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This past holiday season, Target Corporation was victimized by one of the largest retail data breaches in the United States. On December 19, 2013, Target confirmed reports that hackers stole payment data from approximately 40 million customers who shopped in its stores from November 27, 2013 through the middle of December. Since learning that data was also stolen from online shoppers, Target has since revised the number of potential customers affected up to between 70 million and 110 million. Retail analysts anticipate Target’s security breach will result in massive losses for the retailer due to federal and state regulatory penalties and lost revenues from cautious shoppers. More immediately, Target should be concerned with the onslaught of plaintiff class action lawsuits typically filed after a retail security breach.
One way Target could have reduced the risk of defending class action lawsuits after a security breach (at least from claims stemming from online purchases) was to include an arbitration clause in its online Terms and Conditions. Online retailers are starting to require that their customers agree to arbitrate disputes on an individual basis only, with customers being obligated to waive any rights they might have to pursue claims through class actions. Litigation in this area over the last several years has focused on the enforceability of these online arbitration agreements.
For example, in 2012, customers sued Amazon.com and its subsidiary Zappos.com (an online apparel and shoe retailer) in various courts, alleging they received emails from Zappos notifying them that a hacker had breached Amazon’s computer servers and downloaded files containing their personally identifying information. Zappos and Amazon attempted to compel arbitration, arguing that Zappos’ terms of use require customers to arbitrate any disputes based on their use of the retailer’s website. However, the court denied Amazon and Zappos’ request based in part on deficiencies in the customers’ consent.
In an upcoming article, Jones Walker commercial litigation attorney,
Mia Mitchell Grandpre (New Orleans, Los Angeles), will review the latest court opinions in this area and propose best practices for companies ensuring the enforceability of online arbitration agreements.
