By Brandyn Arnold, CLS ’20
The First Circuit recently addressed the issue of whether people can be bound by an arbitration agreement of which they were not made aware. An advocacy group for the blind filed a lawsuit against the Container Store alleging that the company’s use of visual, touch screen point of sale devices constituted discrimination in violation of federal and state law. The Container Store sought to stay the proceedings, arguing that the customers agreed to arbitrate any disputes when they signed up for the company’s loyalty program. The First Circuit, with Justice David Souter sitting by designation, affirmed the district court’s decision to deny compelling arbitaration, finding that the customers never actually agreed to the arbitration clause. National Federation of the Blind v. The Container Store, Inc., No. 16-2112, 2018 WL 4378174 (1st Cir. Sept. 14, 2018).
The court begins its analysis by focusing on whether the issue of the arbitrations clause’s enforceability itself should have been resolved by an arbitrator. While the validity of an agreement as a whole should be determined by an arbitrator, a challenge to the formation of the arbitration clause can properly be considered by a court. Considering the challenge to the arbitration agreement to be based upon the contract principles of offer and acceptance, the court considers the issue to be whether there was the formation of a contract to arbitrate. Therefore, the court holds that the district court was an appropriate forum to resolve the issue of whether the customers agreed to arbitrate.
The court then examines whether the plaintiffs had adequate notice of the arbitration agreement to accept it. The court notes that no store clerk ever informed blind customers who signed up for the loyalty program that they were being subjected to an arbitration agreement. Nevertheless, the Container Store maintained that the customers actually had constructive notice of the clause’s existence by pointing out that the inability to read is not a defense to contract formation. However, the court found the cases relied on by the Container Store to be distinguishable because they involved situations in which the formation of legal rights and duties would be expected such as signing documents initiating loans or employment. Since the in-store customers had no reason to think that legal terms and conditions applied to the loyalty program, there was no presumption that the customers knew what these terms and conditions were. Accordingly, the customers had no actual or constructive knowledge of the arbitration clause’s existence and thus could not have agreed to be bound by its terms.
The case serves as a cautionary tale for both businesses and consumers alike. Businesses that want to avoid the costs of litigation by resolving disputes through arbitration should ensure that all customers are made fully aware of any arbitration agreement and thus have the capability of accepting it. In addition, a customer made aware of an arbitration agreement should fully consider the nature of the agreement and its ability to restrict the forum in which the customer’s grievances may be heard.