Almost a year ago, the Second Circuit praised the clean, readable design of Uber’s app.   Because the reference to Uber’s terms of service was not cluttered and hyperlinked to the actual terms, the Second Circuit held Uber could enforce its arbitration agreement and the class action waiver within it.  But, just last week, the First Circuit disagreed.  In Cullinane v. Uber Technologies, Inc., 2018 WL 3099388 (1st Cir. June 25, 2018), it refused to enforce an arbitration clause in Uber’s terms of service and allowed a putative class action to proceed.  The First Circuit found customers were not reasonably notified of Uber’s terms and conditions, because the hyperlink to those terms was not conspicuous.

The Cullinane opinion was applying Massachusetts law on contract formation.  Massachusetts has not specifically addressed online agreements (or smart phone apps), but in analogous contexts has held that forum selection clauses should be enforced if they are “reasonably communicated and accepted.”  In particular, there must be “reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent.”  The Meyer opinion was applying California law on contract formation.  But the test was identical, because both states had borrowed it from a Second Circuit decision about Netscape.  So, the state law at issue does not explain the different outcome.

The one thing that might explain the different outcome is that the two federal appellate courts appear to have analyzed slightly different versions of Uber’s app.  In Cullinane, the lead plaintiffs had signed up between Dec. 31, 2012 and January 10, 2014.  (The court reproduced the actual screen shots early in its opinion.)  In Meyer, the lead plaintiff had signed up in October, 2014, and Uber had altered the design of its sign-up screens.  (There, the screen shot is an addendum to its opinion.)  For example, the background was now white in late 2014, instead of black, and the “Terms of Service & Privacy Policy” were in teal, instead of white text.

And, those are some of the aspects of the design that the First Circuit pointed to as critical.  It noted that hyperlinked terms are usually in blue text and underlined, but that the Cullinane plaintiffs’ were faced with hyperlinked “Terms of Service” that were not blue or underlined.  Instead, they were in white text in a gray box, no different than other non-hyperlinked text like “scan your card” on the same screen.   In addition, the First Circuit found the text stating “by creating an Uber account you agree to the [Terms]” was insufficiently conspicuous for similar reasons.  For those reasons, the Cullinane opinion found “the Plaintiffs were not reasonably notified of the terms of the Agreement, they did not provide their unambiguous assent to those terms.”

This is another example of how unsettled some aspects of arbitration law are (and maybe consumer contracting in general).  In Meyer, the district court had denied Uber’s motion to compel arbitration, and the appellate court reversed, granting the motion to compel arbitration.  And in Cullinane, the district court had granted Uber’s motion to compel arbitration, and the appellate court reversed, denying the motion to compel arbitration.  Those four courts were applying the exact same legal standard of conspicuousness, and reached opposite conclusions in the span of less than a year.

The lesson here is two-fold.  First, there is no clear standard for when terms on a website (or on a receipt, or in a box) are sufficiently conspicuous, so judges are left to their own devices (pun intended) to answer that question.  Second, unless an on-line provider wants judges — who are likely untrained in the psychology of consumer design related to five inch screens (and may not even have any apps) — to keep on getting to whatever result they please, the only solution is to require a consumer to actually click “I agree” after viewing a screen of the terms and conditions.  Unless, of course, SCOTUS grants certiorari of this new “circuit split” and issues guidance…

 

Lots of folks are writing about the long-term impact of SCOTUS’s recent decision in Epic Systems, but it is also important to note that there has been immediate, short-term impact.

For example, a lead plaintiff agreed to take her sex discrimination case against a law firm  to individual arbitration, abandoning her putative class action, after the Epic decision was released.  A federal judge is ready to dismiss a separate class action against Epic Systems (regarding overtime pay) as a result of the new decision.  And a class action against Chipotle may get sliced and diced up, with about 30% of employees being sent to individual arbitration, while 70% of the class can proceed in court (because they started working for the chain before it instituted the arbitration program). There must be dozens (hundreds?) of similar employment class actions around the country.

