General Mills “You Can’t Sue Us” Approach Ticks People Off, Won’t Work In Court

When you make a public strategy, there are generally four quadrants that cover the possible outcomes of your decision. You can do something that is socially popular, and against your self-interest. You can do something that is socially popular and against your self-interest. You can do something that is socially unpopular but in your self-interest. And, worst of all, you can do something that is both socially unpopular and against your self-interest.

It seems that General Mills has just adopted a strategy that falls into the “lose-lose” quadrant. For those of you who have been following the news, you have heard that General Mills has changed their legal notice strategy so that almost anything you do to interact with the company will purportedly waive your right to sue them and force you into binding arbitration in the event of a dispute. If you like General Mills on Facebook, use their coupons, or even buy their products, you would, in effect, waive your right to sue them and be forced to settle disputes with their hotlines or binding arbitration.

It’s understandable why the General Mills legal team would be frustrated. In the past couple of years, General Mills has been paying out class action lawsuits for matters that would likely tick off people who own shares of the company. For instance, they had to pay out millions of dollars because their “Strawberry Fruit Roll-Ups” weren’t made with real strawberries. Their “Nature Valley” brand got sued because the products didn’t contain all-natural ingredients.

The General Mills team was right to recognize that these kinds of suits are a problem for shareholders. But the solution to force everyone into arbitration isn’t the right solution because there’s no way they’re going to be able to pull it off—no defendant in any case has ever wanted to get sued, and you can’t just say, “Whoops, you can’t sue me” just because you plaster that fact on your website somewhere.

The whole history of contract law development in the courts during the 20th century has given us pretty clear indications that courts don’t mind stepping in to police contracts when the following conditions are present:

1. One party to an agreement has much more sophistication and expertise compared to the other (compare the person drafting General Mills’ arbitration clause to the typical person at Aldi buying a box of Cheerios)


2. The benefitting party is trying to extract something significant compared to something that is seen as especially minor (giving up your right to sue, which is a pretty darn big right, which is supposedly given up by the extraordinarily minor act of liking the Cheerios brand on Facebook)

It’s not going to pass any kind of consideration test. If General Mills calls up a local grocery store that sells General Mills products and says, “We’ll lower the price of the cereals we send your way by 15% if you agree to go to arbitration in the event we have any dispute”, then that would be fine. Both parties to the transaction would be businesses, so that almost automatically eliminates any “greater sophistication” arguments. And when something is explicitly bargained for (15% discount, binding arbitration) then a court won’t usually step in to modify the contract.

But I’m really disappointed in General Mills’ strategy on this one. The brand is taking a hit because it’s getting a lot of bad press (although, fortunately for the shareholders, General Mills follows the Procter & Gamble approach of not naming stuff after the parent brand. It’s unlikely that someone miffed with General Mills would be aware that they are putting money in the corporate coffers for shareholders when they buy Yoplait Yogurt, unless they closely follow the trail with these things). But still, it’s a needless blunder.

There’s no way a court in 2017 will say, “Sorry, m’am, I know General Mills put rat poison in your daughter’s cereal that killed her, but because you ‘liked’ Cheerios on Facebook in 2014, you’re not going to be able to take this case to court.”  It’s the wet dream of every risk officer at any company in corporate America to draft the perfect shield that prevents lawsuits, but public policy considerations are going to lead judges to say “nice try” when General Mills tries to enforce these arbitration clauses in court to get the lawsuit terminated. General Mills has a great corporate history (dividends that haven’t declined since before McKinley was president), but the current legal strategy is going to get the company a lot of bad press (fairly) and it has almost no chance of panning out. Put this one in the “lose lose” quadrant. Hopefully they’ll issue an apology, give some people some coupons, and move on.

Originally posted 2014-04-18 10:44:32.

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3 thoughts on “General Mills “You Can’t Sue Us” Approach Ticks People Off, Won’t Work In Court

  1. scchan_2009 says:

    Warren Buffett and Peter Lynch have one common advice to investors: “Invest in companies that can be run by an idiot, because sooner or later they are all.” While it may be possible the General Mills management can really do something stupid with their legal strategy to ruin their company, General Mills are more resilient to management errors than say Apple or Samsung.

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