How Powerful Is One Click of a Mouse?
Anyone who has made an online purchase has encountered it: a final click on a button labeled “Place Order,” often accompanied by language stating that the buyer agrees to the website’s Terms of Use. Routinely included in those terms is an arbitration agreement requiring disputes to be resolved through binding arbitration rather than in court. But how far does that obligation extend, and who is actually bound by it? That question was recently addressed by the California Court of Appeal in Consumer Advocacy Group v. Walmart.
The case arose from purchases made on Walmart.com in 2021 and 2022 by Michael Marcus, the secretary and chief financial officer of Consumer Advocacy Group, Inc. (CAG). It was undisputed that Marcus was acting as CAG’s agent when he completed the transactions.
To finalize each purchase, Marcus was required to click the “Place Order” button. According to the website, clicking that button signified agreement to Walmart’s Terms of Use, which included an arbitration clause.
The clause provided that, with limited exceptions for qualifying small claims matters, “all disputes arising out of or related to these Terms of Use or any aspect of the relationship between [the website user] and Walmart” would be resolved through final and binding arbitration. The provision applied broadly to claims based on contract, tort, statute, fraud, misrepresentation, or other legal theories.
The Terms of Use also stated that both the website user and Walmart were waiving the right to sue in court and agreeing that arbitration would proceed only on an individual basis. Class actions and class arbitrations were expressly prohibited.
Walmart’s Terms of Use, accessible through a link in the website footer, have changed somewhat over time. The current version spans nearly 13,000 words, or approximately 32 pages.
The arbitration agreement specified that disputes would be administered by Judicial Arbitration Mediation Services, Inc. (JAMS) under its applicable rules. One of those rules states that issues concerning jurisdiction and arbitrability are to be decided by the arbitrator.
CAG, a Beverly Hills–based organization, was formed to pursue enforcement of California’s Proposition 65, formally known as the Safe Drinking Water and Toxic Enforcement Act of 1986. Proposition 65 requires businesses to provide warnings before exposing individuals to chemicals known to cause cancer or reproductive harm.
The products purchased by Marcus included seaweed snacks, cassava chips, canned sardines, bags, phone mounts, tools, and other consumer goods.
Between January 2022 and February 2023, CAG sent Walmart multiple notices alleging Proposition 65 violations related to these products. In May and October 2023, CAG filed lawsuits against Walmart and other entities, claiming they had failed to provide required warnings about potential chemical exposures.
Walmart responded by asking the trial court to compel arbitration, arguing that Marcus’s online purchases bound CAG to arbitrate the dispute.
The trial court denied the request. It concluded that Walmart’s arbitration agreement applied only to disputes between an individual consumer and the retailer. The Proposition 65 claims, the court explained, were brought as qui tam actions—lawsuits filed by private parties on behalf of the state.
Qui tam actions have deep historical roots, deriving from a Latin phrase meaning “who sues on behalf of the King as well as for himself.” In modern law, they allow private individuals or organizations to act in the public interest by enforcing certain statutes, often with a portion of any civil penalties awarded to the plaintiff.
Walmart and the other defendants appealed the trial court’s decision.
The Court of Appeal began its analysis by emphasizing Proposition 65’s purpose: protecting the public by ensuring that businesses do not expose consumers to hazardous chemicals without clear and reasonable warnings. The statute permits a private party to sue in the public interest after giving at least 60 days’ notice to designated state and local officials, provided those authorities do not take action themselves.
If such a lawsuit is successful, 75% of any civil penalties recovered are paid to the state, while 25% goes to the private plaintiff.
The justices noted that although a plaintiff may receive a share of the recovery, the plaintiff does not have a personal property right at stake. The action is pursued on behalf of the public, and a plaintiff need not have purchased the product or suffered any injury to bring suit.
Walmart argued that, under the JAMS rules incorporated into its arbitration agreement, the arbitrator—not the court—should decide whether the dispute was subject to arbitration. The Court of Appeal rejected that argument, explaining that arbitration depends on consent. An arbitrator cannot determine arbitrability for a party that never agreed to arbitrate in the first place.
As the trial court had found, any arbitration agreement Marcus accepted when making online purchases could not bind the state. Marcus was not acting as an agent of the state when he clicked “Place Order.” While there may have been an arbitration agreement between Walmart and CAG as Marcus’s employer, there was no such agreement between Walmart and the state, which the court described as “the real party in interest.”
The Court of Appeal affirmed the order denying Walmart’s petition to compel arbitration and awarded CAG its costs on appeal.