Speaking of the trickle down effects of SCOTUS’s arbitration cases, last year’s Kindred decision is certainly a relevant headwater for the Supreme Court of West Virginia’s recent opinion upholding the arbitration agreement in nursing home admission documents.  Although West Virginia used to be reliably anti-arbitration, its recent decisions are pro-arbitration.  So, it’s not too surprising that in AMFM LLC v. Shanklin, 2018 WL 2467770 (W. Va. May 30, 2018), that court reversed a trial court’s ruling that the arbitration agreement signed by the resident’s daughter was not enforceable.  Careful not to interpret its statutes and common law regarding power of attorney in a way that stands as an obstacle to the FAA, West Virginia’s high court found that the daughter’s role as understudy in the POA document (fine, it says “successor” or “alternate”) was sufficient to bind her mother to the arbitration agreement.  The position drew a spirited dissent from one lone justice.

 

I have been making my way through the rest of the May arbitration cases (the photo shows how high my stack got), and one thing that stands out is this: I was right.  Delegation clauses remain a hot topic in arbitration law.

Three recent cases demonstrate the power of having a delegation clause in an arbitration agreement.

The Fifth Circuit enforced a delegation clause in Edwards v. DoorDash, 2018 WL 1954090 (5th Cir. Apr. 25, 2018), a case involving a putative FLSA class action brought by “Dashers.”  Not to be confused with reindeers who pull Santa’s sleigh, these Dashers  deliver restaurant food to people’s homes.  And they all signed an Independent Contractor Agreement with an arbitration agreement.  That agreement called for AAA rules and waived class and collective actions.  In response to the filing of the class action, DoorDash successfully moved to compel individual arbitration. On appeal, the class representative argued the arbitration agreement was unconscionable.  But once the Fifth Circuit was satisfied that the independent contractor agreement was validly formed, it found the incorporation of AAA rules was a valid delegation clause that the plaintiffs had failed to challenge.  The case was sent to arbitration.

In another Fifth Circuit case, Arnold v. HomeAway, Inc., 2018 WL 2222661 (5th Cir. May 15, 2018), incorporation of AAA rules also served as the parties’ delegation clause.  In that case, consumers filed putative class action complaints against a company that facilitates short-term vacation rentals.  HomeAway argued that its 2016 terms and conditions applied, which contained an arbitration clause providing that arbitration would be governed by AAA rules and that awards would be “on an individual basis.”  The consumers argued that the 2015 terms and conditions applied, which lacked an arbitration agreement (and that any subsequent modification was invalid).  The district court denied the motion to compel arbitration, finding the arbitration agreement illusory.

On appeal, the Fifth Circuit faulted the district court for ignoring the delegation clause in the terms and conditions.  It found the incorporation of AAA rules was a clear and unmistakable delegation of questions relating to the validity of the arbitration agreement to an arbitrator.  Because the plaintiffs’ challenge to the arbitration agreement was not specific to the delegation clause, arbitration must be compelled.

Not far away, in the Supreme Court of Alabama, another delegation clause was enforced.  Eickhoff Corp. v. Warrior Met Coal, LLC, 2018 WL 2075985 (Alabama May 4, 2018), did not involve a putative class action, but something just as sexy: five agreements between the parties, only two of which had arbitration clauses (both calling for AAA rules).  When one party filed in court, the other moved to compel arbitration.  The party opposing arbitration claimed that its court claims were based on the three contracts without arbitration clauses and the trial court agreed.  The Supreme Court reversed, finding that the incorporation of AAA Rules was an enforceable delegation clause, delegating questions of scope to an arbitrator, and it should have resulted in an order compelling arbitration.

SCOTUS finally delivered its decision today in Epic Systems Corp. v. Lewis, the consolidated case that addresses whether employers can require employees to give up their right to class or consolidated litigation as part of an arbitration agreement.  In a 5-4 decision authored by Justice Gorsuch, the Court found that class action waivers are enforceable under the FAA, and nothing in the labor laws preclude that conclusion.

As usual, how the Court frames the question gives away its answer.  Justice Gorsuch began the majority opinion by asking: “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?”* In contrast, Justice Ginsburg’s dissent frames the issue as “Does the [FAA] permit employers to insist that their employees, whenever seeking redress for commonly experienced wage loss, go it alone, never mind the right secured to employees by the National Labor Relations Act . . . ‘to engage in . . . concerted activities’ for their ‘mutual aid or protection'”?

