Judge Dismisses Class Action Lawsuit Against Overstock.com Due To Mandatory Binding Arbitration Clause

Did you know that every time you purchase something from Overstock.com you agree to a mandatory binding arbitration clause and have no legal recourse against the company? Even if they illegally disclose too much of your information on your receipt?

From the Madison County Record:

Shandie Deaton filed the suit Sept. 18, 2007, one month after she made a purchase on Overstock.com. She alleged her receipt violated FCRA.

The act was passed in 2003 and provides that anyone accepting credit or debit cards may not print more than the last five digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of sale or transaction.

Credit card machines put into use after Jan. 1, 2005, required immediate compliance with FCRA. Machines in use before Jan. 1, 2005, were required to be in compliance by Dec. 4, 2006.

Deaton claimed Overstock.com violated FCRA by printing the expiration date and/or printed more than the last five digits of class members’ credit card or debit card numbers on the receipts provided at the point of a sale or transaction between Overstock.com and the class members.

“Overstock.com’ violations were not the product of an accident or an isolated oversight,” the complaint stated. “Rather, Overstock.com knowingly and intentionally continued to use Devices which were not programmed to, or otherwise did not, comply…”

The lawsuit asked for monetary relief of no less than $100 and no more than $1,000 for each violation. Overstock filed a motion to dismiss, claiming that its customers agreed to mandatory binding arbitration by purchasing something from their website.

According to Overstock, customers can freely access their website, however when placing an order, they must agree to the website’s terms and conditions before they can continue.

“Any dispute relating in any way to your visit to the Site or to products you purchase through the Site shall be submitted to confidential arbitration in Salt Lake City, Utah,” a portion of Overstock’s terms and conditions reads.

“To the fullest extent permitted by applicable law, no Arbitration under this agreement shall be joined to an arbitration involving any other party subject to this Agreement, whether through class arbitration proceedings or otherwise.”

The judge ruled in favor of Overstock and dismissed the case. “Accordingly, the Court cannot conclude that arbitration of this action is prohibitively expensive,” Gilbert wrote. “Therefore, the Court will not invalidate the mandatory arbitration clause based on the theory that forcing Deaton to submit to arbitration would prevent her from vindicating her rights.”

We took a look at this arbitration clause and noticed that there’s an exception to it. If you even “threaten” to violate Overstock.com’s intellectual property rights, they reserve the right to haul you into state or federal court in the state of Utah. What a piece of work.


Arbitration, not litigation: Judge dismisses federal class action v. Overstock.com
[Madison County Record] (Thanks, Shelley!)
Overstock.com Terms & Conditions

Comments

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  1. mkmead says:

    Seriously this is getting out of hand.

  2. courtarro says:

    So if I write a contract that says I can do something illegal to you, then include a mandatory binding arbitration clause, I can’t get in trouble for it because there’s no one available to bring civil action against me? Awesome!

  3. punkrawka says:

    I was unaware that companies could actually use arbitration to dodge flagrant violations of the law. Couldn’t this consumer have the government take legal action against Overstock? Seems to be the government could at least prosecute them and fine them, even if the money wouldn’t be going back to the consumers in that case.

  4. Jaysyn was banned for: http://consumerist.com/5032912/the-subprime-meltdown-will-be-nothing-compared-to-the-prime-meltdown#c7042646 says:

    Well, looks like I won’t be shopping there anymore.

    Vote with you wallets, folks.

  5. Jaysyn was banned for: http://consumerist.com/5032912/the-subprime-meltdown-will-be-nothing-compared-to-the-prime-meltdown#c7042646 says:

    Oops, you = your.

  6. darkened says:

    @Jaysyn: I agree seeing a company do this makes me avoid them like the plague.

  7. Jon Mason says:

    It certainly seems bizarre that someone can clearly break the law and the court can’t do anything about it. I know at least in the UK there is nearly always a clause on such terms/agreements saying: This does not affect your statutory rights. (Meaning a contract cannot override the law.)

  8. swalve says:

    If one reads the article, you can see that the person who filed the lawsuit tried to show that arbitration would cost too much, and did not provide evidence to back it up.

    Ultimately I disagree, though. I’m pretty sure arbitration clauses can’t invalidate the law.

  9. BStu says:

    Wouldn’t this put an arbitrator in an awkward position? I mean, Overstock.com seems to have clearly violated the law in a manner which can be easily documented. I’m sure there is legal precedent in how to deal with such violations, too. So, how do you screw the customer on behalf of your employer. Certainly would need some creativity.

    Actually, the might not need to. I assume you can’t “Class Action” arbitration claims. If they force everyone to go one by one, they can pay out on each but still pay only a fraction of what they would in a class action since only informed and persistent customers will file.

