Journal of American Arbitration (JAA) - Vol. 6, No. 2
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Journal of American Arbitration (JAA)
Blockbuster Membership Agreement
No Match for Plaintiffs in the Battle for
Late Fees in Edwards v. Blockbuster, Inc.
By Jessica VanderKam
On January 1, 2005, Defendant Blockbuster, Inc. (“Blockbuster”)
changed its late fee policy by essentially eliminating
conventional late fees. Edwards v. Blockbuster Inc., 400 F. Supp.
2d 1305, 1307 (E.D. Okla. 2005). The new program, called the
“End of Late Fees Program” (“Program”), converted a rental into a
sale when a customer would keep the product more than seven
days beyond the original rental return date. Id. Four months after
Blockbuster effectuated the Program, Plaintiff Kenneth W.
Edwards challenged the Program by filing a class action suit
against Blockbuster seeking to recover a restocking fee that had
been charged to a customer’s account after a rental was kept more
than seven days beyond the due date but returned within thirty
days of the sale. Id. The $1.25 fee provided Blockbuster with a
way to pay for the associated costs of converting the rental to a
sale and back from a sale to a regular rental again. Id.
This was not the first time that Blockbuster’s Program
encountered difficulties. The Program was subject to scrutiny in
its first few months by attorney generals of forty-seven states, who
led a combined consumer fraud investigation into Blockbuster’s
automatic sale of rented products to its customers. Id. The result
of this investigation was a negotiated agreement between the
attorney generals and Blockbuster called the Assurance of
Voluntary Compliance (“AVC”), which required Blockbuster to
provide customers an opportunity to receive refunds for the sale
price and restocking fee, as well as make the terms of the Program
more visible to customers. Edwards, 400 F. Supp. 2d at 1307.
Pursuant to the AVC, the plaintiff had the option to seek a full
refund of both the sale price of the video he had rented and the
$1.25 restocking fee, rather than initiate the class action suit he
ultimately filed. Id. In response, defendant immediately filed a
motion to compel arbitration pursuant to the Blockbuster
Jessica VanderKam, J.D. Candidate, Penn State Dickinson School of Law, 2008.