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Zappos.com Loses Arbitration Bid in Data Breach Class Action Lawsuit
By Sarah Pierce
After dedicating quite a bit of coverage to the growing number of companies placing mandatory arbitration clauses in their user contracts, effectively banning consumer class action lawsuits, it was a welcome repose yesterday to read an article on Forbes.com about a court shooting down Zappos.com’s request to force users into arbitration following the massive Zappos data breach that occurred in January.
Nearly 24 million consumers were affected by the Zappos data breach, sparking dozens of class action lawsuits against the company. Zappos tried to send the lawsuits to arbitration based on the arbitration clause in its user agreement, but a federal court recently struck down the agreement for being too obscure and deceptive.
The main problem, according to the court, is that the arbitration clause is buried as a “snippet” in a 4-page Terms of Use contract, which can only be found by clicking on an obscure link on the site.
“We cannot conclude that Plaintiffs ever viewed, let alone manifested assent to, the Terms of Use. The Terms of Use is inconspicuous, buried in the middle to bottom of every Zappos.com webpage among many other links, and the website never directs a user to the Terms of Use. No reasonable user would have reason to click on the Terms of Use, even those users who have alleged that they clicked and relied on statements found in adjacent links, such as the site’s ‘Privacy Policy,’” the court said.
Later, the court blasts Zappos for trying to bind users into arbitration simply because they browse the site. According to the court:
“The arbitration provision found in the Zappos.com Terms of Use purportedly binds all users of the website by virtue of their browsing. However, the advent of the Internet has not changed the basic requirements of a contract, and there is no agreement where there is no acceptance, no meeting of the minds, and no manifestation of assent. A party cannot assent to terms of which it has no knowledge or constructive notice, and a highly inconspicuous hyperlink buried among a sea of links does not provide such notice. Because Plaintiffs did not assent to the terms, no contract exists, and they cannot be compelled to arbitrate.”
Now that the court has ruled Zappos.com’s arbitration clause unenforceable, the class action lawsuits against the company will likely proceed. The cases have been consolidated into a single class action lawsuit entitled In re: Zappos.com Inc., Customer Data Security Breach Litigation (MDL No. 2357), U.S. District Court, District of Nevada.
The Zappos.com Data Breach Class Action Lawsuit is seeking damages and injunctive relief for consumers affected by the hack, including that Zappos pay for credit monitoring and identity theft insurance.
UPDATE: On Sept. 12, 2019, a proposed settlement was reached that would provide a 10 percent discount to the 24 million consumers affected by a 2012 Zappos data breach.
UPDATE 2: October 2019, the Zappos data breach class action settlement is now open. Click here for more information.
Updated October 11th, 2012
All class action and lawsuit news updates are listed in the Lawsuit News section of Top Class Actions
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