  10. savvy999 says:

    The O: Obtuse, Over-legalesed, and Out of my bookmarks.

  11. valsharess1 says:

    @Jaysyn: Agreed.

  12. godawgs7 says:

    @courtarro: The contract wasn’t illegal, overstock’s actions were. The contract simply precluded the company from being sued in court over the illegal actions.

    You cannot contract for illegal acts. Generally that will void the contract (though sometimes only the illegal section will be thrown out).

  13. braindesign says:

    so basically, i could walk up to someone, punch them in the face and take their wallet, hand them a document claiming ‘binding arbitration’ and they couldn’t do a damn thing about it?

  14. leefur5 says:

    It seems to me that the aribitration clause would only apply to civil suits – no lawsuits, class action or otherwise. The feds should still be able to press charges for violating FCRA.

  15. Nothing Can Kill the Grimace... says:

    isn’t this a civil lawsuit though? If so, the arbitration clause is clearly allowed for the civil component of breaking the law.

    I seriously doubt this decision would keep the Feds/whoever from bring the company up on criminal charages, since they very clearly broke the law.

  16. warf0x0r says:

    same with Dell.com MBAA in it too.

  17. econobiker says:

    I ask again, can we get micro-print on the backs of our checks to the effect ‘any entity cashing this check withdraws all mandatory arbitration clauses from its contract with checkwriter’????

  18. latemodel says:

    As a credit card merchant, I received multiple notifications of this requirement from Visa/MC and AMEX and in their notice Visa said they would fine any merchants not in compliance. Any merchant that makes Visa mad can be charged very large fines.

  19. noquarter says:

    @ksf4: I don’t know the legalities, but I think this is complicated by the fact that the penalties for violating the FCRA are that consumers may seek civil liabilities up to $1000. I’m not sure if it’s a criminal violation on Overstock’s part.

  20. JollyJumjuck says:

    @Braindesign: Not quite. To invoke the “binding arbitration” clause, one must first have business dealings with the company. In your case, you are thrusting the “binding arbitration” document upon them without any prior consent. In addition to being charged with theft, if you didn’t pick your victim carefully, you might end up with a binding document shoved up your arbitration as well.

  21. chartrule says:

    the use of binding arbitration is just overboard

    i would imagine that most people that go on overstock don’t scroll all the way to the bottom of their main page to see the

    “By using this site, you agree to abide by our Site User Terms and Conditions.”

    most people are just going to start looking at products
    and not search for a use and conditions notice

  22. Tank says:

    that’s bullshit

  23. LionelEHutz says:

    Overstock.com = wankers

    They won’t ever be getting a dime of my money.

  24. ShortBus says:

    I didn’t know people actually shopped there. I mean besides the annoying sexual double entente in their commercials, they’re a heavily Mormon-owned company. Pretty much the same reason I don’t buy Interstate batteries (read their mission statement) or eat at Chick-Fil-A (ever wonder why they’re closed on Sundays?).

  25. ElizabethD says:

    I hate Overstock.com. Some of their stuff is trashy and not really a bargain — you can do better at local brick/mortar store sales.

  26. SacraBos says:

    I would file a complaint with Visa/Mastercard. I’m a merchant, too, and they know or should have known about this law. I know I have gotten lots of stuff from my merchant services provider about this. Let them go into manditory binding arbitration against Visa to get their merchant services back.

    I think the judge is wrong on this. Had this been a contract dispute, the judge would have been right. This is a violation of a civil statutue and should be outside this “manditory binding arbitration”.

    Overstock.com can just stay over-stocked as far as I’m concerned.

    @chartrule: Looks like it’s time we start looking at that sort of thing. I didn’t see anything like this on Amazon for instance.

  27. SacraBos says:

    @ShortBus: I can respect the Chick-Fil-A reason for closing on Sundays. At least they aren’t doing it to screw customers over.

  28. smitty1123 says:

    @Jaysyn: Bravo! We (the consumer) have all the power in the world over them, so let’s use it.

  29. humphrmi says:

    Never. Shopping. There. Again.

  30. Echomatrix says:

    Heres a question. How illegal of an act can you commit against someone with arbitration before the cort nullifies it? I know the whole haliburton case thing, but does this only work with civil, not criminal acts?

  31. DallasDMD says:

    @ShortBus: Just what are they doing on Sunday that I need to be worried about?

  32. noquarter says:

    @sacrabos: As a merchant, could you tell me the details of how this kind of thing applies? In particular, my concern is that many restaurants I go to print the full credit card number on the receipt that I sign and they keep.

