Is Uber’s Arbitration Clause Enforceable?

Photo Credit: Uber.com

By: Reynolds Pittman

Member, American Journal of Trial Advocacy

Style over utility has Uber in an arbitration conundrum. The design choice of a sleek and inconspicuous gray box for the terms of service in their downloadable app might mean facing a potential class action in court, rather than moving to arbitration. While it is understandable in the modern age that businesses want to streamline their interaction with consumers, app-based businesses potentially run the risk of class action litigation when their arbitration clauses are not “reasonably communicated” to the consumer.[1] While there is a strong presumption in favor of enforcing arbitration clauses, the app design arguably did not provide any notice says the First Circuit.

Second Circuit

Just over a year ago, in Meyer v. Uber Technologies,[2] the Second Circuit came to a different conclusion on a comparable arbitration issue.[3] The appellee, Spencer Meyer, downloaded the Uber app to his smartphone and completed the registration process.[4] After using the app, Meyer brought an action for price fixing by third-party drivers on behalf of himself and similarly situated clients.[5] Uber responded with a motion to compel arbitration that was denied by the district court.[6] The district court found that Meyer did not have “reasonably conspicuous notice and did not unambiguously manifest assent” of the Terms of Service when he registered on Uber’s app.[7]

On appeal, the Second Circuit first considered whether there was a valid agreement between Meyer and Uber to arbitrate.[8] Under the Federal Arbitration Act (FAA), “[a] written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable . . . .”[9] Federal policy has long favored arbitration agreements[10] and holds out arbitration agreements as equal to other contracts.[11] State contract law governs whether an agreement to arbitrate has been created.[12] The relevant California contract law requires that there be “mutual manifestation of assent”[13] and even if there is apparent manifestation, one “is not bound by inconspicuous contractual provisions of which he is unaware, contained in a document whose contractual nature is not obvious.”[14] This interpretation applies even in the age of web-based contracts.[15]

The Second Circuit acknowledged that “[c]ourts around the country have recognized that

[an]

electronic ‘click’ can suffice to signify the acceptance of a contract, and that [t]here is nothing automatically offensive about such agreements, as long as the layout and language of the site give the user reasonable notice that a click will manifest assent to an agreement.”[16] Previously the Second Circuit defined two types of internet contracts “clickwrap,” in which an agreement is made when the user, after being shown a terms and conditions document, clicks the “I agree” button.[17] Alternatively, a website can also use a “browsewrap” agreement where the terms and conditions can be found through a hyperlink directing the user to another webpage.[18] Courts tend to face more litigation over “browsewrap” agreements because of the lack of affirmative assent required.[19]

Here, Meyer and others like him were faced with the Uber app registration, which had a “browsewrap” agreement.[20] The Second Circuit, due to the motion to compel arbitration, was tasked with determining if “the notice of the arbitration provision was reasonably conspicuous and manifestation of assent unambiguous as a matter of law.”[21] Per contract law, their analysis relied upon the “perspective of a reasonably prudent smartphone user.”[22] Modern smartphone users engage with apps regularly and would likely have encountered a contract like Uber’s through the use of their smartphone.[23] Therefore, it was reasonable that a smartphone user likely understood the blue underlined text identified a link to another webpage.[24]

Turning to the app’s interface, the Second Circuit found the page to be one that was relatively uncluttered.[25] The registration page, where the smartphone user added their credit card information, warned: “By creating an Uber Account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.”[26] The terms of services were visibly hyperlinked and appeared under the registration button.[27] The Court found that agreeing to the prompt was the modern-day version of “turning over a cruise ticket,” and the consumer had the choice to read the additional terms.[28] The Second Circuit disagreed with the trial court that the location of the arbitration agreement was a “barrier to reasonably notice” because although it needed to be scrolled to, the sentence waiving a user’s right to trial was bolded.[29]

Along the same reasoning, the Court found that Meyer had assented to arbitration, even though it was not express.[30] The Court decided that a reasonable user would understand that they were agreeing to whatever was in the terms and condition upon clicking the registration button, even if they chose not to read the hyperlink.[31] As such, the Second Circuit found that reasonable notice and assent was provided under California law, and that as a matter of law Meyer had agreed to arbitrate with Uber.[32] 

First Circuit

The First Circuit split from the decision of the Second Circuit in a similar case, Cullinane v. Uber Technologies, Inc.,[33] holding that Uber’s app did not give reasonable notice or unambiguous assent to the terms of service.[34] Similar to Meyer, the Plaintiffs sought a class-action lawsuit against Uber for unrefunded surcharges.[35] Following a decision by the United States District Court for the District of Massachusetts to compel arbitration, the Plaintiffs appealed to the First Circuit.[36]

The First Circuit, like the Second Circuit, acknowledged the enforceability of arbitration agreements as a contract.[37] However, the First Circuit relied on Ajemian v. Yahoo!, Inc.[38] from the Massachusetts Court of Appeals in addressing the issue of online contract formation. The First Circuit focused on the two-step inquiry set out by the Court of Appeals as to the enforceability of online contract agreements.[39] The first step was whether the terms of the contract were “reasonably communicated to the plaintiffs,” and the second step was whether the terms were “accepted and, if so, the manner of acceptance.”[40]

The Court’s analysis focused on the “Link Card” and “Link Payment” screen found within the Uber registration.[41] While different in name, the screens performed the same function within the app, which was to take the user’s payment.[42] Uber claimed that the “Terms of Service & Privacy Policy” button located on the screens was “sufficiently conspicuous as the bind the plaintiffs,” even if they failed to click the link.[43] According to Massachusetts law, the term “conspicuous” is defined as “so written, displayed or presented that a reasonable person against which it is to operate ought to have noticed it.”[44] The Court looked at both the characteristics that would make a term stand out from those around it, as well as the terminology used to notify users of their agreement.[45]

