Many consumer-product companies invite customers to subscribe to an e-newsletter or offer discount coupons on their websites. Sometimes, a customer is given the opportunity to subscribe to a mailing list when visiting the retailer’s brick-and-mortar stores. These newsletters are an effective way of getting promotional information out to potential customers who have already expressed an interest in the type of product on offer. Consumers may find out, however, that in exchange for news about a company’s products and a few discount coupons, they have forfeited the right to bring a lawsuit against the company. The simple act of clicking “yes” may mean that they have agreed to arbitrate any future disputes with the company.

ArbitrationIn the case of AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011), the Supreme Court held that an arbitration clause in a consumer contract could compel arbitration of any dispute on a one-on-one basis, pre-empting state laws that prohibit contracts from compelling consumers to enter into class-wide arbitration. More and more consumer contracts contain boilerplate arbitration clauses. Some companies appear to be willing to go beyond a boilerplate clause. The New York Times reported on April 17, 2014, that General Mills “quietly added language to its website to alert consumers that they give up their right to sue the company if they download coupons, ‘join’ it in online communities like Facebook, enter a company-sponsored sweepstakes or contest or interact with it in a variety of other ways.” The company later issued a clarification, in which it stated that the new arbitration policy would not apply to people who access its Facebook or Twitter accounts. Instead, the policy would apply only to online communities hosted by General Mills. These communities send out regular e-mails containing recipes and coupons to interested consumers.

There are strong federal policies that favor arbitration instead of litigation, even in consumer cases. But courts are not inclined to order arbitration every time it appears in a contract.

Arbitration clauses are contractual, and are subject to scrutiny for unconscionability. In the case of Gandee v. LDL Freedom Enterprises, Inc., 176 Wn. 2d 598, 293 P.3d 1197 (2013), the Washington Supreme Court upheld a trial court’s determination that a mandatory arbitration clause in a debt adjustment contract was unconscionable. The arbitration clause called for arbitration to be conducted in Orange County, California; required the losing party to pay the winner’s expenses, including attorney’s fees; and provided that disputes had to be submitted for arbitration “within 30 days from the disputed date or claim.” All three provisions were held unconscionable. Because the unacceptable terms “permeated” the arbitration agreement, the court held that the arbitration requirement was unenforceable.

In another recent case, Chavarria v. Ralphs Grocery Co., 733 F.3d 916 (9th Cir. 2013), the U.S. Ninth Circuit Court of Appeals held that an arbitration clause in an employment contract was unconscionable. The arbitration agreement provided that Ralphs would select the arbitrator in employee-initiated proceedings, and the fee-apportionment provisions of the agreement had the effect of pricing employees out of the process. Further, the court noted that Ms. Chavarria was presented with the arbitration agreement on a “take it or leave it” basis as a condition of applying for employment, and she was not shown the terms of the agreement until three weeks after she “agreed” to it.

A claim of unconscionability is not the only hurdle to the enforceability of an arbitration agreement. In Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764 (3d Cir. 2013), the Third Circuit held that a motion to compel arbitration will be considered without further proceedings if the pleadings in a case showed that the dispute was subject to an enforceable arbitration clause. If, however, the complaint is unclear about the existence of an arbitration agreement, or if the party opposing arbitration shows facts that cast doubt on the existence of such an agreement, the parties will be entitled to discovery on the issue of arbitrability. If the party who opposes arbitration shows that there is a genuine dispute as to the enforceability of the arbitration clause, the court may then proceed summarily to a trial regarding “the making of the arbitration agreement or the failure, neglect, or refusal to perform” that agreement. The presence of an arbitration agreement, ordinarily intended to avoid the time and expense of litigation, could thus end up stirring up more litigation before the merits of the underlying dispute are resolved.

The arbitration policy announced by General Mills surprised many commentators and consumers. It signaled an unprecedented change to the scope of the policy. Whether that policy will survive a court challenge remains to be seen.

UPDATE

On April 19, General Mills announced that it was reversing its decision, stating that “the arbitration provisions are void, and that they are not, and never have been, of any legal effect.” In its statement, General Mills stated that it “never imagined” the reaction that the arbitration terms generated.