    Is the violation mentioned in this article only a violation because the receipt was sent in the mail, or because the receipt with the full number was given to the consumer, or what? Personally, I’d much rather have the receipt with my full card number in my hands than in the waiter’s or busboy’s.

  33. cde says:

    @noquarter: The copy they keep can have all the numbers on it. How else can they make sure they charge you if the card reader goes down or if the system didn’t keep your order? Think of those manual card swipers.

  34. noquarter says:

    @cde: I don’t know how they do it, but most places don’t give the full number on the receipt that they keep, so they must be able to handle it somehow.

  35. JohnMc says:

    Yep vote with your wallets. But there might be another way.

    I have read a few binding arbitration agreements. What I find interesting is many will state a place. Few if any state who pays and who selects the ‘judge’. It is just assumed that the company is providing that. What if somebody submitted to arbitration, provided their own judge? The company will refuse of course which is the point.

    You then take that argument to a real judge as you can’t arbitrate arbitration. When the real judge throws out the arbitration for ambiguity on this point then the case goes to a real court.

  36. ? graffiksguru says:

    Well, guess I will no longer shop there either. I did get a pretty sick Bulova watch there like 5 months ago, now I want to go dig out my receipt.

  37. @cde: I’m pretty sure NOQUARTER is talking about a receipt that is printed after they are charged. If anything, I would like to know when the last time was that you even saw one of those manual card swipers with your own eyes was. Even the mom-and-pop stores I visit have electronic card readers, and those readers put the charge through instantaneously.

    @noquarter: If they are charging your CC when they give you the receipt, that is the point-of-sale. The restaurant is violating the law if they give you that receipt with your full CC number on it. However, if you pay for your tip with your CC, they have to charge you a second time somehow.

    IMHO, if you have to pay a tip you should always pay cash for the entire transaction.

  38. That’s disappointing. I like Overstock, but I guess I won’t be shopping there anymore.

  39. Curiosity says:

    @courtarro:
    Actually the contract wouldn’t be binding for reasons of public policy.

  40. mgyqmb says:

    @ShortBus:

    To glorify God as we supply our customers worldwide with top quality, value-priced batteries, related electrical power-source products, and distribution services. Further, our mission is to provide our partners and Interstate Batteries System of America, Inc. (IBSA) with opportunities which are profitable, rewarding and growth-oriented.

    You learn something new everyday, don’t you? I’m going to add this to my list of companies I will not patronize, along with Chik Fil A, and now Overstock.com. Religion drives me nuts.

  41. DallasDMD says:

    @mgyqmb: But atheistic businessmen who worship money above culture doesn’t?

    I’m no fan of Christianity but your reasoning escapes me.

  42. sjulaw says:

    Nah, the judge was right in this case. Just ordering something from the site is enough to bind the consumer to arbitration under the terms in the agreement unless they impose an absolutely ridiculous burden on the consumer. Those people saying they’ll never shop at this site again should probably realize that most large merchants have an arbitration clause somewhere and refusing to shop at such places would be more of a hassle than its worth in all likelihood. Plus, not that I don’t think these sort of agreements are unconscionable, arbitration doesn’t mean that one party gets to judge the case and you have no rights whatsoever. There’s a federal body of law governing arbitral proceedings. The panel MUST be ultimately neutral, you can ask for a written, reasoned opinion by the arbitrators, and if you inform the arbitrators of the current law, and they disregard it, and you can show they disregarded it in order to rule against you, you can have the award tossed in review in federal court. Also, you must have an opportunity to present your case to its full extent. In some cases arbitration is actually better for everyone. It’s usually quicker and cheaper, and since arbitrators can do equity, you might wind up with a bigger award than you would have gotten in fed court. The thing that sucks is that most people don’t know they’re consenting to it and the idea that the judicial system option is not available (or you can try it but the judge will have to stay pending arbitration) and this waiver of a right without realizing it pisses people off. Rightly. But if you’re buying something from a large retailer, and in the case of many small ones as well, you’re probably submitting to arbitration. It’s just the way it is.

  43. sjulaw says:
  44. mgyqmb says:

    @DallasDMD: It has nothing to do with the business side of things. I simply make a choice to not patronize establishments who feel as though they are doing “the lord’s work”.

    It’s kind of like not going to businesses that endorse a different political party from your own. It may seem trivial and juvenile, but I enjoy exercising my inherent freedom from religion in every part of my life.

  45. DallasDMD says:

    @mgyqmb: But they don’t exclude you for not being religious. What if I feel I am upholding some sort of transcendental or supernatural concept when I am doing business? You’re not making a whole lot of sense.

