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James v. McDonald's Corp.

United States Court of Appeals, Seventh Circuit
417 F.3d 672 (2005)
ELI5:

Rule of Law:

A participant in a promotional contest agrees to be bound by the contest's official rules, including a mandatory arbitration clause, by the act of participation, provided they were given a reasonable opportunity to review those rules. Claims of fraudulent inducement concerning the entire contract must be decided by an arbitrator, whereas a court may only adjudicate claims of fraudulent inducement directed specifically at the arbitration clause itself.


Facts:

  • In 2001, McDonald’s Corporation sponsored a promotional game called 'Who Wants to be a Millionaire.'
  • The Official Rules of the game, which contained a mandatory arbitration clause, were posted in participating restaurants, printed on tray liners, and referenced on food packaging.
  • Linda James purchased french fries at a McDonald's drive-thru and received a game card.
  • James believed her game card was a grand prize winner worth one million dollars and submitted it to the McDonald's redemption center.
  • The redemption center informed James that her card was a 'Low-level Prize Game Card' and not a grand prize winner.
  • Subsequently, the FBI arrested employees of Simon Marketing, the company that administered the game, for allegedly stealing winning game cards.

Procedural Posture:

  • Linda James filed suit alleging state law claims against McDonald's Corporation and others in the U.S. District Court for the Western District of Kentucky.
  • The action was transferred to the U.S. District Court for the Northern District of Illinois as part of a multi-district litigation proceeding.
  • McDonald's filed a motion to compel arbitration and stay the judicial proceedings based on the game's Official Rules.
  • The district court granted McDonald’s motion, ordering James to arbitrate her claims.
  • Nearly a year later, after not initiating arbitration, James filed a motion for the district court to reconsider its order.
  • The district court denied the motion for reconsideration.
  • The district court then dismissed James's case with prejudice for failure to prosecute in arbitration.

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Issue:

Does a consumer's participation in a promotional game constitute acceptance of the game's official rules, including a mandatory arbitration clause, even if the consumer did not actually read the rules?


Opinions:

Majority - Ripple, J.

Yes. A consumer's participation in a promotional game constitutes acceptance of the game's official rules, including a mandatory arbitration clause, if the rules were made available for review. By participating in the game, James agreed to abide by its rules to win the prize. A participant in a prize-winning contest must comply with the terms of the contest’s rules to form a valid and binding contract. The court found that the Official Rules were clearly identified to James as being part of the contest, and it is a general principle that a contract need not be read to be effective; a party who accepts it takes the risk of unread terms. Furthermore, under the doctrine from Prima Paint Corp. v. Flood & Conklin Mfg. Co., James's claim that the entire contest was fraudulent is a matter for the arbitrator to decide, as she did not allege she was fraudulently induced into agreeing to the arbitration clause specifically. Finally, James failed to meet her burden under Green Tree Financial Corp.-Alabama v. Randolph to show that the costs of arbitration were prohibitively expensive, as she did not provide sufficient evidence or explore available hardship provisions.



Analysis:

This decision reinforces the validity of browse-wrap and terms-in-the-box style agreements in the consumer context, extending the principle to promotional games. It affirms that participation can constitute assent to terms, even if unread, so long as the consumer had a reasonable opportunity to review them. The case also strictly applies the Prima Paint doctrine, creating a clear distinction between challenges to a contract as a whole (which go to arbitration) and specific challenges to the arbitration clause itself (which can be heard by a court). This holding makes it more difficult for plaintiffs to avoid arbitration clauses by alleging the underlying contract was fraudulent.

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