Distributors Sue Momentis For Breach Of Contract

Andy MCWilliams,Momentis,CEO


Day in and day out, Internet users sign various forms of agreements for a variety of reasons, from joining a dating site, to participating in an online auction, to uploading media to a storage locker. These agreements, sometimes known as browse-wrap or click-wrap agreements, are necessary to memorialize and expedite the use of a website pursuant to well-defined rules. More often than not, these agreements substitute for more traditional contracts, and they are thus construed as such when contested in court.

A fundamental question intrinsic to contracts is whether an enforceable agreement exists at all. A dispute over the enforceability of an online agreement, and the arbitration provision therein, arose recently in state court in Texas. See Momentis U.S. Corp. v. Weisfeld, No. 05-13-01250-CV (Tex. App. July 23, 2014).Momentis involved a dispute between a marketing company and two of its independent representatives.

To sell its products, Momentis U.S. Corp. (Momentis) contracted with third-party independent contractors called independent representatives (IRs). Bishop and Weisfeld (collectively, Plaintiffs) signed up to be IRs. In order to be accepted as such, prospective IRs must complete and sign Momentis’ IR agreement (the Agreement), Policies & Procedures, and submit an application fee. Once the prospective IR pays the application fee, Momentis sends the recruit a welcome email which it believes is tantamount to an acceptance of the application. Both the Agreement and the Policies & Procedures contained binding arbitration provisions.

The Plaintiffs completed all the necessary steps and joined Momentis as IRs. In September 2011, at a Momentis conference, its CEO told those gathered that for every IR in attendance who returned the following year and had gotten at least a customer in the last year and sponsored a representative, Momentis would pay for your hotel room, your event will be free, and we will give you $500 to be here. The 2012 conference cost $99 to attend, and a hotel room for both nights ran $340.

Relying on the offer from the CEO at the previous conference, the Plaintiffs requested either (a) to take advantage of the offer; or (b) to receive reimbursement of their 2012 conference expenses. Each of these requests were denied by Momentis management.

Plaintiffs then filed a class action suit against Momentis alleging violations of the state deceptive trade practices statutes, breach of oral contract, and promissory estoppel. In response, Momentis filed a motion to compel arbitration pursuant to the terms of the Agreement. The trial court denied that motion.

On appeal, Momentis contended that the trial court abused its discretion by deny the motion to compel. The appellate court agreed. To compel arbitration, a party must establish that (1) a valid, enforceable arbitration clause exists and (2) the claims at issue fall within that agreement’s scope. See In re Kellogg Brown & Root, Inc. 166 S.W.3d 732 (Tex. 2005). The satisfaction of those elements is governed by state contract law.  

See In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (Tex. 2006). In essence, the Plaintiffs disputed whether the submission of the Agreement and Policies & Procedures electronically constituted a valid acceptance. Specifically, they claimed that there was no signature on the arbitration portion of the Policies & Procedures, and that even if there was, the agreements were unconscionable or void.

In response, Momentis filed an affidavit of its direct of research and compliance, Thomas Grissom (Grissom). Grissom detailed the manner in which an individual becomes an IR, including the fact that prior to becoming one, the recruit electronically signs the enrollment by clicking on the Sign & Submit option. Additionally, a recruit must select the I Agree option to signify agreement with the Agreement and Policies & Procedures. The court noted that, given the statutory provision within the Texas business code that states that a transaction by electronic means is determined from the context and surrounding circumstances, Momentis had evidenced the existence of a valid transaction. See also Tex. Bus. & Com. Code Ann. § 322.005 (West 2009).

In particular, an enforceable contract had existed between Momentis and the Plaintiffs because Grissom’s testimony had established that the Plaintiffs agreed to the Agreement and the Policies & Procedures, and the arbitration clauses, therein, by clicking on the I agree selection and submitting their applications. Accordingly, the dispute between Momentis and the Plaintiffs over the purported offer by the CEO at the 2011 conference could be resolved solely via arbitration.

The only thing that is surprising about this decision is that it made it past the trial court. All the relevant agreements between Momentis and the Plaintiffs contained boilerplate language endemic to most agreements consummated online, e.g., arbitration clauses, and entire agreement provisions. Additionally, the Momentis protocol required two separate affirmations of intent to be bound in the form of the (1) I agree button and the (2) Sign & Submit button. If these manifestations of intent to be bound were considered insufficient for purposes of contract formation, it would likely undo the balance of online contracts created.


Originally reported by: Lexology 

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