Web Arbitration Clauses: Federal Court Upholds “Terms of Use”


Web Arbitration Clauses: Federal Court Upholds “Terms of Use”

Web arbitration graphic

On June 7, 2019, the United States District Court for the Northern District of Illinois ruled in favor of retailer Wayfair LLC, and its parent company, Wayfair Inc., in a decision that both (1) upholds a web arbitration agreement and (2) provides useful guidance in presenting “terms of use” to website shoppers. What can we learn from this case?


In Gorny v. Wayfair Inc., a consumer filed a class action lawsuit against Wayfair LLC, the famous Internet seller, and its parent company, Wayfair Inc. Wayfair moved to stay the case and compel enforcement of a web arbitration agreement based on provisions in the “terms of use” published on its website. The court granted Wayfair’s motion.

The Web Arbitration Clause

Wayfair LLC’s website included an arbitration requirement which, on its face, required all disputes to be resolved via arbitration, and also included a waiver as to so-called representative actions. In other words, the clause required that customer disputes be handled one claim at a time in arbitration.

Wayfair LLC included these web arbitration provisions in its website “terms of use,” a link to which appears on every page of the site. Visitors to the site were admonished that “by continuing to the site, you agree to the updated Terms of Use and Privacy Policy,” and, before checkout, purchasers were told that “[b]y placing an order, you are agreeing to our Privacy Policy and Terms of Use.” According to the court, “[t]his message appeared immediately below the large purple ‘Place Your Order’ button that Gorny had to press to initiate his order …”

The court’s decision included a screenshot of the check out page, which, although somewhat blurry, makes the point:

The checkout page on Wayfair’s website showing the key “By placing an order …” language just below the purple button in bold and in the same size font.

The web arbitration agreement, the court noted, “specifies how the parties should notify one another of a dispute and sets out the parameters for any eventual arbitration.”

Before turning to the decision, a few related matters. First, the “terms of use” expressly incorporate the company’s privacy policy. This is a good practice which seeks to make the terms of any such policy binding on the website visitor and the retailer. Of course, this means that you need to live up to what’s contained in your privacy policy, and carefully review it with each new marketing initiative, third-party relationship, or change in law to ensure it is amended as needed. (We can leave for another day, and another blog post, how best to effectuate privacy policy changes, particularly in light of what the FTC thinks.)

Second, it’s important to consider whether your website should include a gating mechanism along the lines of the one mentioned in the decision — a “clickthrough provision” that extends the terms of use and privacy policy to all site visitors, not just those that purchase products: “By visiting our site, you agree to be bound by our terms of use [linked] and privacy policy [linked] whether or not you purchase product from us.” To get past this, the consumer would click a box that says, “AGREE,” for example. With an increasing number of privacy related class actions being litigated (at great cost) across the country, this kind of a gating agreement might keep you in arbitration in those kinds of cases as well.

The Decision: Web Arbitration Clause Upheld

Gorny opposed Wayfair’s motion with standard arguments in the class action lawyer’s arsenal against web arbitration agreements. The court rejected all of them.

First, he argued that his claims fell outside the scope of the web arbitration clause, which is another reminder to ensure that these clauses are as broad as possible. Second, he argued that no binding agreement was ever formed, which was a direct attack on Wayfair’s approach to presenting the terms of use. Third, he claimed that even if the web arbitration agreement was binding, it did not apply to claims against the parent company, Wayfair Inc.

What about the parent …

Let’s start with the third argument — did the terms of use apply to the parent company? The arbitration provisions did not expressly mention Wayfair Inc., or refer expressly to “parent” or “parent corporation,” points seized on by Gorny. But, the agreement did state that it was binding on corporate “affiliates,” and the judge ruled (citing Black’s Law Dictionary) that the term affiliates includes any “subsidiary, parent, or sibling corporation.”

