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.