Clicking 'I Agree' Renders Mandatory Arbitration Provision Enforceable

Richard Raysman is a Partner in our New York office.

Day in and day out, Internet users sign various forms of agreements for a variety of reasons, from joining a dating site, to participating in an online auction, to uploading media to a storage locker. These agreements, sometimes known as browse-wrap or click-wrap agreements, are necessary to memorialize and expedite the use of a website pursuant to well-defined rules. More often than not, these agreements substitute for more "traditional" contracts, and they are thus construed as such when contested in court.

A fundamental question intrinsic to contracts is whether an enforceable agreement exists at all. A dispute over the enforceability of an online agreement, and the arbitration provision therein, arose recently in state court in Texas. See Momentis U.S. Corp. v. Weisfeld, No. 05-13-01250-CV (Tex. App. July 23, 2014). Momentis involved a dispute between a marketing company and two of its "independent representatives." To sell its products, Momentis U.S. Corp. (Momentis) contracted with third-party independent contractors called independent representatives (IRs). Bishop and Weisfeld (collectively, Plaintiffs) signed up to be IRs. In order to be accepted as such, prospective IRs must complete and sign Momentis' IR agreement (the Agreement), Policies & Procedures, and submit an application fee. Once the prospective IR pays the application fee, Momentis sends the recruit a "welcome email" which it believes is tantamount to an acceptance of the application. Both the Agreement and the Policies & Procedures contained binding arbitration provisions.

The Plaintiffs completed all the necessary steps and joined Momentis as IRs. In September 2011, at a Momentis conference, its CEO told those gathered that for every IR in attendance who returned the following year and had "gotten at least a customer in the last year and sponsored a representative," Momentis would "pay for your hotel room, your event will be free, and we will give you $500 to be here." The 2012 conference cost $99 to attend, and a hotel room for both nights ran $340. Relying on the offer from the CEO at the previous conference, the Plaintiffs requested either (a) to take advantage of the offer; or (b) to receive reimbursement of their 2012 conference expenses. Each of these requests were denied by Momentis management.

Plaintiffs then filed a class action suit against Momentis alleging violations of the state deceptive trade practices...