[Ed. note: This case is a bit old, but an important one. It somehow got lost in the pile of papers sitting on my desk. Thanks to San Antonio arbitrator and mediator Don Philbin for bringing this case to our attention back in April. ] The United States District Court for the Northern District of Texas held that an arbitration clause in Blockbuster’s Online User Agreement is illusory, thus, unenforceable and denied Blockbuster’s motion to compel arbitration in a class-action privacy suit. In Harris v. Blockbuster, Inc., No. 3:09-cv-217-M (N.D. Tex. Apr. 15, 2009), Harris is a customer of Blockbuster’s Online movie rental service. Blockbuster’s “Terms and Conditions” provision in the User Agreement includes an arbitration clause that states that “[a]ll claims, disputes or controversies . . . will be referred to and determined by binding arbitration.” The agreement also purports to waive the right to commence a class-action suit. In order to join the movie rental service, customers were required to click on a box certifying that they had read and agreed to Blockbuster’s Terms and Conditions. The User Agreement also includes the following clause: Blockbuster may at any time, and at its sole discretion, modify these Terms and Conditions of Use, including without limitation the Privacy Policy, with or without notice. Such modifications will be effective immediately upon posting. You agree to review these Terms and Conditions of Use periodically and your continued use of this Site following such modifications will indicate your acceptance of these modified Terms and Conditions of Use. If you do not agree to any modification of these Terms and Conditions of Use, you must immediately stop using this Site. On the other hand, Blockbuster has an agreement with Facebook, in which Facebook displays Blockbuster’s customers movie rental choices in the customers’ Facebook profile and then broadcasts the rental choice to the customers’ Facebook “friends.” Harris filed a class-action lawsuit claiming that the release of the movie rental records by Blockbuster violates the Video Privacy Protection Act, which prohibits a videotape service from providing personal identifiable information without the customer’s consent. The Act provides for liquidated damages of $2,500 for each violation. Blockbuster filed a motion to compel arbitration. Addressing the plaintiffs allegations that the arbitration provision is unenforceable because it is illusory (not supported by consideration), the court highlighted the legal standard articulated by the Fifth Circuit in Morrison v. Amway Corp. 517 F.3d 248 (5th Cir. 2008); The Morrison court held that the provision was illusory because “[t]here is no express exemption of the arbitration provisions from Amway’s ability to unilaterally modify all rules, and the only express limitation on that unilateral right is published notice. While it is inferable that an amendment thus unilaterally made by Amway to the arbitration provision would not become effective until published, there is nothing to suggest that once published the amendment would be inapplicable to disputes arising, or arising out of events occurring, before such publication. After discussing Morrison at length, the court held that Blockbuster’s arbitration agreement is illusory because Blockbuster has sole discretion to unilaterally amend the arbitration provision and the arbitration agreement contains no clause limiting the application of the amendment to disputes occurring after the date of the amendment. Finally, because the court concluded that the arbitration provision is illusory, the court did not discuss the issue of unconscionability. Accordingly, the court denied Blockbuster’s motion to compel arbitration. Technorati Tags: arbitration, ADR, law, Harris v. Blockbuster

The One Hundred Eleventh United States Congress began on January 3, 2009 and will last till January 3, 2011. Following is a summary of some alternative dispute resolution bills currently being considered during this session. Click on the bill number for its text and on the status link to find the bill’s most recent legislative action. Stay tuned to Disputing for more legislative updates! The Arbitration Fairness Act of 2009 would ban mandatory pre-dispute arbitration in employment, consumer, and franchise contracts. Senate version: S. 931 and Status. House version: H.R. 1020 and Status. The Employee Free Choice Act of 2009 would amend the National Labor Relations Act to require first mediation and then binding arbitration if both parties are unable to reach an agreement within a certain time frame. Senate version: S. 560 and Status. House version: H.R. 1409 and Status. The Payday Loan Reform Act of 2009 would amend the Truth in Lending Act to establish additional payday loan requirements to protect consumers. This bill prohibits a mandatory arbitration clause that is “oppressive, unfair, unconscionable, or substantially in derogation of the rights of consumers.” H.R. 1214 and Status. The Fairness in Nursing Home Arbitration Act of 2009 would render pre-dispute arbitration clauses in nursing home contracts unenforceable. S. 512 and Status. The Mortgage Reform and Anti-Predatory Lending Act of 2009 would amend the Truth in Lending Act of 1968. The bill provides that “[n]o residential mortgage loan and no extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer, other than a reverse mortgage may include terms which require arbitration of any other nonjudicial procedure as the method for resolving any controversy.” H.R. 1728 and Status. The Labor Relations First Contract Negotiations Act of 2009 would amend the National Labor Relations Act to require the arbitration of initial contract negotiation disputes. H.R. 243 and Status. The Consumer Fairness Act of 2009 would treat arbitration clauses which are unilaterally imposed on consumers as an unfair and deceptive trade practice and prohibit their use in consumer transactions. H.R. 991 and Status. Technorati Tags: arbitration, ADR, law, legislation,

