« Web Host Denied 230 Defense When It Allegedly "Actively Contributes" to Website--Kruska v. Perverted Justice | Main | Court Finds That Threatening Video Posted to YouTube and Facebook Can Constitute a "True Threat" -- US v. Jeffries »
November 30, 2010
Another Ruling Challenging "Check the Website for Amendments" Contract Provisions--Roling v. E*Trade
By Eric Goldman
Roling v. E*Trade Securities LLC, 2010 WL 4916401 (N.D. Cal. Nov. 22, 2010).
The plaintiffs are suing over E*Trade's allegedly unilateral imposition of an account maintenance fee for folks who didn't make at least one quarterly trade. The plaintiffs further allege that E*Trade would liquidate account assets to cover the fee if the account didn't have enough cash. For a very long time I was a E*Trade customer, but I got tired of their frequently imposed and often surprising fees, so I finally moved elsewhere and improved my overall happiness. In light of their abysmal treatment of a longtime customer with not-inconsequential assets (at least, before the markets melted down), I have no love lost for E*Trade's business practices.
This is a Judge Patel opinion. Other well-known opinions by her include the Napster district court rulings and the NFB v. Target ruling about the ADA's applicability to websites. Judge Patel is known for quirky opinions, and this one doesn't disappoint. She discusses E*Trade's contract amendment process while discussing the unjust enrichment claim. Wait, what? Presumably if the contract fails completely, the plaintiffs may have a claim for quasi-contract restitution, but the court's opinion doesn't connect those dots clearly.
However she gets there, she addresses the crucial topic of unilateral contract amendments. She describes E*Trade's agreement as follows:
The brokerage agreement states that “E*TRADE Securities may modify the fee structure at any time by posting a modified structure on its Web site.” Brokerage Agreement § 4(b). The agreement also requires plaintiffs to check E*Trade’s website for modifications to the agreement:
I understand that this Agreement may be amended from time to time by E*TRADE Securities, with revised terms posted on the E*TRADE Financial Web site. I agree to check for updates to this Agreement. I understand that by continuing to maintain my Securities Brokerage Account without objecting to revised terms of this Agreement, I am accepting the terms of the Revised Agreement and I will be legally bound by its terms and conditions.
Judge Patel continues: "plaintiffs allege that E*Trade’s unilateral ability to change contract terms, without notice, and the requirement that they periodically check the terms of the contract is problematic. Although magic words are not used, the allegations are sufficient to allege a claim for unenforceability."
Oddly, Judge Patel does not cite Douglas v. Talk America, the directly applicable Ninth Circuit case on point that seems to support her position. This may reflect her attempts to apply New York law rather than CA law, but even so, it would have been an appropriate citation. She also does not cite the highly relevant Texas district court opinion in Harris v. Blockbuster, which also would have supported her conclusion.
She does attempt to distinguish several cases cited by E*Trade to support the unilateral amendment clause, mostly on the grounds that the other provisions required the web vendors to notify their users before the amendment applied while this case relates to allegedly unannounced fee changes. This, for example, described her treatment of TradeComet v. Google. As I mentioned in my post on that case, I think the TradeComet ruling makes more sense as a B2B ruling, so the discussion doesn't fit B2C contracts very well. Judge Patel also tries to distinguish MySpace v. theglobe, although I thought her treatment of that case was weak; she should have just gone ahead and say the case reached the wrong result (which I think it did).
As a net effect, the court puts E*Trade behind the eight ball because it used a contract provision that allowed it to make unilateral changes simply by posting them to its website. In my Harris v. Blockbuster blog post from a year and a half ago, I wrote:
STOP PUTTING CLAUSES INTO YOUR CONTRACTS THAT SAY YOU CAN AMEND THE CONTRACT AT ANY TIME IN YOUR SOLE DISCRETION BY POSTING THE REVISED TERMS TO THE WEBSITE
This language has a significant risk of killing the entire contract, which would strip away a lot of very important provisions that should be/need to be in the contract. So far Blockbuster has only lost its mandatory arbitration clause, but it's possible other important risk management clauses (warranty disclaimer, liability limits, dollar caps, etc.) will similarly fall. If those clauses fail, let the plaintiff feasting begin!
I'm pretty sure some readers of this blog have resisted my exhortations because, as I discussed in the Harris post, the options for web vendors to manage their business over time without such a flexible clause aren't great. But, you are not doing your clients any favors by taking this approach. Instead, you are leaving your clients vulnerable to crafty plaintiffs' lawyers who may shred your contract formation process, leaving your client very, very exposed. It's high time to evaluate alternative amendment process options.
Although it might be tempting to read the opinion this way, I don't think it stands for the proposition that websites can't unilaterally change the fees they charge to customers. Websites presumably need to give customers adequate advance notice of such fee increases (and, presumably, the chance to bail out) before charging the new fee, but that seems like a logical customer relations approach even if not required by law. Note, however, in this case, E*Trade's ability to change its fees was coupled with a clause saying it could amend its agreement unilaterally by posting the changes to the website. In my opinion, it's that additional provision that creates the problem for E*Trade. We'd have to see what a court did with a website's unilateral fee increase not coupled with the broader contract amendment clause. That isn't the case before this judge.
Posted by Eric at November 30, 2010 07:24 AM | Licensing/Contracts
TrackBack URL for this entry: