Antitrust Law Daily Wrap Up, ANTITRUST—NDTex: Arbitration Clause in User Agreement Forces Arbitration of Claims Against Travelocity, (Jun 17, 2013)

By Peter Reap, J.D., LL.M.

Consolidated price fixing claims brought as a putative class action against Travelocity.com LP and Sabre Holdings Corporation (collectively "Travelocity") were required to be arbitrated individually pursuant to the terms of the User Agreement that the individual plaintiffs agreed to before completing their transactions with Travelocity, the federal district court in Dallas has decided (In re: Online Travel Company (OTC) Hotel Booking Antitrust Litigation, June 15, 2013, Boyle, J.). Thus, Travelocity’s motion to compel arbitration was granted.

The plaintiffs claim that online travel company Travelocity and hotel companies conspired to set hotel room resale prices and that online travel websites agreed not to resell hotel rooms below this fixed price. The central agreement of the alleged conspiracy contained most favored nation (MFN) restrictions prohibiting hotels from offering lower prices on rooms through any other distribution channel, including their own websites, the court noted. The plaintiffs assert that this price-fixing scheme allowed online travel websites to deceive customers by advertising the "best" or "lowest" prices, when in fact all companies were offering the same price.

According to Travelocity, every user completing transactions on Travelocity's website as of February 4, 2010, agreed to the User Agreement, which contains a clause requiring arbitration for "[a]ny Claim where the total amount in controversy is less than US $10,000." Furthermore, subparagraph (e) of the arbitration clause stipulates that "unless otherwise mutually agreed by the parties in writing, the arbitrator may not consolidate more than one person's claims, and may not otherwise preside over any form of a representative or class proceeding." This contractual language, Travelocity argued, requires the plaintiffs to arbitrate their claims individually. The User Agreement itself provides that its terms are governed by Texas law.

Legal standard. The Fifth Circuit follows a two-step procedure in determining whether to compel arbitration. First, the Court must ascertain whether the parties agreed to arbitrate the dispute at issue. An agreement to arbitrate a dispute is shown where (1) there exists between the parties a valid agreement to arbitrate, and (2) the dispute in question falls within the scope of the agreement. Id. Once the Court is satisfied that the parties agreed to arbitrate the dispute, it must then determine whether any external legal constraints foreclose arbitration of the dispute.

Valid agreement to arbitrate. The plaintiffs argued that their contracts with Travelocity were not valid because "Travelocity has not submitted any transaction-specific evidence showing that any Plaintiff assented” to the User Agreement. However, to the extent the plaintiffs' transactions occurred on or after February 4, 2010, Plaintiffs and all Travelocity users did assent to Travelocity's User Agreement by clicking on a button that said "Agree and Complete Reservation," the court ruled. This button was located directly above a notice explaining that, by clicking the button, the user agrees to the policies set forth in the User Agreement, which was accessible via hyperlink.

The plaintiffs' argument that the User Agreement is an unenforceable "browsewrap" agreement was rejected. Instead, the agreement is instead a "clickwrap" agreement, valid and enforceable under Texas law, according to the court.

Browsewrap agreements are distinguishable from clickwrap agreements in that "a user may download software under a browsewrap license prior to manifesting assent to its terms." Here, it was impossible to complete a transaction on the Travelocity website in the absence of affirmative assent to the User Agreement. It was not, as the plaintiffs argued, necessary for the User Agreement to have a "scroll through" feature; the central issue was whether or not the users were "conspicuously presented with the agreement prior to entering into a contract." Since the User Agreement was conspicuously presented and the plaintiffs assented to the User Agreement by clicking the "Accept" button to complete each online transaction, it is a valid clickwrap agreement.

The plaintiffs also argued that since Travelocity could at any time unilaterally modify the User Agreement and substantially change or revoke the arbitration clause, that clause, including its class action waiver, is illusory and unenforceable. The court disagreed.