The Court found the “Terms of Service & Privacy Policy” box was not identified as clickable, compared to bright blue buttons on the screen.[46] While previous courts have noted that hyperlinks do not always have a blue and underlined appearance, the court questioned whether a reasonable user would have noted the gray box was actually a hyperlink.[47] The Court also pointed out that the gray box with white lettering looked too similar to other words on the screen, without bolding or larger font size.[48] In addition to the text characteristics failing to be conspicuous, the Court also found that the phrase “Terms of Service & Privacy Policy” failed to notify users as to the terms of the agreement.[49] 

As such, the Second Circuit found that Uber did not give reasonable notice, contrary to Uber’s claim that the “online presentation was sufficiently conspicuous as to bind the Plaintiffs . . . .”[50] The Court held that the characteristics of the “Terms and Service” hyperlink was not conspicuous as defined by Massachusetts law, and Uber’s motion to compel arbitration failed as a result.[51]

Conclusion

While both the First Circuit and Second Circuit were relying on state law for their rulings, it is unlikely that the relevant Massachusetts state law was substantially different from California. What does this all mean? The First Circuit’s ruling is a big precedent for Uber, who has been trying to avoid court. The First Circuit has created an unfavorable precedent for Uber. Uber will likely end up in front of the United States Supreme Court over this issue if the circuit split continues. Like many other nationwide companies that are dependent on app usage, Uber is searching for a straight answer as to what is required for online contract arbitration agreements to be enforced. It is likely other app-based companies will be keeping an eye on this to avoid a similar predicament. 


[1] See Cullinane v. Uber Techs., Inc., 893 F.3d 53, 61 (1st Cir. 2018) (quoting Ajemian v. Yahoo!, Inc., 987 N.E.2d 604, 611 (Mass. App. Ct. 2013).

[2] 868 F.3d 66 (2d Cir. 2017).

[3] Meyer, 868 F.3d at 81.

[4] Id. at 70.

[5] Id.

[6] Id.

[7] Id.

[8] Id. at 72.

[9] 9 U.S.C.A. § 2 (West 2018).

[10] Meyer, 868 F.3d at 73 (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 346 (2011).

[11] Meyer, 868 F.3d at 73(quoting Schnabel v. Trilegiant Corp., 97 F.3d 110, 118 (2d Cir. 2012)).

[12] Meyer, 868 F.3dat 73-74 (citing Nicosia v. Amazon.com, Inc., 834 F.3d 220, 229 (2d Cir. 2016).

[13] Meyer, 868 F.3dat 74 (quoting Specht v. Netscape Comm. Corp., 306 F.3d 17, 29-30 (2d Cir. 2002).

[14] Specht v. Netscape Comm. Corp., 306 F.3d 17, 29-30 (2d Cir. 2002) (quoting Windsor Mills, Inc. v. Collins & Aikman Corp., 101 Cal. Rptr. 347, 351 (Cal. Ct. App. 1972)).

[15] Meyer, 868 F.3d at 75.

[16] Id. (quoting Sgouros v. TransUnion Corp., 817 F.3d 1029, 1033-34 (7th Cir. 2016).

[17] Meyer, 868 F.3d at 75.

[18] Id.

[19] Id.

[20] Id.

[21] Id. at 76; see also, Specht, 306 F.3d at 28.

[22] Meyer, 868 F.3d at 77.

[23] Id.

[24] Id. at 78.

[25] Id.

[26] Id.

[27] Id.

[28] Meyer, 868 F.3d at 78 (citing Fteja v. Facebook, Inc., 841 F. Supp. 2d 829, 839 (S.D.N.Y. 2012)).

[29] Meyer, 868 F.3d at 79 (quoting Meyer v. Kalanick, F. Supp. 3d 408, 421(2d Cir. 2017).

[30] Id.

[31] Id. at 79-80.

[32] Id. at 80.

[33] 893 F.3d 53 (1st Cir. 2018).

[34] Cullinane, 893 F.3d at 64.

[35] Id. at 56.

[36] Id. at 55.

[37] Id. at 60 (citing AT&T Mobility LLC, 563 U.S. at 346).

[38] 987 N.E.2d 604 (Mass. App. Ct. 2013).

[39] Cullinane, 893 F.3d at 62.

[40] Id. (quoting Ajemian v. Yahoo!, Inc., 987 N.E.2d at 612-13).

[41] Cullinane, 893 F.3d at 56-58.

[42] Id.  

[43] Id. at 62.

[44] Mass. Gen. Laws Ann. ch. 106, § 1-201(b)(10) (West 2018).

[45] Cullinane, 893 F.3d at 62.

[46] Id.

[47] Id. at 63; see CR Assocs. L.P. v. Sparefoot, Inc., No. 17-10551-LTS, 2018 WL 988056, at *4 n.4 (D. Mass. Feb. 20, 2018) (stating that while not all hyperlinks appear the same, they are usually blue and underlined); Adelson v. Harris, 774 F.3d 803, 808 (2d Cir. 2014).

[48] Cullinane, 893 F.3d at 63.

[49] Id. at 63-64.

[50] Id. at 62.

[51] Id. at 64; see Stevenson v. TRW Inc., 987 F.2d 288, 296 (5th Cir. 1993) (interpreting the Uniform Commercial Code’s definition of the term “conspicuous” in the context of a disclaimer and stating that a “disclaimer is not conspicuous … when it is the same size and typeface as the terms around it”).

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