September 29, 2020

Volume X, Number 273

September 29, 2020

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September 28, 2020

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Questions To Ask When Changing Your Arbitration Clause

In a prior post (here), we highlighted some questions that companies may want to ask when evaluating whether their arbitration clauses are enforceable.  If changes need to be made to those clauses, then companies should consider how to implement those changes so as to ensure those are enforceable too.  The following is what you should be thinking about and asking.

If an agreement needs to be amended to add or modify an arbitration clause, you should strongly consider having customers re-agree to a contract or set of terms and conditions with the new arbitration clause.  This could be done a number of ways, including by having customers agree to an entirely new contract or having them agree to just a replacement arbitration clause.  For companies who engage their customers online or through mobile applications, this may be as simple as requiring customers to re-register or log-on in a way that confirms their assent to the new agreement.

In some cases, the original agreement may have a provision that permits the company to amend or modify the agreement unilaterally.  These provisions generally require that the company post the amended terms to its website or in some other location and indicate that a customer’s continued use of the company’s services constitutes agreement to the amended terms.  The provision may also require that the company provide its customers with some type of notice of the amended terms.

The law permitting unilateral amendments in accordance with these types of modification provisions is still developing.  Some courts have permitted unilateral amendments if the company follows the terms of the modification provision, even if notice of the amended terms is not separately provided.  See Miracle-Pond v. Shutterfly, Inc., No. 19 cv 04722 (N.D. Ill. May 15, 2020).  Other courts have rejected modifications if notice was not provided. See, e.g.Douglas v. U.S. District Court, 495 F.3d 1062 (9th Cir. 2007).  What constitutes adequate notice is often up for debate.

In light of this mixed law, if you are considering modifying a set of terms without requiring a new agreement from your customers, you should consider at least the following:

  1. Does the original agreement permit modifications?  If so, are you complying with the modification provision?

  2. Does the modification provision require that a particular notice be sent to the customer regarding the amended terms?  Should you provide that notice even if the provision does not require it?

  3. Does any notice that you are sending out clearly indicate that changes are being made to the terms?  What does the subject line of the email notification say?  If changes are mailed, do the documents make clear that your company’s terms are changing?  Is there anything on the envelope indicating that changes to the terms are included inside?

  4. Does any notice that you are sending not only provide the amended terms or access to them, but also describe any material changes to the terms?  Does the notice clearly indicate that the customer agrees to the amended terms by continuing to use the company’s services?

  5. Is the notice being sent to the best, most up-to-date contact information for the customer?

As we noted in our last post (here), the above questions may not cover everything that you and your company should consider when updating your agreements or terms and conditions, particularly when adding or modifying an arbitration provision.  Crafting a solution for each company, while satisfying the concerns and desires of the legal department, the marketing department, and the business teams can sometimes be challenging, but it should be done.  There is no reason to risk unnecessary exposure to consumer class actions.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 181

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About this Author

Jay Ramsey, Sheppard Mullin Law Firm, Litigation Attorney
Associate

Mr. Ramsey is an associate in the Business Trial and Entertainment, Technology and Advertising Practice Groups in the firm's Century City Office.

Areas of Practice

Mr. Ramsey represents clients in all types of commercial litigation. In the media and entertainment field, he represents studios, producers, and broadcasting companies in claims relating to distribution rights, profit participation, and other accounting issues. Mr. Ramsey also represents clients in complex and general business...

310.228-2259
Meyer, associate, orange county, construction, litigation
Associate

Abby Meyer is an associate in the Business Trial Practice Group in the firm’s Orange County office, and a member of the firm’s Construction, Food & Beverage, and Consumer Class Action teams.

Ms. Meyer represents clients facing or pursuing complex litigation arising from software implementations, construction, and real estate projects, including alleged construction defect and business disputes. These matters have included claims for breach of contract, lender liability, fraud, and misrepresentation, among other claims. Ms. Meyer has represented software companies, software developers, energy companies, and financial institutions on such matters.

714-513-5100