The majority opinion started by painting the NLRB’s opposition to class action waivers as a sudden shift after 77 years of peaceful coexistence with the FAA.  It then finds that the NLRA cannot be applied via the savings clause of Section 2 of the FAA because it interferes with one of arbitration’s fundamental attributes — individual resolution — and therefore is not the type of defense that applies to any contract. (It cites Concepcion for the proposition that individual resolution is fundamental to arbitration.)

After finding nothing in the FAA itself that would prevent enforcement of the class action waivers at issue, the majority opinion looks to see if the NLRA clearly and manifestly indicates that Congress intended to override the FAA.  It finds no statutory or contextual evidence of that clear intent.  It also made short work of the employees’ argument for Chevron deference to the NLRB.  [One of the best lines from the opinion is in that section.  Noting that Chevron was based, in part, on the idea that policy choices should be left to the executive branch which voters can hold accountable, the majority writes: “whatever argument might be mustered for deferring to the Executive on grounds of political accountability, surely it becomes a garble when the Executive speaks from both sides of its mouth, articulating no single position on which it might be held accountable.”]

Interestingly, the majority decision acknowledges that there is a vigorous policy debate over the merits of class action waivers in arbitration.  At multiple points during the opinion Justice Gorsuch bows to the possibility that the FAA could be flawed: “You might wonder if the balance Congress struck in 1925 between arbitration and litigation should be revisited in light of more contemporary developments.”  And later “This Court is not free to substitute its preferred economic policies for those chosen by the people’s representatives.”  But each time he returns to the idea that the Court is bound by the law to rigidly enforce arbitration agreements.  In her dissent, Justice Ginsburg agrees that Congress is now the right branch of government to act.  The dissent states: “Congressional correction of the Court’s elevation of the FAA over workers’ rights to act in concert is urgently in order.”

The dissent would hold that Section 7 of the NLRA does guarantee the right to pursue collective litigation and trumps the FAA.  The dissent reviews the text and legislative history of the NLRA to support its conclusion and addresses the majority’s arguments.  What I found most interesting in the dissent, however, was its review of the legislative history behind Section 1 of the FAA.  Apparently, organized labor was concerned about the FAA’s impact, and Herbert Hoover amended the legislation to specifically exclude workers’ contracts.  Congress passed the amended version and labor withdrew its opposition.  [Justice Ginsburg’s research on that topic may come in handy next term when the Court addresses the New Prime case.]

This is the result that everyone expected based on oral argument and the current politics of the court.  But still, when I read the “Justice Gorsuch delivered the opinion of the Court,” I can’t help feeling like it should say “Justice Gorsuch delivered on President Trump’s promises of a conservative court.”  Would it have been better to just let the new appointments to the NLRB reverse the Board’s course of action, much like the reversals of other agencies, and save the Court from this particular insertion into politics?

*  (Do you hear that growly “one on one” from this song when you read that?   Maybe it’s just me.)

 

Today the Supreme Court of the United States granted certiorari in another case involving the Federal Arbitration Act.  The case, Lamps Plus, Inc. v. Varela, comes from the Ninth Circuit and raises a variation of the question from Sutter: how clear does an arbitration agreement need to be to show the parties authorized class arbitration?

My initial summary of the Ninth Circuit opinion is here.  It didn’t even merit an entire post of its own, but shared time with another circuit court opinion.  In my view, the issue of class arbitration has largely been hammered out.  SCOTUS ruled in Stolt-Nielsen that class arbitration is only allowed if the parties’ arbitration agreement authorizes it.  More recently, courts have generally concluded that courts, not arbitrators, should decide whether the parties’ arbitration agreement allows for class arbitration.  Finally, state law governs the question of how to interpret whether the parties’ arbitration agreement authorizes class arbitration.  Yet, now we will have a new decision on whether an interpretation of state law (interpreting ambiguity against a drafter to find class arbitration is authorized) should be preempted by the federal policy favoring arbitration (and particularly, favoring non-class arbitration).

In fact, the other two arbitration cases on SCOTUS’s docket also relate to class actions.  The NLRB case (whether forcing employees to waive their right to class actions in arbitration agreements is a violation of labor statutes) is still under consideration (it was argued last October).  And another upcoming case, New Prime, Inc. v. Oliveira, stems from a putative class action brought by independent contractors, even though the narrow issue before SCOTUS is whether an arbitrator or court should determine the applicability of the FAA.

