District of Massachusetts Rejects Arbitration Clause Based on Unilateral Amendment Without Notice
On May 19, 2025, in Pizza Hazel, Inc. et al. v. Am. Express Co., et al., a Magistrate Judge in the District of Massachusetts recommended that the district court deny American Express’s motion to compel arbitration on the grounds that the contract allowed American Express to unilaterally amend the arbitration agreement without notice to the counterparties. On September 19, 2025, the district court adopted the magistrate’s recommendation and denied the defendant’s motion to compel arbitration.
Case Background: Merchants Challenge Amex’s Merchant Operating Guide
Plaintiffs in Pizza Hazel asserted a class action against American Express related to the terms of its Merchant Operating Guide (“MOG”). American Express moved to compel arbitration, arguing that the MOG contained an arbitration clause and class action waiver. Under the terms of the MOG, American Express reserved the right “to make changes to the [MOG] in scheduled changes and at any time in unscheduled changes.”
The section of the contract related to “Scheduled Changes” stated that American Express would publish the MOG twice a year in April and October with various changes to take effect in the next scheduled publication month “or on such other date as we set forth in the [MOG].” The section related to “Unscheduled Changes” allowed American Express to make changes “at any time” and for such changes to take effect within 10 days after posting it to the website “unless another effective date is specified in the notice.”
Why the Arbitration Clause Collapsed: Unilateral Amendment Without Notice Under New York & Massachusetts Law
Applying New York and Massachusetts law (which the Court recognized were substantively identical on these issues), the Court held that the arbitration agreement was illusory because American Express could “change it unilaterally without notice.” Quoting National Federation of the Blind v. Container Store, Inc., the Court explained: “the relevant inquiry is whether the drafter unilaterally retained the right to alter the terms of the contract at any time.” American Express argued that the Scheduled Changes section anticipated notice and a future effective date, but the Court recognized that the agreement also allowed them to make such changes “on such other date as we set forth in the [MOG].” Similarly, the agreement allowed American Express to make Unscheduled Changes with 10 days’ notice or “another effective date [as] specified in the notice.” Finally, the Court recognized that American Express had made some of the changes at issue “effective immediately.” As a result, the Court held that the arbitration agreement was illusory and unenforceable.
Key Takeaways: Enhancing the Enforceability of Arbitration Agreements Subject to Amendment
Companies should review arbitration clauses to confirm that any unilateral amendment process provides notice and an opt-out to counterparties and avoids retroactive effect. Courts generally uphold amendment rights where fair notice is given and changes apply prospectively. The Court in Pizza Hazel recognized that “the fact that one party has the unilateral right to modify that agreement does not automatically render the agreement illusory as long as the other party has fair notice of the changes.” Under the Court’s analysis, an arbitration agreement is at risk of being declared illusory and unenforceable if the contract provides a party with unilateral power to decide what changes to make and when those changes become effective without notice or an opportunity to opt-out, as in Wainblat v. Comcast Cable Communications, LLC.
The Pizza Hazel decision also underscores the importance of carefully reviewing arbitration provisions at the outset of any class action or mass arbitration demand. For companies facing potential class claims, an initial step should be to analyze existing arbitration agreements for unilateral amendment rights and identify opportunities to strengthen them as described above. Another early step should be gathering records maintained concerning any prior amendments, notices, and responses thereto. Documenting and being able to demonstrate clear amendment and notice practices strengthens a company’s position to compel arbitration. Understanding how and when an arbitration clause was last changed can also shape early risk assessments, influence strategy on compelling arbitration, and help anticipate plaintiff arguments about enforceability.