Background

• Plaintiffs are former independent representatives of Fortune Hi-Tech Marketing, Inc. (FHTM) who sue for RICO and California law violations and seek a ruling that FHTM’s arbitration and forum provisions are unconscionable.
• Defendants move to compel arbitration and to dismiss or stay all proceedings under Fed. R. Civ. P. 44, arguing the claims fall within a valid arbitration agreement.
• The FAA governs, and the court applies a four-step test to determine (1) whether the parties agreed to arbitrate, (2) the scope of that agreement, (3) whether federal claims are nonarbitrable, and (4) whether to stay nonarbitrable claims pending arbitration.
• Plaintiffs contend there was no mutual assent or consideration and that FHTM’s unilateral amendment power makes the arbitration provision illusory.
• The court concludes there was no binding, non-illusory agreement to arbitrate due to the amendment and notice provisions allowing unilateral changes without adequate consideration, and thus denies the motion to compel arbitration.

Issues

Key Cases Cited

• Cuppy v. General Accident Fire & Life Assurance Corp., 378 S.W.2d 629 (Ky. 1964) (mutual assent and consideration required for contracts)
• Floss v. Ryan’s Family Steak Houses, Inc., 211 F.3d 306 (6th Cir. 2000) (consideration and limits on unilateral contract terms)
• Morrison v. Circuit City Stores, 317 F.3d 646 (6th Cir. 2003) (notice provision can sustain arbitration agreement when limited by time)
• David Roth’s Sons, Inc. v. Wright & Taylor, Inc., 343 S.W.2d 389 (Ky. App. Ct. 1961) (illusory contract where party has no fixed obligation)
• Seawright v. American General Fin., Inc., 507 F.3d 967 (6th Cir. 2008) (upholding arbitration with notice provisions)
• Inland Bulk Transfer Co. v. Cummins Engine Co., 332 F.3d 1007 (6th Cir. 2003) (scope of arbitrable issues and interpretive standards)
• Stout v. J.D. Byrider, 228 F.3d 709 (6th Cir. 2000) (framework for determining arbitration enforceability)