Contracts Archives - That's Not Market

General Mills Pushes Boundaries With Online Terms and Conditions

General Mills gets a lesson ‘bout messin’ with legal rights in overbearing Terms and Conditions.

"Like" this on Facebook for a coupon and waiver of legal liability.

Almost anyone who has put up a website is guilty: Your “Terms and Conditions,” “Terms of Use,” “Legal Matters” or “Legal Terms” section is over the top.

Sure, you want to be protected. Or, at least, you want to feel protected.

However, you may face a severe backlash from the people you are courting as customers.

Case in point: General Mills.

General Mills slipped some language into their Legal Rights that said customers,

“give up their right to sue the company if they download coupons, “join” it in online communities like Facebook, enter a company-sponsored sweepstakes or contest or interact with it in a variety of other ways.”

Instead, if you derive any sort of benefit, you are stuck with email negotiation or arbitration for any dispute. That $0.50 coupon for Wheaties is looking kinda expensive now, isn’t it?

General Mills backtracked the language, explaining:

“There’s no mention of arbitration, and the arbitration provisions we had posted were never enforced. Nor will they be. We stipulate for all purposes that our recent Legal Terms have been terminated, that the arbitration provisions are void, and that they are not, and never have been, of any legal effect.”

Then they added, “That last bit is from our lawyers.” Always blame the lawyers.

General Mills spokesperson explained that they never imagined this reaction. “Never considered it” is probably more accurate.

She continued to explain:

“Similar terms are common in all sorts of consumer contracts, and arbitration clauses don’t cause anyone to waive a valid legal claim [Ed: Um, sometimes they do.]. They only specify a cost-effective means of resolving such matters [Ed: Um, not always.]. At no time was anyone ever precluded from suing us by purchasing one of our products at a store or liking one of our Facebook pages. That was either a mischaracterization – or just very misunderstood. Not that any of that matters now.”

Translation: You, Customers, didn’t read it correctly, but we are changing it anyway.

Good for General Mills for listening to customer complaints, but you’d think they would have been more diplomatic about it. How about the truth: “We overreached and didn’t think any of our customers would ever notice, at least until they tried to sue us. Since there are plaintiffs lawyers and public interest groups that pay attention to this sort of thing, word got out. Sorry about that. We’re changing back.”

Here is the current page for General Mills’ Legal terms.

Online Contracts – How Deceptive Is Too Deceptive To Form A Valid Contract?

Online contracts obtained through deception may be easier than you’d think, despite a 9th circuit opinion knocking one down.

Link: Lee v. Intelius Inc.

Have you ever purchased something online only to find recurring credit card charges for something you don’t want, didn’t ask for and never heard of? A recent 9th circuit decision shows the limits of clickthroughs to create binding contracts and the risks for consumers who click without looking.

Background

A plaintiff purchased an online background check from Intelius. After the purchase, the website offered $10.00 cash back for a survey, which also asked for an email address with a statement that entering the email constitutes an electronic signature and authorization to charge/debit their account. The plaintiff was not asked to reenter his credit card information. Following an additional click, which included a statement on the website for the background check, the website said that the click constitutes an agreement to “Offer Details” and authorized Intelius to pass the plaintiff’s information to “a service provider of Intelius.”

It turns out that the service provide was Adaptive Marketing, a third party, not part of Intelius and not mentioned by name on the website. The additional efforts were actually to purchase a monthly service from Adaptive.

The Court’s Reasoning

The arbitrator clearly saw the process to be a misleading set up to get purchasers of Intelius’ background checks to subscribe for Adaptive’s services. The description of the process was “designed to deceive.” However, this did not settle the matter.

It is clear that an electronic “signature” can be legally sufficient under Washington law even if it is not clear under what circumstances a “click” constitutes a signature.

However, the law reuires that the “essential elements” of a contract be set forth in writing, including the identification of the parties to the contract. Adaptive claimed that the parties need not be named and cited cases regarding companies doing business under assumed names. However, nothing on the website identified Adaptive as the party with whom the plaintiff was contracting. In addition, it was ambiguous at best that anyone other than Intelius was involved.

The Result

The arbitrator ruled that a contract had not been formed.

Lessons

This case was not as consumer friendly as the holding suggests. Just adding “Adaptive Marketing” in some manner on the website may have been enough to justify enforcing the contract. If the court was looking to say “We will look closely at circumstances where there is simply no way the user is purchasing some bogus subscription,” it did not exactly make a strong statement.

Even confusing and deceptive language and formatting on a website can induce the formation of an enforceable contract. However, all of the elements of a contract must be present, not just “as suggested by.”

Contracts and the Law – Beer Contracts in Mergers & Acquisitions

Labatt distributor shows why contracts must work with the law and can’t just change it.

Link: Esber Beverage Company v. Labatt USA Operating Company (Ohio Supreme Court)

Every now and then I get a request to draw up an agreement that does not jive with the law. I’ll get suggestions such as, “Just call it something else, like “Consulting Agreement.’” I have to say, “It doesn’t work that way. The contract has to work within the framework of the law. Sorry.”

How is this relevant to anything? Well, because when a manufacturer sell its rights relating to a particular brand of alcohol to a successor, the new owner can terminate any distributor’s franchise without cause. At that point, the new owner’s obligations are notice and compensation.

We learn this because Esber Beverage Company was a long-time distributor of Labatt for InBev. InBev went on to merge with Anheuser-Busch. Because easy is cheap, the U.S. Department of Justice would not allow this merger to proceed without some sort of obstacle. With no consideration at all of the good folks who distribute Labatt, the Justice Department forced the merged company to divest itself of all assets relating to Labatt. A new company backed by private equity firm KPS Capital Partners, L.P. purchased the rights to Labatt and terminated Esber.

Esber sued claiming that the statute only applied when there was no written agreement.

The court didn’t buy it.

Pursuant to the statute, every manufacturer of alcoholic beverages must offer its distributors a written franchise agreement specifying the rights and duties of each party. If the parties do not enter a written franchise agreement, a franchise relationship will arise as a matter of law when a distributor distributes products for 90 days or more. So far so good.

The statute also sets forth how to cancel or terminate a franchise. There are three situations:

With prior consent and 60 days’ notice
With “just cause,” and the statutes explains what this means.

In addition, in either case, the manufacturer must repurchase all of the terminated distributor’s unsold inventory and sales aids.

However, the statute also provides for terminating a franchise when the manufacturer sells a particular brand or product of alcoholic beverage to a successor manufacturer. If a successor manufacturer acquires all or substantially all of the stock or assets of another manufacturer, the successor manufacturer may give written notice of termination, nonrenewal, or renewal of the franchise to a distributor of the acquired product or brand. On termination of the franchise, the successor manufacturer must repurchase the distributor’s inventory and must compensate the distributor for the diminished value of the distributor’s business that is directly related to the sale of the terminated product, including the appraised market value of the distributor’s assets devoted to the sale of the terminated product and the goodwill associated with that product.

This was not enough for Esber, which asserts that the statute does not permit a successor manufacturer to terminate when the successor manufacturer has itself entered into or assumed a written contract with the distributor. The court disagreed and quoted another case for the proposition:

“When a statute’s language is clear and unambiguous, a court must apply it as written.”

It continued:

“The plain language of the statute allows the successor manufacturer to terminate a franchise. The definition of “franchise” includes both written franchise agreements and franchise agreements that have arisen by operation of law.”

As a result, the new owner can terminate Esber and Esber is entitled to compensation. However, the contract does not trump the statute.