Maybe the lesson here is to include expressly “any parent corporation, subsidiary, or sibling corporation,” for the sake of clarity. But, as in any drafting exercise, there are risks that go along with added specificity. It might also make sense to extend such arbitration agreements to include certain service providers — for example, those involved in data collection, analysis, and marketing — in order to prevent piecemeal court and arbitral proceedings which may give rise to a host of potentially expensive (and time-consuming) interactions. It might be complicated to implement such a global arbitration regime, but it could be worth it.

Was there a binding agreement?

Before turning to the scope of the agreement, on what basis did the court determine that a binding contract was entered into by Gorny and Wayfair LLC?

The court first noted that whether an agreement exists is governed by state contract law principles, and Wayfair’s terms of use provided that Massachusetts law governed their dispute. It should be noted that choice of law provisions can help Internet sellers understand the rules of the road in terms of making their website-based agreements binding, as well as what specific terms those agreements should include (or not include).

Although the court pointed out the binding nature of the choice of law provision, it turned to more general legal principles about contract formation to answer the core question: Was there, the court asked, a binding “offer and acceptance of an online purchase agreement”?

The court said that the contract didn’t have to be read to be effective, provided the web pages “presented to the consumer adequately communicate all the terms and conditions of the agreement, and whether the circumstances support the assumption that the purchaser receives reasonable notice of those terms.” When you choose what law controls, you ought to look at how cases applying that law frame this issue — if they frame it in this fashion, it will be helpful to your cause.

The court pointed to decisions that upheld contract formation where a “visible hyperlink appeared on each of the pages involved in placing an order,” including language at the point of purchase that matched the language presented by Wayfair (“[a]ll sales are subject to [retailer’s] Term[s] and Conditions of sale.”

The overarching question is, considering all of the circumstances, whether “a reasonable person would be placed on notice that there were terms and conditions attached to the purchase and that it would be wise to find out what the terms and conditions were before making a purchase.”

Gorny v. Wayfair, Inc., quoting Hubbert v. Dell Corp., 359 Ill. App. 976, 835 N.E.2d 112 (2005)

In Gorny, and the cases it cited, the clicking of the “Place Your Order” resulted in a binding agreement being created. The Gorny court rejected the argument that the plaintiff did not see the terms of use — in part because Gorny relied on cases involving so-called “browsewrap” agreements (which do not include a specific manifestation of agreement by, for example, clicking a website button or checking a box). Even then, the court noted, such “browsewrap” agreements can be enforceable under some circumstances. But, the judge didn’t need to reach that question.

The scope of arbitration …

The final argument made by Gorny was that his claim fell outside of the scope of the arbitration clause. Generally, you can avoid a court wading into this question by making it clear in your arbitration provisions that the arbitrator will decide questions of scope, i.e., arbitrability. You can, and also should, make clear that the arbitrator has the authority to determine the legality of the arbitration clause, although some courts might not enforce that requirement.

It’s worth reading the court’s analysis of Gorny’s fevered efforts to argue that the “terms of use” did not apply to sales (including that it should be called “terms of sale” to be enforceable). But, at bottom, the court found that these arguments ignored the express language contained in the terms of use, which shouldn’t have been a surprise, the court explained, “given that the ‘use’ of a retail website like Wayfair typically involves purchasing products.”

Final thoughts

If only to address the growing (and costly) scourge of class action lawsuits, commercial websites need to take seriously the need for terms of use/terms and conditions which include arbitration clauses. The Gorny case provides a good starting point to review your approach and decide on the steps you need to take — whether they involve introducing terms of use to your site for the very first time, or beefing up what you already have in place.

If you want to read more about arbitration, check out our prior post about class arbitration (which we’ll update to address the recent U.S. Supreme Court decision in Lamps Plus v. Varela), one that discusses the seminal case of DirectTV, Inc. v. Imburgia, and another which offers a (hopefully) useful discussion of thehistory of attacks on consumer arbitration clauses, most of which have fallen on deaf ears at the U.S. Supreme Court, and what we can learn from it.

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