## Facts

- Blockbuster operated “Blockbuster Online,” an internet-based movie rental service.
- Blockbuster participated in Facebook’s “Beacon” program, under which customers’ rental selections were transmitted to Facebook and broadcast to the customers’ Facebook friends.
- Blockbuster Online customers sued, alleging unlawful disclosure of personally identifiable information in violation of the Video Privacy Protection Act (VPPA), 18 U.S.C. § 2710.
- To use the service, customers clicked to accept Blockbuster’s online Terms and Conditions.
- The Terms and Conditions included (1) a “Dispute Resolution” provision requiring binding arbitration and purporting to waive class actions, and (2) a clause allowing Blockbuster to modify the Terms and Conditions at any time, in its sole discretion, with changes effective immediately upon posting.
- Blockbuster moved to compel individual arbitration under the Terms and Conditions; plaintiffs argued the arbitration provision was illusory and unconscionable.

## Issues

1. Whether the arbitration provision was illusory and unenforceable under Texas contract law because Blockbuster reserved a unilateral right to modify the Terms and Conditions at any time, in its sole discretion, with immediate effect.
2. If the arbitration provision was unenforceable, whether the court should deny the motion to compel individual arbitration and allow the case to proceed in court.

## Decision

- The court denied Blockbuster’s motion to compel individual arbitration.
- The court held the arbitration provision was illusory and unenforceable under Texas law because Blockbuster’s unilateral modification power could encompass the arbitration clause and could operate immediately, including as to existing disputes.
- The court relied on Fifth Circuit authority finding materially similar arbitration provisions illusory.
- The court distinguished Texas Supreme Court authority upholding an arbitration program only where the drafter’s modification power was limited (including protections against retroactive application).
- Because the arbitration provision was illusory, the court did not reach the plaintiffs’ unconscionability argument.

## Legal Principles

- Under Texas law, an enforceable contract requires consideration; a promise is illusory if one party retains an unfettered right to avoid, amend, or withdraw its obligation.
- An arbitration agreement may be illusory when the drafter can unilaterally change the arbitration terms at any time and apply changes immediately, including to disputes that have already arisen.
- An arbitration program with unilateral modification may be enforceable when meaningful limits prevent retroactive application to accrued claims and provide notice-related protections; absent such limits, the promise to arbitrate may lack mutual obligation.

## Conclusion

The court refused to compel individual arbitration because Blockbuster’s Terms and Conditions allowed unilateral, immediate modification broad enough to alter the arbitration commitment, rendering the arbitration provision illusory and unenforceable under Texas contract law.


Harris v. Blockbuster Inc., 622 F. Supp. 2d 396 (N.D. Tex. 2009)