Travelocity's User Agreement states that "Travelocity may at any time modify this User Agreement and your continued use of this site or Travelocity's services will be conditioned upon the terms and conditions in force at the time of your use." Travelocity's clause explicitly precludes retroactive application of any changes, the court observed.

Scope of agreement. The plaintiffs did not contest that the instant dispute was included in the scope of this clause. Furthermore, it was well established that the broad nature of an arbitration clause like the one in the User Agreement was indicative of the parties' intent to be bound.

Federal policy. In AT&T Mobility LLC v. Concepcion, the Supreme Court held that the FAA preempts state law in determining whether a class arbitration waiver in consumer contracts is enforceable. 131 S. Ct. 1740, 1753 (2011). It is the burden of the party seeking to avoid arbitration to establish that Congress intended to preclude the disputed statutory claims.

If Congress did not intend to allow parties to include a certain type of provision, such as a class-action waiver, in their contracts, this intention would have been clearly expressed. The court found no such language in either the text or legislative history of the Sherman Act.

The plaintiffs contended that the arbitration clause and its class waiver provision should not be enforced because such enforcement would be at odds with the purposes of the federal antitrust policy. They argued that their inability to proceed as a class would prevent them from effectively vindicating their statutory rights. However, the plaintiffs did not show that the costs of proceeding in arbitration, as opposed to state or federal court, were prohibitive, and thus they failed to meet that burden in this case.

The American Arbitration Association (AAA) Consumer Arbitration Rules provide that the daily arbitrator fee will be paid by the business seeking to enforce an arbitration provision against a consumer, such that in this case Travelocity will pay the daily fee. The plaintiffs' argument that each individual plaintiff would be required to pay $750 to the arbitrator in fees, was therefore mooted by the fact that Travelocity will bear the cost of compensating the arbitrator, the court determined. Furthermore, Travelocity stated that it would pay "[a]ll expenses of the arbitrator, including required travel and other expenses, and any AAA expenses, as well as the costs relating to proof and witnesses produced at the direction of the arbitrator . . . ."

Non-financial barriers. The court also rejected the plaintiffs' argument that the User Agreement "contains a number of inherently unfair provisions that also undermine [their] ability to effectively vindicate their federal statutory rights in the chosen arbitral forum." In the plaintiffs' view, the provision in the arbitration agreement requiring arbitration in Tarrant County, Texas, where Travelocity maintains its headquarters, and the clause prohibiting in-person arbitration without Travelocity’s permission were unfair and prevented effective vindication of their rights.

There was no reason to believe that requiring arbitration in Tarrant County was unusual, given that the county is the location of Travelocity's headquarters and part of the Dallas-Fort Worth metropolitan area near where some of Plaintiffs' own attorneys are located. In any event, the plaintiffs’ objections to the forum and to the prohibition of live appearances at arbitration were mooted by Travelocity's agreements to arbitrate "near the claimant's residence (or such other place as the parties mutually agree) and submit to in-person arbitration . . . ."

Finally, the court rejected the argument that arbitration should be denied on the grounds that doing so would "create an inefficient dual-track process." It was possible that classwide arbitration would be less efficient than proceeding individually, at least for the plaintiffs, the court noted. However, separate litigation of the plaintiffs' conspiracy claims in the arbitral forum did not pose substantial difficulties warranting the invalidation of a valid agreement to arbitrate, the court held.

The claims of absent class members were ordered stricken prior to class certification. Any claims by absent class members bound by the User Agreement would be impertinent, as those class members would be bound to individually arbitrate their claims, the court explained.

The case is Consol. Civil Action No. 3:12-cv-3515-B.

Attorneys: Steve W Berman (Hagens Berman Sobol Shapiro LLP) for Richard Kimowitz. George S Cary (Cleary Gottlieb Steen & Hamilton LLP) for Travelocity.com LP.

Companies: Travelocity.com LP.

Cases: Antitrust TexasNews