Why signing up for a free trial can void your right to a jury trial

CNN
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Every day, consumers may unknowingly give up the right to sue companies – such as online retail platforms, gig economy apps and streaming services – even when the lawsuits have no connection to the service the person signed up for.

In a recent lawsuit, Walt Disney World argues that a wrongful death lawsuit filed by a widower several years ago when he signed up for the Disney+ streaming service against a theme park restaurant cannot be heard in court.

Disney joins other companies, such as Airbnb and Walmart, that are using increasingly aggressive strategies to push consumer lawsuits into arbitration, a private legal process that is considered disadvantageous to plaintiffs. Customers are increasingly required to sign contracts with comprehensive arbitration clauses to use the company's services, but the consequences can be more severe than they imagine.

“The average person doesn’t know what arbitration is, let alone understand the content of what they’re signing,” says Hossein Fazilatfar, a law professor at Creighton University and arbitration expert.

The issue of so-called “infinite arbitration clauses” will likely need to be addressed by the Supreme Court, Fazilatfar and other arbitration experts told CNN, as the Supreme Court's previous precedents on arbitration have given new momentum to the use of such contracts.

In the Disney case, a widower sued the theme park company on behalf of his late wife after she suffered a fatal allergic reaction, allegedly from a meal she ate at a park restaurant in 2023. Disney has asked the court to take the dispute to arbitration, meaning the case will not go before a jury or otherwise be heard in court. To support the argument, Disney points to a subscription agreement the widower allegedly signed when signing up for Disney+ that included an arbitration clause, as well as the terms and conditions of the online platform he used to purchase Epcot tickets for his family for the 2023 trip.

The tickets were never used because the woman died two days before the planned Epcot visit, according to the widower's legal documents.

The widower's lawyers called Disney's arguments “absurd” in court documents, saying the company “specifically wants to prevent its 150 million Disney+ subscribers from ever being tried before a jury for wrongful death, even if the facts of the case have nothing to do with Disney+.”

They pointed out that the widower assumed he had only signed up for a one-month trial period for free streaming, as he apparently canceled the subscription before he was even charged.

Neither the widower's lawyers nor Disney's lawyers responded to CNN's request for comment for this article.

It's unclear how the courts will rule on the dispute, but legal experts say it's not uncommon for companies to use the tactics Disney is using. They argue that arbitration clauses can reach every affiliate under a company's umbrella and cover all allegations, even if they have nothing to do with the transaction that led to the arbitration agreement.

Legal expert has read the Disney+ contract. Here is her opinion on Disney's attempt to block the lawsuit

“This is a hot topic in arbitration law,” said Stephen Ware, an arbitration law expert at the University of Kansas School of Law.

A series of U.S. Supreme Court rulings in the 2010s favoring arbitration have spurred a push for a stronger definition of when arbitration clauses can be enforced.

“Twenty years ago, you would never have seen a request for forced arbitration like this,” says David Horton, a professor at the University of California-Davis School of Law who studies this dynamic in legal articles.

Lower courts disagree on whether such arbitration clauses should be interpreted as broadly as companies like Disney argue. The Supreme Court has not directly addressed the practice, but a “district split” on the issue, as arose in telemarketing lawsuits against DirecTV, makes it more likely that the justices will want to address the issue.

Arbitration has some advantages for both parties, as it makes dispute resolution less expensive and less time-consuming than litigation in court or before a jury. However, Horton said arbitration is also seen as an advantage for large companies that engage in arbitration “repeatedly” because they know how to use the process to their advantage.

And thanks to a 2019 Supreme Court ruling by the conservative majority, arbitration clauses bar class action lawsuits unless the contract specifically states that such lawsuits are allowed. That makes it harder for plaintiffs to find lawyers to represent them, since individual lawsuits are typically too small to make them lucrative enough for a lawyer to want to take on.

Similar arguments from Airbnb, DirecTV and Walmart

Courts have differing views on whether Disney's aggressive demands for enforcement of its arbitration clause should be accepted.

But increasingly, companies are writing remarkably detailed arbitration clauses in their contracts with consumers and then using them to argue that they cover all types of disputes, said Horton, a professor at UC Davis.

For example, when Airbnb faced lawsuits over incidents at its rental properties, the company cited the arbitration clause in the Terms of Service that users agree to when they open an account with the service.

In a wrongful death lawsuit against Airbnb brought by the estate of a man killed in one of its rental properties, the company cited the arbitration clause in the agreement the man entered into when he signed up for an Airbnb account, even though the deceased was not renting the property he was staying in. his death had occurred. The Nevada Supreme Court's ruling in favor of Airbnb relied on a unanimous 2018 U.S. Supreme Court ruling that courts cannot decide whether an arbitration clause covers a dispute if the contract language says an arbitrator must resolve such issues as well.

In another case, Walmart was able to successfully use an arbitration clause to fend off a civil rights lawsuit it faced.

A black family had sued Walmart after one of its employees falsely and without evidence accused them of shoplifting, causing an embarrassing scene in front of the family's neighbors and classmates. But because a family member had signed a contract with an arbitration clause months earlier to drive for Walmart's grocery delivery service, a federal judge ruled that the civil rights violation claim could not proceed in her court and most would go to arbitration instead. Her ruling cited the precedent set by the 2019 Supreme Court class action case known as Lamps Plus, Inc. v. Varela.

Perhaps the case law that best supports Disney's arguments comes from lawsuits brought under the Telephone Consumer Protection Act against DirecTV for allegedly making telemarketing calls to people on a Robinson list.

In several class action lawsuits, DirecTV pointed to arbitration clauses in contracts the plaintiffs signed — not with the satellite television company, but with telephone service provider AT&T Mobility when the plaintiffs purchased cell phones. DirecTV argued that the arbitration clauses in the cell phone contracts applied to the telemarketing claims because DirecTV was acquired years later by AT&T Mobility's parent company, making it an “affiliated company,” as the contract's arbitration clauses put it.

The 4th U.S. Circuit Court of Appeals agreed with this broad interpretation of the arbitration clause in a ruling that also cited the Supreme Court's 2019 ruling. However, the 9th U.S. Circuit Court of Appeals disagreed in a later case involving the same facts, concluding that the arbitration clause in the AT&T Mobility contract, while broad, was not explicit enough to apply to a “future” subsidiary like DirecTV.

When faced with such arguments, courts have had to grapple with two conflicting principles, Horton said. He coined the term “open-ended arbitration clauses” for contracts designed to cover all possible disputes a consumer might bring against a business.

Courts “intuitively” recognize that it is “absurd to say you are bound by an arbitration clause in a contract, even if the subject matter of the contract has nothing to do with your claim,” Horton said. On the other hand, however, there is Supreme Court precedent that says the relevant federal arbitration law requires courts to “enforce arbitration agreements according to their terms.”

“Some courts say that this precedent applies to these unlimited arbitration clauses whether your claim has any bearing on it or not,” Horton said.