The Federal District Court for the Northern District of Texas has decided
that an arbitration clause in a Blockbuster Inc. contract with its customers
was illusory and could not be enforced by Blockbuster.
The lawsuit was brought by customers after the names of movies the customers rented from Blockbuster were published on Facebook under a contract between Blockbuster and Facebook. Customers claimed that such publication violated the Video Privacy Protection Act which prohibits a videotape service provider from disclosing personally identifiable information about a customer without the customer’s written consent. Blockbuster attempted to invoke the binding arbitration clause, taking the position that the court had no authority to decide the underlying issue and that it must be decided by arbitration.
The Blockbuster/customer contract contained a provision providing basically that the contract could be amended by Blockbuster “at its sole discretion” and “at any time.” The amendment became effective merely by posting it to the Blockbuster internet website. This right to amend did not exclude the arbitration provision The customers countered that the arbitration provision was “illusory” and that Blockbuster could not unilaterally change the rules of the game.
The court concluded that the arbitration provision was “illusory and unenforceable” and thus determined that the customers were not compelled to have their claims arbitrated.
The moral of this incident is that corporations should be very careful about including this type of unilateral right to amend in their contracts without first seeking legal advice from their attorney. It should be noted that this case applies only to Texas contracts. No attempt has been made by yours truly to determine the status of the law on this issue in other state or federal jurisdictions.