Harris v. Blockbuster Inc.
622 F.Supp.2d 396 (2009)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An arbitration provision is illusory and unenforceable when one party retains the unilateral right to modify the agreement's terms at any time, with immediate effect, and without a savings clause that prevents such modifications from applying to disputes that have already arisen.
Facts:
- Blockbuster Inc. operated an online movie rental service, Blockbuster Online.
- To use the service, customers were required to agree to Blockbuster's 'Terms and Conditions,' which included a mandatory arbitration clause.
- The Terms and Conditions also stated that Blockbuster could modify the terms 'at any time, and at its sole discretion... with or without notice,' and that such modifications would be 'effective immediately upon posting.'
- Blockbuster entered into an agreement with Facebook for a program called 'Beacon.'
- Pursuant to the Beacon program, when a Blockbuster Online customer rented a movie, the title of the movie was transmitted to Facebook.
- Facebook would then broadcast the customer's movie rental choice to the customer's network of Facebook friends.
- A plaintiff, who was a customer of Blockbuster Online, had their movie rental choices shared through this program.
Procedural Posture:
- Plaintiff filed a lawsuit against Blockbuster Inc. in a U.S. District Court, alleging violations of the Video Privacy Protection Act.
- The case was subsequently transferred to the current U.S. District Court.
- Before the case was transferred, Blockbuster Inc. filed a Motion to Compel Individual Arbitration, citing the arbitration provision in its online 'Terms and Conditions.'
- Plaintiff opposed the motion, arguing that the arbitration provision was unenforceable because it was both illusory and unconscionable.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an arbitration provision in a company's terms and conditions become illusory and unenforceable if the company reserves the right to modify those terms at its sole discretion, at any time, with immediate effect upon posting, and without a clause protecting pre-existing disputes from such changes?
Opinions:
Majority - Barbara M.G. Lynn, District Judge
Yes, an arbitration provision is illusory and unenforceable if it is part of a larger agreement that the company can unilaterally modify at any time without a clause exempting pre-existing disputes. Under Texas law, contracts require consideration to be enforceable, and an illusory promise does not constitute valid consideration. The court found Blockbuster's arbitration provision illusory by following the Fifth Circuit's precedent in Morrison v. Amway Corp. In that case, an agreement was deemed illusory because Amway retained the right to unilaterally modify its rules without any limitation preventing those changes from applying retroactively to disputes that had already arisen. The court distinguished this from In re Halliburton Co., where an arbitration clause was upheld because it contained a specific 'savings clause' stating that amendments would not apply to disputes of which the company already had notice. Because Blockbuster's Terms and Conditions contain no such savings clause, its promise to arbitrate is not binding; it could simply amend the provision out of existence at any time, even after a dispute has arisen. Therefore, the promise lacks consideration and is unenforceable.
Analysis:
This decision emphasizes that for an arbitration agreement to be enforceable, the promise to arbitrate must be a binding commitment from both parties. It serves as a significant caution to companies that draft online terms of service, highlighting that a broad, unilateral right to amend terms can render an arbitration clause illusory. The case solidifies the necessity of including a 'Halliburton-type savings clause' that explicitly prevents amendments from applying retroactively to existing disputes. This ruling provides a clear path for challenging arbitration clauses in consumer contracts where companies retain unfettered control over the terms.
