Website user agreements generally fall into one of three categories:
- Clickwrap Agreements – require a user to agree to the terms of a contract by selecting an “I accept” or “I agree” button on the website after being presented with the terms or a link thereto.
- Sign-In Wrap Agreements – notifies the user of the existence of the website’s terms and conditions and advises the user that they are agreeing to the terms when registering an account or signing up. The user is presented with a hyperlink to the terms and must affirmatively click to accept the terms.
Courts generally enforce clickwrap agreements. The validity of browsewrap and sign-in wrap agreements, on the other hand, turns on whether the user has actual or constructive knowledge of a site’s terms and conditions prior to using the site. This is usually a fact-intensive inquiry.
The effect of change-of-terms provisions on the enforceability of these three types of user agreements and, specifically, mandatory arbitration provisions contained therein, has been the subject of increased litigation over the past five years. One of the more recent cases is Stover vs. Experian Holdings, Inc., issued by the 9th Circuit in October 2020.1
In an interesting twist, Experian argued on appeal that the broader 2014 arbitration clause should control because Stover’s “mere website visit” in 2018 after the parties terminated their business relationship was not enough to “activate” the change in terms. The 9th Circuit agreed, holding that a single website visit four years after assent to a contract containing a change-of-terms provision is not enough to bind the parties to terms in the current version of the contract of which the visitor is unaware. In so holding, the court explained, “Stover had no obligation to investigate whether Experian issued new terms without providing notice to her that it had done so. Indeed, the opposite rule would lead to absurd results: contract drafters who included a change-of-terms provision would be permitted to bind individuals daily, or even hourly, to subsequent changes in the terms.”
Unlike California and Illinois, Texas law does not allow parties to retain an unrestrained right to unilaterally modify arbitration agreements retroactively and without notice. Any attempt to do so renders the arbitration agreements illusory and, therefore, unenforceable. Under Texas law, contracts must be supported by consideration. In the arbitration agreement context, that consideration is typically a mutual agreement to arbitrate. However, if one party can avoid its promise to arbitrate by amending the agreement retroactively, there is no consideration and, therefore, an enforceable agreement was never formed. Put differently, a promise is illusory if it does not effectively bind the promisor.
In 2018, the 1st Circuit was faced with a challenge to the enforceability of a mandatory arbitration clause in the terms and conditions for the Container Store’s loyalty program. A blind customer signed up for the loyalty program online, which required her to check a box to the immediate left of “I agree to the [loyalty program] terms and conditions,” which were hyperlinked. In the litigation, the customer denied she was aware of any arbitration agreement.
The loyalty program agreement contained a “Change to the Terms” provision, which provided:
We [,the Container Store,] reserve the right, at our discretion, to change, modify, cancel, add or remove any or all portions of these terms, any policy, FAQ, or guideline pertaining to the [loyalty program] at any time. If any terms change in the future, we will let you know by posting an update to www.containerstore.com/pop with the most recent modification date. Any changes or modifications will be effective immediately upon posting the revision and you waive any right you have to receive special notice of such change. By continuing to use the [loyalty program], you agree to the revised terms.
[The Container Store] reserves the right, without limitation, to terminate, change, limit, modify, or cancel any [Loyalty Program] terms, conditions, rules, regulations, benefits … at any time, with or without notice, even though such changes may affect the value of already-issued … benefits.
The Court held that the provision allowing the Container Store to unilaterally change the terms of the loyalty program at any time was a “text-book definition of illusory” under Texas law.
Notably, the Container Store also argued that any illusory provision of the terms could be severed per the loyalty program agreement’s severance clause. That severance clause provided that “[i]f any provision of these terms is found to be unlawful, void, or unenforceable, then that provision will be deemed severable from these terms and will not affect the validity or enforceability of any remaining provisions.” However, the Court rejected this argument, explaining that if the Court did so, it “would be reviving a contract we have found was never formed for its lack of consideration, omitting the change-in-term clause that was fatal to the contract’s proper formation, to therefore conclude a contract was formed.” Therefore, the Court affirmed the district court’s order denying the Container Store’s motion to compel arbitration “because no agreement was formed between [the customer] and the Container Store relating to her enrollment in the loyalty program.”
1 Stover v. Experian Holdings, Inc., 978 F.3d 1082 (9th Cir. 2020).
2 Miracle-Pond v. Shutterfly, Inc., 19 CV 04722, 2020 WL 2513099, at *6 (N.D. Ill. May 15, 2020).
3 See Nat’l Fed’n of the Blind v. The Container Store, Inc., 904 F.3d 70 (1st Cir. 2018).