If any Supreme Court clerk or justice had called me and asked “what are some of the really hot arbitration questions that this Court should resolve in order to ensure consistent decision-making around the country?,” class arbitration would not have been on my list.  I read every arbitration opinion that issues from the federal circuit courts and state high courts, and the issues I see courts struggling with most often include delegation clauses and issues relating to non-signatories.  Maybe I am not giving enough credit to the few class action opinions that come out (despite the fact that they impact many people), or alternatively maybe the Court’s emphasis on class arbitration highlights a political aspect of the cert process, or a particular interest of a majority of justices, or just the persuasiveness of this team.

 

A new Seventh Circuit case answers the age-old question: if a fourteen-year-old swipes her mom’s credit card to complete a smoothie purchase at the mall, is she bound to the credit card agreement?

The case, A.D. v. Credit One Bank, N.A., __ F.3d __, 2018 WL 1414907 (Mar. 22. 2018), addressed whether the lead plaintiff in a putative TCPA class action was bound to an arbitration agreement.  The lead plaintiff was a teenager when the case was filed, and she alleged that the defendant bank called her cell phone multiple times to collect on her mother’s credit card debt.  (A practice which is precluded by the Telephone Consumer Protection Act (TCPA).)  During the course of discovery, the defendant bank realized that it had linked the teenager’s cell phone number to the mother’s credit card account when the mother used the teen’s cell phone to call the defendant.   It also discovered that the teenager had completed a few smoothie purchases at the mall using her mother’s credit card.  The defendant bank then made a motion to compel arbitration  (and to deny class certification) based on the arbitration agreement in the mother’s cardholder agreement.  The district court granted the motion, but the Seventh Circuit reversed.

On appeal, the Seventh Circuit tried to clear up any ambiguity in its previous treatment of cases regarding non-signatories.  It established two analytical steps needed to resolve the arbitrability question: whether the daughter is directly bound by the arbitration agreement; and if not, whether any of the arguments for binding non-signatories apply.

With respect to whether the daughter was bound by the plain language of the arbitration agreement, the Court had no trouble concluding she was not.   The arbitration agreement specifically applied to claims made by authorized users of the account.  The district court had relied on one sentence in the paragraph defining “Authorized Users” of the card: “If you allow someone to use your Account, that person will be an Authorized User.”  That, plus the fact that the mother had ordered smoothies, but then sent her daughter up to the counter to swipe the credit card when the smoothies were ready, led the district court to conclude the daughter was an “authorized user” bound by the cardholder agreement.  The appellate court, however, noted that the full definition of Authorized User required multiple steps for someone to qualify, none of which had been completed for the teenage plaintiff.  Furthermore, the cardholder agreement limited authorized users to people over fifteen, and the relevant state law also did not allow fourteen-year-olds to enter into binding contracts.    Therefore, the Seventh Circuit found the “terms of the cardholder agreement do not bind” the teenage plaintiff.

With respect to the second analytical step, the Court found the principles of equitable estoppel (which can bind non-signatories to arbitration agreement) did not bind the daughter to the cardholder agreement.  Critically, equitable estoppel requires the bank to prove that the teenage daughter received a “direct benefit” from the cardholder agreement.  In this case, the bank’s whole argument hinged on the smoothie.  [I wonder if there was testimony about how much it cost, and how delicious it was!  Did it have vitamin boosters?!]  And the Court was not impressed.  It reasoned:

“any ‘benefit’ that [daughter] received with respect to the credit card was limited to following her mother’s directions to pick up the smoothies that her mother had ordered previously. . . Her mother, [] benefited from the agreement, which allowed her, not [the daughter] to buy the smoothies.”

The Court also concluded that the class action claims did not seek benefits under the cardholder agreement, which would have been a separate basis for estoppel.

As a result, the Seventh Circuit reversed the decision to grant the motion to compel arbitration and directed the district court to reconsider its denial of the class certification as well.

 

Two different panels of the Second Circuit issued opinions about class arbitration on the same day last week.  One creates a circuit split over how specific parties must be to delegate the availability of class arbitration to arbitrators, and the second addresses when bankruptcy law can preempt the federal arbitration act.