    If you don’t like Christians, just say so.

  46. @DallasDMD: He doesn’t shop at Christian organizations. I don’t vote republican. It’s something both of us are allowed to do, whether or not we make sense. Accept it and things would be a whole lot easier.

  47. nequam says:

    @sjulaw: Amen, brother.

    Let’s be clear everyone. The requirement to arbitrate DOES NOT absolve Overstock from violations of the law, nor does it prevent a customer from enforcing her rights against the company. It only changes the forum from the courtroom to an arbitration proceeding. You may argue that arbitration is a bum solution for consumers (I don’t believe that is necessarily or always the case – in fact it can be a less expensive and quicker alternative), but the suggestion that this allows Overstock to shirk its legal obligations is off-the-mark.

  48. howie_in_az says:

    @mgyqmb: Exactly how does producing batteries glorify god? I’m lolling my head off at this, especially if said batteries are sold in, erm, “adult” stores for, uh, “novelty” items.

  49. @howie_in_az: All mgyqmb did was copy and paste Interstate’s statement of purpose. Oh, and Interstate is a manufacturer of car batteries, so that would be one heavy duty adult or novelty store item.

  50. Curiosity says:

    A few notes about arbitration for a bit more understanding from consumers. First Pay attention to contracts that refer to things like Associations to arbitrate. It means the contract refers to other documents and frequently they provide an “out” b/c corporations do not read them. Note the statment for consumers of “Consumers are not prohibited from seeking relief in a small claims court for disputes or claims within the scope of its jurisdiction, even in consumer arbitration cases filed by the business.” [www.adr.org] Note also the main reason that courts state that arbitration has proper jurisdiction is not that (confusingly) arbitration is proper for the problem at hand but that “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.”

    Below are the questions to ask to see if arbitration will be fully enforced:

    1. What can be arbitrated? This question can most easily be answered by looking at the controlling statutes. In the United States, the Federal Arbitration Act (FAA) is the controlling law.

    2. Is the issue within the scope of the arbitration? There should be things like location (situs), choice of substantive contract law, administrating body, the procedural rules which will control the arbitration, and realm of issues to be covered under the arbitration clause.

    3. How will courts enforce the arbitration?

    Since the enactment of the FAA, the Supreme Court has developed an interpretation of this statute which all but requires any type of arbitration clause to be upheld. The greatest movement toward the per se rule of arbitration clause enforcement was Prima Paint v. Flood & Conklin Mfg. The arbitration clause would only be considered void if there was fraud in the inducement, or other such grounds at law or equity, which would serve to void the arbitration clause not the underlying contract.

    Later, in Southland Corp. v. Keating, the Supreme Court overturned a California statute requiring the judicial consideration of franchise agreements. The California Supreme Court had upheld the California Franchise Investment Law, which required that the judiciary review all complaints arising out of franchise agreements. The end result of Keating was to establish the supremacy of the FAA over State law pronouncements governing arbitration.

    The Court in Volt Info. Sciences v. Board of Trustees of Leland Stanford Jr. Univ. holds that States may regulate arbitration, the States still have to conduct such regulation in such a manner so as not to impede the institution of arbitration proceedings.

    The FAA provides that an arbitration agreement may be held void under such grounds which exist at law or statute regarding any other type of contract. Consequently, while an arbitration agreement is generally presumed valid, it may be attacked under traditional contract avoidance doctrines. While a motion to compel arbitration may be heard in Federal District Court, that court is ultimately going to apply state common law to determine the validity of an arbitration clause.

    In instances where the buyer has no option to remove the arbitration clause from the contract. However, in all of these circumstances, the arbitration clause will be found to be enforceable. [82] Generally, only the most compelling evidence of duress or fraud will cause the arbitration clause to be invalidated.

    But, fraud, duress, coercion, incapacity, unconscionability, and other such (state) defenses have been available to the party not wishing to submit to arbitration. The argument of adhesion is powerful and misused with parties stating: there was no true consent to the terms since the terms were never read, and even if they were read, the terms could not have been modified; also, no signature is required to demonstrate a reading and understanding of the duties and obligations.

    However, the courts have never recognized a doctrine of adhesion as a defense to contractual terms, but have recognized unconscionability where procedural and substantive unconcionability are required :
    - contractual terms are buried in the body of a contract under pages of boilerplate language, and
    - the notion that the actual agreement itself is grossly unfair or unreasonable.

    For the most part, adhesive arbitration agreements have been held to be enforceable.

    Meaningful choice, however, is only one way unconscionability can be asserted. It can also be argued that the forum which is required under the arbitration agreement is an unconscionable term (like in Utah).

    Hope this helps understanding.

