Fagerstrom v. Amazon.com, Inc.
141 F. Supp. 3d 1051
S.D. Cal.2015Background
- Plaintiffs Andrea Fagerstrom and Allen Wiseley (California residents) filed a putative class action alleging Amazon’s price-listing (showing “list price,” “Amazon price,” and “You Save”) constituted false advertising and unfair business practices under California law.
- Both plaintiffs placed orders on Amazon’s website and proceeded through a checkout page that displayed: “By placing your order, you agree to Amazon.com’s privacy notice and conditions of use,” with hyperlinks to the Conditions of Use (COUs) containing the Arbitration Agreement.
- The Arbitration Agreement requires binding arbitration of disputes arising from use of Amazon services, incorporates AAA rules, limits class/representative actions, allows small-claims court, and contains a choice-of-law clause selecting Washington law plus the FAA.
- Plaintiffs did not dispute assent or coverage but argued the Arbitration Agreement is unenforceable because it is illusory (Amazon can unilaterally change terms) or alternatively procedurally and substantively unconscionable.
- District court applied the FAA, found Washington law governs the contract-validity inquiry, held the arbitration clause is not illusory (mutual obligations and duty of good faith limit Amazon’s discretion), and rejected procedural and substantive unconscionability challenges.
- Court granted Amazon’s motion to compel arbitration and dismissed the action without prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the court or arbitrator decides validity challenge | Fagerstrom/Wiseley argued the change-in-terms issue renders the arbitration clause invalid and is for the court to decide | Amazon argued challenge attacks the COUs as a whole and should be for the arbitrator | Court: plaintiffs specifically challenged the arbitration clause; court decides validity |
| Choice of law governing validity | Plaintiffs suggested California law should apply because of stronger consumer-protection policy | Amazon pointed to the COUs’ Washington-law clause and argued no fundamental conflict exists | Court: applies California choice-of-law rules and enforces parties’ selection of Washington law (no fundamental conflict) |
| Whether the arbitration clause is illusory due to unilateral amendment right | Plaintiffs: Amazon’s unlimited right to change COUs makes promise illusory (no mutuality) | Amazon: mutual obligations exist (consideration exchanged); duty of good faith limits amendment power | Court: not illusory—mutual obligations exist and implied duty of good faith constrains Amazon’s discretion |
| Whether the arbitration clause is unconscionable (procedural or substantive) | Plaintiffs: clause is adhesive, notice/placement and incorporation (fine print/browsewrap), ambiguous AAA reference; substantive terms (amendment right, IP-exception, fee-shifting) are one-sided | Amazon: notice was reasonable (hyperlink at checkout), AAA reference is adequate, core protections and reciprocal features exist (fee-shifting reciprocal by statute); terms are not overly harsh | Court: no procedural unconscionability (reasonable notice, not hidden); no substantive unconscionability (amendment limited by good faith, IP carve-out not unfair, fee-shifting not unconscionable) |
Key Cases Cited
- AT & T Mobility LLC v. Concepcion, 563 U.S. 333 (preempts state rule invalidating class arbitration waivers; favors enforcement of arbitration agreements)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (where challenge is to whole contract, arbitrator decides validity; if challenge is to arbitration clause, court decides)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (courts decide validity of arbitration clause unless parties clearly delegate arbitrability)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (ordinary state-law contract principles govern whether parties agreed to arbitrate)
- Preston v. Ferrer, 552 U.S. 346 (FAA reflects strong federal policy favoring arbitration)
- Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126 (9th Cir.) (two-step FAA inquiry: existence and scope of arbitration agreement)
- Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469 (9th Cir.) (district court has limited discretion to deny arbitration once agreement is valid and covers dispute)