Background
Entrata operated ResidentPortal, an online service that Kaitlyn Trimble used to pay rent at a Maryland apartment complex in 2023 and 2024. Each payment included a convenience fee. Before completing a payment, Trimble had to check a box accepting hyperlinked terms and conditions that contained an arbitration provision.
Trimble filed a putative class action alleging that Entrata acted as an unlicensed collection agency and unlawfully collected convenience fees under Maryland consumer-protection and debt-collection laws. After removing the case to federal court, Entrata moved to stay the litigation and compel arbitration. The district court denied the motion, concluding that Entrata’s unilateral modification clause rendered its promise to arbitrate illusory and left the arbitration agreement without consideration.
The Court’s Holding
In a published 2-1 decision, the Fourth Circuit affirmed. Applying Maryland contract law, the majority held that no enforceable arbitration agreement was formed because Entrata retained unfettered discretion to modify the terms, including the arbitration provision, without providing meaningful advance notice. Users were bound by the operative terms as soon as they accessed ResidentPortal, so they could not enter the site to learn of a change without simultaneously accepting it.
The court rejected Entrata’s argument that each portal visit created a separate transaction governed only by the terms then in effect. Reading the terms as a whole, the majority concluded that they contemplated an ongoing service relationship and permitted Entrata to alter its obligations without giving users a chance to end that relationship before a change took effect. Judge Rushing dissented, reasoning that changes applied only prospectively and, in any event, became binding only if a customer chose to revisit the portal.
Key Takeaways
- Under Maryland law, a mutual promise to arbitrate supplies consideration only if both parties are genuinely bound.
- A website operator’s unrestricted power to modify an arbitration provision without meaningful advance notice can make its promise to arbitrate illusory.
- Notice posted inside a portal is ineffective as advance notice when accessing the portal itself automatically binds the user to the revised terms.
Why It Matters
The decision underscores that the Federal Arbitration Act’s policy favoring arbitration does not eliminate the threshold requirement of a valid agreement under state contract law. Businesses using online terms should ensure that modification provisions meaningfully constrain unilateral changes and allow users to review revisions before those revisions become effective.
The ruling also shows that courts may examine the entire structure and language of a digital service relationship—not merely the mechanics of clicking an acceptance box—when deciding whether an arbitration promise is supported by consideration.