  51. Curiosity says:

    Oh and sorry that was so long.

  52. Curiosity says:

    @sjulaw: While I am a fan of ADR, it isn’t particularly good for everyone all the time. Similar to litigation, it has its uses. Realize though contracts are a form of demanding what you want and negotiating to that goal. Your perspective becomes naive if people cannot effectively negotiate. The contract will simply become a one-sided negotiation and by definition that is only good for one side.

  53. WraithSama says:

    @masonreloaded:

    Actually, in the US, for a contract to be legally binding, it cannot violate established law.

    My guess is that in this case, since the suit that was filed against Overstock.com was a civil suit and not a criminal case, the arbitration clause (which is still considered legal for reasons I can’t fathom… you’re not supposed to be able to sign away your Constitutional rights) was upheld.

    If the consumer in question were able to prod the appropriate attorney general into action, the company wouldn’t be able to hide behind the arbitration clause.

  54. Bay State Darren says:

    Madatory binding arbitration=broken

  55. WraithSama says:

    Let me clarify what I said by saying that Overstock.com’s violation is unrelated to the contract the consumer agreed to, and that combined with the fact that the consumer’s suit is a civil suit seeking monetary damages is why the arbitration clause is being upheld.

    Overstock.com needs to face criminal charges for the violation.

  56. valsharess1 says:

    @sjulaw: It’s not a matter of pissing people off, it’s a matter of them not being honest and transparent in their business practices. MBA is OUT OF CONTROL. I was just forced to sign an arbitration agreement with my employer or find myself unemployed. I’m not saying there aren’t exceptions, but I will exercise my right not to shop at companies that force it on me, and reward those that don’t. Accepting it as “just the way it is” is what got us here in the first place. Even the EEOC has issued a position statement strongly disapproving and discouraging MBA.

  57. Curiosity says:

    @WraithSama:
    Exactly. It is a question of jurisdiction and the jurisdiction of arbitration is limited.

    Upon rereading the actual article, it seems like her attorney didn’t read the law. But then I don’t know the facts so maybe that was the best he could come up with. It seemed like he challenged the law on things that were previously settled rather than going for the (easier) contract analysis approach.

  58. Curiosity says:

    @curiosity: And yes I was saying that BASED ON THE REASONS THE PLAINTIFF CLAIMED the Judge was right. The plaintiff could have won on other reasons.

  59. trujunglist says:

    Producing car batteries glorifies God because:
    A) Those neon/LED crosses on truck cabs don’t light themselves
    B) God clearly loves chemistry; that’s what the first days of creation are all about… or maybe just play dough (Genesis, right? I dunno much about the Bible because I rarely read fiction ZING I’ll be here all night, folks)

  60. lemur says:

    @curiosity: Correct me if I’m wrong but I think the point people have to keep in mind is that judges cannot start doing the jobs of the legal counsel hired by the two parties. That is, if the plaintiff says “the clause should be voided because A” and he is unable to argue “A” to win the case, then it does not matter whether there are reasons B, C or D that could void the clause. Unless those are part of the plaintiff’s argument, the judge is not going on his own to bring those reasons to the table just for the benefit of the plaintiff.

  61. Curiosity says:

    @lemur: You are right. A judge has to rule on what is presented (generally). It is a bit different if the complaint asserted the right thing for the wrong reasons and the judge found the right reasons in the trial (weight of the evidence), but it seems to me here that the plaintiff did not even present the relevant evidence. Of course that is the ideal rule – not to say that you can’t find cases where the judge finds whatever he wants to find irrespective of the evidence.

  62. axiomatic says:

    Vote with your wallet. Never shop there again.

  63. swalve says:

    @DallasDMD: I think the problem is that they are (ab)using religion to sell batteries.

  64. TechnoDestructo says:

    This judge is set for life now.

    Arbitration companies will be throwing money at him if he cares to join them now.

  65. drjayphd says:

    @mgyqmb: Don’t forget Forever 21 (“John 3:16″ on the bottom of the bags) and Bess Eaton (Bible verses on the cups).

    Well, not so much Bess Eaton any more, as they went tits-up, and Tim Horton’s bought ‘em out, which I wholeheartedly approve of.

  66. doctor_cos wants you to remain calm says:

    @DallasDMD: Would you shop somewhere that mentioned ‘serving Satan’ in their fine print/mission statement/etc.?? Same thing, just opposite direction.
    And you’re trying to grab that little market share because your product is no better or worse than someone else’s, but buy this because Jesus would put one in his SUV.

    I like God, but not the shit people do in his name.

  67. rikkus256 says:

    This is BS. I will not shop at overstock again. ever.