In an unpublished opinion, the United States Court of Appeals for the Fifth Circuit held that an International Chamber of Commerce (ICC) arbitral tribunal did not exceed its powers and affirmed the confirmation of the arbitral award. Retired United States Supreme Court Justice Sandra Day O’Connor sat by designation with Circuit Judges Wiener and Stewart. In Saipem America v. Wellington Underwriting Agencies Limited, No. 08-20247 (5th. Cir. June 9, 2009), Samedan Mediterranean Sea (“Samedan”), later known as Noble Energy Mediterranean, Ltd., contracted with Heerema Marine Contractors Nederland B.V. (“Heerema”) to transport an oil platform from Texas to Israel. The transport of the platform was insured by several underwriters (the “Underwriters”), naming Heerema and Samedan as principal assureds. Heerema subcontracted Saipem America, Inc. (“Saipem”) to serve as Samedan’s Certified Verification Agent and marine warranty surveyor. The subcontract between Saipem and Heerema provides the following dispute resolution clause: Any dispute arising out of or in connection with this Subcontract which cannot be amicably settled shall be referred to arbitration in The Hague, The Netherlands, in accordance with the Rules of the International Chamber of Commerce currently in force. Any settlement agreement or arbitral award shall be final and binding upon Parties. In December 2002, the oil platform suffered extensive damage while in transport. Heerema and Samedan filed insurance claims with the Underwriters for damages. The Underwriters, in turn, made liability claims against Saipem, based on Saipem’s contracts with Samedan. Samedan and the Underwriters submitted their claims to arbitration, pursuant to the arbitration agreement. In particular, they argued that Saipem was guilty of negligent misrepresentation, because Saipem had issued a certificate of approval that the platform could be safely towed from Texas to Israel. The arbitral tribunal found Saipem liable and awarded Underwriters $1,110,657 in actual damages, $399,000 in attorneys’ fees, and $105,000, which corresponds to 50% of the costs of arbitration. The district court confirmed the award and Saipem appeals. Discussing first the parties’ dispute whether the U.S. Supreme Court’s recent decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S. Ct. 1396 (2008) prevents the court’s review of the arbitration award on nonstatutory grounds (“manifest disregard of the law” or contrary to public policy), the court cited Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009) and concluded that the court may vacate an arbitration award only if a statutory ground supports the vacatur. Moving to the negligence claim, the court considered Saipem’s claim under Federal Arbitration Act (FAA) Section 10(a)(4). Specifically, Saipem argued that “the arbitrators exceeded their powers” because the award is for a claim of negligence, claim that “it is not rationally inferable from the contract.” The court looked into the contract and the parties’ submissions to the tribunal and found that the parties had agreed to submit the claim to arbitration. Because the parties had granted broad authority to the tribunal, the court concluded that the tribunal did not exceed its authority by deciding the claim of negligence. Finally, turning to the indemnity claim and in response to Saipem’s argument that the tribunal violated FAA Section 10(a)(4), the court concluded that “[T]he arbitral tribunal made detailed findings which are well-supported by governing law, and it did not exceed its powers or so imperfectly execute them that a mutual, final, and definite award was not made. “ Accordingly, the court affirmed the district court’s judgment confirming the award. Technorati Tags: arbitration, ADR, law, Fifth Circuit, Citigroup Global Markets, Hall Street

The Kluwer Arbitration Blog had a recent post discussing the the issue of whether international arbitral awards should be published. As this parallels the arguments we find in U.S. arbitration, we thought you might be interested in reading it. The authors, Alexis Mourre and Alexandre Vagenheim, elaborate on the following questions: 1. Is Arbitral Jurisprudence anything more than a myth? 2. How does persuasiveness of past awards operate? 3. Is Precedent the product of the intrinsic qualities of one or more particularly well-reasoned awards? 4. Why do arbitral awards need to be available? 5. Why is reliance on arbitral precedents not frequent? 6. Should all awards be published? 7. Should awards be published with the names of the arbitrators? 8. How could a mass publication of complete, unabridged awards be achieved? 9. Is confidentiality a valid objection to the publication of arbitration awards? 10. Is there really an overriding principle of confidentiality? Read the post here: Arbitral Jurisprudence in International Commercial Arbitration: The Case For A Systematic Publication Of Arbitral Awards In 10 Question…, Kluwer Arbitration Blog, May 28, 2009.