Nevada's Federal District Court Declines to Enforce Browsewrap Arbitration Agreement

Arbitration Mobile Commerce

On September 27, the U.S. District Court for the District of Nevada followed other federal courts and held that an arbitration clause within the Terms of Use agreement on Zappos.com was unenforceable given that users were neither provided with notice of the agreement nor an opportunity to affirmatively assent to the agreement. In re Zappos.com, Inc. Customer Data Sec. Breach Litig., No. 12-325, 2012 WL 4466660 (D. Nev. Sep. 27, 2012). Customers sued Zappos in several federal district courts for damages resulting from a security breach of the company’s website. After those actions were consolidated, Zappos filed a motion to compel arbitration based on the argument that by using the website the customers accepted and agreed to its Terms of Use, which included an agreement to arbitrate all claims arising from use of the website, and which were available through a hyperlink on each page of Zappos.com. Such hyperlinked Terms of Use are known as “browsewrap” agreements. The court held that despite the broad federal policy in favor of arbitration, the company had provided no evidence that the customers clicked on, viewed, or expressly manifested assent to the Terms of Use agreement, there was no acceptance of the Terms of Use provisions by customers, and thus those provisions, including the arbitration clause, were unenforceable. Moreover, the court held that because Zappos retained the unilateral right to revise the Terms of Use, the contract was illusory and therefore unenforceable. Accordingly, the court denied Zappos motion to compel arbitration.