Sloppy Website Terms of Service Language Dooms Arbitration Agreement

Retailers who sell online often include arbitration agreements in their website terms of service.? If your organization takes this approach, pay close attention when drafting the arbitration agreement.

In the recent case of Dembiczak v. Fashion Nova, LLC, the retailer’s arbitration clause language was unclear as to (1) the “delegation” question of who would decide if particular claims fall within the scope of the arbitration agreement, and (2) the meaning and scope of arbitration “carveouts.”

After plaintiff sued alleging that Fashion Nova falsely advertised product discounts when products were continuously on sale, Fashion Nova moved to compel arbitration under arbitration language included in the website terms of service.

First, to determine who should decide whether the dispute should be arbitrated, the court examined whether there was “clear and unmistakable evidence” that the parties intended to delegate that issue to an arbitrator.

Looking to the arbitration rules specified in the terms of service, the Court found that the terms listed a version of AAA’s arbitration rules that had never existed.? Finding this mistaken reference fell far short of the “clear and unmistakable evidence” standard, the Court decided not to delegate the arbitrability question to an arbitrator.

Second, the Court noted that the website terms of service included a carveout stating that “an action by a party for temporary, preliminary, or permanent injunctive relief” would not be subject to arbitration.?

Finding this language—which applies to an entire action rather than a merely a single claim—to be quite expansive, the Court held that the carveout meant that plaintiff’s putative class claims for injunctive relief were carved out of the arbitration agreement and must be decided in court.

The lesson to be learned for arbitration agreement drafting is that care and precision is required.

The approach of using the selected arbitration rules to establish the delegation of the arbitrability question to the arbitrator is acceptable, but the drafter must take care to reference the appropriate set and version of the arbitration provider’s rules, and to confirm that the delegation language contained in the rules is sufficiently clear and unmistakable on the delegation issue.

Finally, it is perfectly acceptable to carve out specific claims from arbitration.? However, make sure to define with precision the claims that are not to be arbitrated.? If the intent is to litigate only requests for preliminary and/or temporary injunctive relief, then the language must reflect that limitation.

The case is Dembiczak v. Fashion Nova, LLC, Case No. 2:23-cv-00408-LK (W.D. Wash. Feb. 13, 2024).