Legal Opinions - U.S. District Court, Maryland: October 6, 2008

Daily Record, The (Baltimore), Oct 6, 2008

On July 15, 2005, FNC again revised their user agreement offered to new subscribers (2005 Agreement). That agreement contained no arbitration clause.

The district court held that there exited no valid agreement to arbitrate, and, therefore, denied FNC's motion to stay.

LAW: Although federal law demands that the scope of arbitration clauses be interpreted liberally, the antecedent inquiry -- whether there is a valid agreement to arbitrate -- is a question of state law. See First Options of Chicago, Inc., v. Kaplan, 514 U.S. 938, 944 (1995).

Here, it was undisputed, at least for the purposes of the instant motion, that each of the plaintiffs, except for Torres, were at some point in time subject to the 2002 agreement. Parties to the 2002 Agreement explicitly agreed to the conditions under which FNC could modify its terms, and that the law of Mississippi would govern any interpretation of agreements. Thus, the governing law was that of Mississippi.

FNC argued that any modification to the prior user agreements was ineffective because it neither complied with specific provisions in the prior agreement governing such modifications, nor did it comply with general principles of law governing the formation of contracts, including notice to the existing users.

FNC's modification through issuance of the 2005 Agreement either complied with the explicit provisions of the 2000 and 2002 Agreements, or, alternatively, such provisions were otherwise waived by the plaintiffs.

Both the 2000 and 2002 Agreements contained the following provision permitting FNC to modify the agreements unilaterally under certain conditions: "The User Agreement may be modified at any time. Whenever changes are made, the revised agreement will be posted at this location. New terms will be effective 30 days after the changes are posted." The Agreements further provided that the user "will be asked to acknowledge your acceptance of the changes the first time you log in after the changes have been made."

Under the plain terms of the first sentence, therefore, the 2000 and 2002 Agreements purported to give FNC the unilateral right to modify them at any time. It was undisputed that FNC did not ask previously registered users to acknowledge the 2005 Agreement the first time they logged on after it was introduced, or for that matter, at any time they logged on. For that reason, FNC contended that its attempted modification was ineffective.

The modification provisions of the 2000 and 2002 Agreements were, at the very least, ambiguous as to whether asking the user to "acknowledge" acceptance of the changes was truly a necessary condition to effect a modification. "Ambiguities in a contract are to be construed against the party who drafted the contract." Union Planters Bank Nat'l Ass'n v. Rogers, 912 So.2d 116, 120 (Miss. 2005).

Critical to the result in Rogers, however, was the fact that it was the drafter of the modification provisions who sought to validate its own attempted modification, no invalidate it, as FNC sought to do. In stating the above-quoted passages as one of the bases of its decision, therefore, Rogers stands less for the strict construction of modification provisions in general, than it does for the strict construction of them against the drafter.