The First Circuit just faced a fascinating formation issue: if a customer cannot see what she is signing, and no employee reads it to her or ensures she knows there are legal terms, is there a contract? With Justice Souter sitting by designation on the panel, the court answered “no,” and thereby kept a class action in the courts. National Federation of the Blind v. The Container Store, Inc., 2018 WL 4378174 (1st Cir. Sept. 14, 2018).
The Container Store case involves blind plaintiffs who allege the retailer violated discrimination laws by failing to use tactile keypads on its point-of-sale (POS) devices. In response, the retailer moved to compel individual arbitration for the plaintiffs who had enrolled in a loyalty program (which has an arbitration agreement and class action waiver). The customers who enrolled in the loyalty program in a store alleged that they enrolled with the assistance of a sales associate, and were never presented with the terms and conditions of the program, including the arbitration provision. In response, the retailer presented excerpts from a training manual, which instructed employees to give blind plaintiffs the opportunity to review the terms on the POS device. Critically, the retailer did not have evidence that the employee who helped sign up the named plaintiffs had in fact read the terms and conditions to those plaintiffs or otherwise made them aware that there were any terms and conditions. Therefore, the district court found no agreement to arbitrate was formed between the Container Store and those plaintiffs, and denied the motion to compel arbitration.
On appeal, the First Circuit affirmed. It first disagreed with the Container Store’s argument that this dispute was one about the validity of the loyalty agreement as a whole, such that it must be heard by an arbitrator. Instead, it concluded that this was a fundamental dispute about the formation of the arbitration agreement, which was properly addressed by the court. (The First Circuit even got punny: “We reject the Container Store’s attempt to re-package Plaintiffs’ arguments as one regarding validity…”)
It then got into the guts of the argument. It affirmed the critical findings of the district court: “it is undisputed that the in-store plaintiffs had no way of accessing the terms of the loyalty program, including the arbitration agreement”; and “No store clerk actually informed them that an arbitration agreement existed as a condition of entering the loyalty program.” Therefore, even though “inability to read” is not generally a defense to contract formation, the court found no arbitration agreement was ever formed with these plaintiffs. Unlike other situations where plaintiffs who could not read knew or should have known that they were signing documents that implicated legal rights, in this case the court found “zero hint” that the loyalty program involved terms and conditions.
Finally, with respect to a class of plaintiffs who had signed up for the loyalty program online, and thereby did have notice of the terms and conditions, the court still denied the motion to arbitrate. It found the arbitration agreement was illusory and therefore unenforceable under Texas law. The court found language in the arbitration agreement gave the Container Store “the right to alter the terms of the loyalty program, including the arbitration provision, ‘at any time'” and the change would have retroactive effect, affecting even parties who had already invoked arbitration.
This case reminds me of the First Circuit’s big decision in Uber in June, when the court found that the arbitration agreement in Uber’s terms also was not conspicuous enough to be binding. In other words, this issue is not limited to individuals who have disabilities, but gets at the fundamental question of how much information do consumers need to validly form a contract.
This case also makes me smile because guess which firm represented the Container Store? Sheppard Mullin, the same firm that was not able to enforce its own arbitration agreement with its client in the last post. Rough arbitration month for those attorneys.