar for invalidating online consumer arbitration agreements, particularly those challenged on the basis of unilateral modification clauses. By invoking the implied duty of good faith and fair dealing as a check on a company's discretion, the court provides a powerful tool for defendants to defeat claims that their agreements are illusory. The case also demonstrates the significance of choice-of-law provisions, as the application of Washington law was pivotal. The ruling serves as a guide for businesses on how to structure online terms of service and checkout processes to maximize the enforceability of 'clickwrap' and 'browsewrap' agreements.
