TaxAct Didn't Follow JAMS Policy, Says Plaintiff's Arbitration Opposition
TaxAct’s arbitration agreement isn’t valid, said plaintiff Matthew Hartz in a memorandum of law opposing (docket 1:23-cv-04591) TaxAct’s motion to compel arbitration of a fraud complaint in U.S. District Court for Eastern Illinois in Chicago. Hartz’s July complaint alleges TaxAct violated congressional and IRS safeguards against the sharing of private tax return information with third parties when it transmitted his personally identifiable information (PII) to Facebook and Google.
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TaxAct argued in September (see 2309250002) that when Hartz used its tax preparation products, he agreed to do so under the company's standard terms and conditions that require disputes to be resolved by “confidential binding arbitration.”
Hartz said in his opposition that when TaxAct affixed “invisible tracking codes” from Facebook and Google on its website, “millions of Americans” who used the service to file their taxes had their PII and private tax information “unlawfully shared” with the platforms, said the memorandum. Hartz wasn’t informed that his PII would be shared with third parties and was denied protections of his private information that he was entitled to receive as a TaxAct customer, it said.
TaxAct’s assertion that JAMS rules have a delegation provision mandating that the arbitrator decide various threshold issues is correct, but the company’s failure to follow JAMS policy pursuant to pre-dispute clauses minimum standards of procedural fairness renders the delegation clause to JAMS “unenforceable,” said the memorandum, citing Nguyen v. OKCoin USA.
Consumer Arbitration Minimum Standards (CAMS) aren’t mentioned in JAMS streamlined rules, but “they are clear that ‘JAMS will administer arbitrations pursuant to mandatory pre-dispute arbitration clauses between companies and consumers only if the contract arbitration clause and specified applicable rules comply with [certain] minimum standards of fairness,'” said Hartz. The requirement that all disputes arising out of terms will be resolved through confidential binding arbitration in Dallas County, Texas, is inconsistent with Rule 5 of CAMS, which says the consumer must have a right to an in-person hearing in his hometown area, said the memorandum.
TaxAct contends Hartz entered into a contract with the company via its terms containing an arbitration agreement, but that disregards that there was no “meeting of the minds or mutual assent as to all material terms,” which is required for a binding agreement, said the memorandum. Though Hartz had numerous interactions with TaxAct’s website, its “clickwrap agreement,” in which a click indicates assent to terms of use, required no affirmative action beyond use of the site, it said. The terms didn’t give Hartz a “realistic opportunity” to review terms, nor did they require a “physical manifestation of assent,” it said. The question is whether Hartz had “actual or constructive” knowledge of terms and conditions, it said.
Because Hartz’s primary purpose in using TaxAct was to file his tax returns vs. assenting to TaxAct terms, “the relevant question is whether ‘a reasonable person’” in Hartz’s shoes would have realized he was “assenting to a contract,” said the memorandum. TaxAct’s screens contain numerous hyperlinks that “contribute to the general clutter of the [registration] screen,” it said. Also, it said, TaxAct’s “clickwrap” sign-up procedure “does not appear to meet IRS regulations” because “at no point did the website prompt the user to sign or date a consent form for the disclosure of [tax return information],” it said.
Under Illinois law, an agreement is unconscionable if there’s an “absence of meaningful choice” that results in contract terms that are “unreasonably favorable to the other party,” said the memorandum. The combination of substantive and procedural “unconscionability” is sufficient for the court to decline to enforce the arbitration provision, it said.
TaxAct’s requirement that Hartz pay the filing fee for arbitration with TaxAct paying the remaining JAMS fees and costs of $2,000 “is excessive” and “much higher than he would pay in court,” said the memorandum. That has a “substantial deterrent effect on incentives to arbitrate” and therefore is "substantively unconscionable,” it said. And because the agreement requires arbitration to be conducted in Dallas, “any user outside of Dallas who incurs costs is certain to lose money pursuing arbitration," even if Hartz prevails, and even if the arbitrator awards him recovery of costs, such as the filing fee, it said.