Consumer Law

The Shadow Terms: Contract Procedure and Unilateral Amendments

By Deepak Gupta

David Horton of Loyola Law School has an interesting and timely new article in the UCLA Law Review exploring the increasing phenomenon of companies using the authority of blanket "change-in-terms" provisions to unilaterally revise the terms of consumer contracts, often in an attempt to evade or stay one step ahead of court review.  For example, cell phone companies whose arbitration clauses have been struck down as unconscionable have have invoked change-in-terms provisions to impose more consumer-friendly arbitration clauses on their customers in an attempt to salvage their bans on class actions.

The article makes a case for legislation that would ban such unilateral revisions. Here's the abstract:

For decades, courts and commentators have debated the normative implications
of contract procedure. Conservatives argue that mandatory arbitration clauses reduce
the burden on the judicial system and that class arbitration waivers, choice-of-law
clauses, and jury trial waivers allow businesses to pass litigation savings to their
consumers in the form of lower prices. In response, liberals object that contract
procedure dilutes substantive rights and runs roughshod over important jurisdictional
and constitutional values.

This Article argues that neither view has accounted for a defining trait of contract
procedure: the regularity with which drafters unilaterally amend procedural terms.
Indeed, many standard form consumer agreements and a growing number of state
statutes authorize drafters to revise procedural terms unilaterally. The frequency
with which drafters exercise this power undermines the foundational conservative
theory that sophisticated adherents can exert market pressure on drafters to offer
efficient procedural terms. However, the liberal model of contract procedure?which
urges courts to nullify procedural terms that erode substantive, jurisdictional, or
constitutional interests?creates perverse incentives. Drafters respond to judicial decisions
voiding procedural terms by amending their terms again. The target audience
for these revisions is not the adherents who will be subject to them, but the courts who
will adjudicate their validity. This ?private conversation? between corporations and
courts not only widens the informational gulf between drafters and adherents, but
increases the burden on the judicial system. To end this pernicious feedback loop, the
Article encourages policymakers to eliminate drafters? ability to amend procedural
terms unilaterally.

Full post as published by CL&P Blog on May 02, 2010 (boomark / email).