Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—W.D.N.C.: Arbitration ordered in dispute involving online voucher purchase, (Jun 24, 2016)

By Michael Menzhuber, J.D., LL.M.

A motion to compel arbitration of a dispute that involved an online purchase of a product voucher from Groupon, Inc.’s website was granted by the federal district court in Charlotte, North Carolina. Because the motion to compel arbitration was granted, both the company’s alternative motion to dismiss and the customer’s motion to defer consideration of the motion to dismiss were denied by the court as moot (Keena v. Groupon, Inc., June 21, 2016, Mullen, G.).

Erin Keena purchased a voucher for massage services through a website operated by Groupon, a web-based company that partnered with retail businesses to sell their products for a discounted price. Before making her purchase, Keena acknowledged and accepted Groupon’s "Terms of Use," including its arbitration provision, when she first set up her account with Groupon and again at the time she placed her order. The arbitration provision provided that: (1) all disputes would be resolved by final, binding arbitration; (2) Illinois law, the Federal Arbitration Act (FAA), and the American Arbitration Association rules would govern any disputes; (3) Groupon would reimburse arbitration fees up to $10,000 for non-frivolous disputes; and (4) all disputes would be arbitrated on an individual basis.

After purchasing the voucher, Keena was unable to schedule her massage and sought a refund. Groupon refunded her purchase by crediting her account with "Groupon Bucks" which could only be used to make purchases on Groupon’s website. Keena subsequently filed a suit against Groupon that alleged, among other things, unfair and deceptive trade practices. Groupon responded by filing a motion to compel arbitration or in the alternative to dismiss. Keena then filed a motion to defer consideration of the motion to dismiss.

As an initial matter, the court noted that, despite arguments by Keena, Illinois law could not be applied because the FAA preempts state law to the extent that state law conflicts with the FAA.

The court next considered Keena’s argument that the arbitration provision was both "procedurally" and "substantively" unconscionable. She argued that the arbitration provision was "procedurally unconscionable" because: (1) it was included on the seventh page of the eight-page "Terms of Use"; (2) she was never required to read or sign the "Terms of Use"; and (3) the "Terms of Use" was offered to her on a take-it-or-leave-it basis. The court disagreed because: (1) she had ample opportunity to read the provision before continuing with her purchase; (2) the hyperlinks to the "Terms of Use" were sufficient to put her on notice of the contract and Illinois law allows clicking a button to constitute assent to an agreement; and (3) offering a contract on a take-it-or-leave-it basis does not render the contract unconscionable or unenforceable.

Keena argued that the arbitration provision was "substantively unconscionable" because the "Terms of Use" unreasonably favored Groupon. Specifically she pointed to: (1) the requirement that all disputes be brought within one year; (2) the arbitration exception for intellectual property claims or prohibited user conduct to because Groupon was the only party able to bring these types of claims; and (3) the prohibitively expensive costs of arbitration.

The court disagreed because: (1) parties are permitted to agree to a shortened contractual limitation period so long as it is reasonable: (2) a customer could have an interest in bringing an intellectual property claim and, even in the absence of such an interest, a beneficial interest to one party does not render a provision to be unconscionable; and (3) Groupon agreed in the "Terms of Use" to bear the costs of arbitration.

The court also determined that, despite Keena’s arguments to the contrary, the arbitration provision was not illusory because Groupon did provide consideration, even if the obligations required of the parties were not equivalent. The court also determined that the various policy arguments raised by Keena were not relevant to the court’s decision in the case.

The case is No. 3:15-cv-00520-GCM.

Attorneys: Daniel Chappell Flint (Law Offices of Daniel C. Flint, PC) for Erin Keena. Gregory Thomas Fouts (Morgan, Lewis & Bockius LLP) and Jason B. James (Bell, Davis & Pitt, PA) for Groupon, Inc.

Companies: Groupon, Inc.

Cases: StateUnfairTradePractices NorthCarolinaNews