In Wells Fargo Advisors, LLC v. Sappington, 2018 WL 1177230 (2d Cir. March 7, 2018), a putative class of former Wells Fargo employees brought suit for unpaid overtime (FLSA).  Wells Fargo moved to compel “bilateral” (individual) arbitration.  The district court denied the motion, finding that the arbitrator was authorized to decide whether class arbitration was available.   The Second Circuit affirmed.

As you may recall from this blog, at least four federal circuit courts have found that whether class arbitration is available is a gateway issue of arbitrability, meaning that it is presumptively for the courts to determine.  (The 8th, 6th, 4th, and 3d.)  And, while parties can delegate gateway issues to the arbitrator if they do so clearly and unmistakably, at least three of those circuits have held that a higher standard applies to the class arbitration issue.  (For example, the Eighth Circuit found that incorporating AAA rules was not sufficient to delegate class arbitrability, while it is sufficient to delegate other gateway issues.)

In the Wells Fargo matter, the Second Circuit “assume[d] without deciding” that the availability of class arbitration is a gateway question.  (Wimps.  Just decide.)  It then considered whether the delegation of that issue to an arbitrator was clear and unmistakable under Missouri law.  One set of plaintiffs had an agreement stating that “any controversy relating to your duty to arbitrate hereunder, or to the validity or enforceability of this arbitration clause, or to any defense to arbitration, shall also be arbitrated.”    The court found that was clear and unmistakable delegation of the class arbitration issue to an arbitrator.

More surprisingly, the court found that a second set of plaintiffs had also clearly and unmistakable delegated class arbitration to an arbitrator, even though their agreement only agreed to arbitrate “any dispute” and adopted either FINRA rules or alternatively 1993 Securities Arbitration Rules of the AAA.  In its analysis, the court noted that because some types of disputes were excluded from arbitration (unemployment), but class arbitration was not excluded, Missouri law would consider it included.  And the court found that more recent iterations of the AAA rules applied, which allow an arbitrator to determine whether a class can proceed.  This decision creates a circuit split on the issue of whether class arbitration is special enough to deserve its own rules for delegation.

As if creating a circuit split on class arbitrability wasn’t exciting enough, the Second Circuit also allowed another putative class action to go forward, despite an arbitration clause.  In In re Anderson, 2018 WL 1177227 (2d Cir. March 7, 2018), Mr. Anderson went through Chapter 7 bankruptcy and his debts were released.  One of those debts was to his credit card company.  However, Mr. Anderson alleged that the credit card company refused to update his credit reports after the bankruptcy.  So, he filed a putative class action.  The credit card moved to compel arbitration under the cardholder agreement, but the bankruptcy court found it was non-arbitrable because it “was a core bankruptcy proceeding that went to the heart of the ‘fresh start’ guaranteed to debtors.”  On appeal, the Second Circuit agreed.

In today’s post, we pick up where the 4th Circuit left off a few weeks ago — with federal circuit courts finding ways to avoid enforcing arbitration agreements that are obtained years after litigation has commenced.

In Dasher v. RBC Bank (USA), __ F3d. ___, 2018 WL 832855 (11th Cir. Feb. 13, 2018), the plaintiffs alleged the bank had processed debit card transactions in such a way that it would increase overdraft charges.  Although the date is not listed, the case appears to have begun in 2009.  During the course of the litigation, the first bank was acquired by another bank (“new bank”) and issued new customer account agreements in 2012 which lacked arbitration agreements.  A motion to compel based on the arbitration clause in the earlier agreement was denied, and the new bank appealed.  At about the same time, the new bank sent customers an amended agreement that included an arbitration provision.  The amended agreement was effective in February 2013.

The new bank lost its appeal.  After the case was remanded to district court, the new bank again moved to compel arbitration, this time based on the February 2013 amendment.  The motion was made in December of 2014.  The district court denied the motion, finding the new bank had waived its right to arbitrate under the 2013 amendment.

On appeal, the 11th Circuit agreed that the new bank could not compel arbitration, but for a different reason.  It held that the new bank failed to prove that the parties had agreed to the 2013 amendment.  The opinion found that under North Carolina law, it could consider the parties’ words and actions to determine whether the parties intended to amend the 2012 customer agreement.  And here, it concluded that the named plaintiff gave mixed responses to the proposed 2013 amendment.  Through counsel, the named plaintiff was fighting the motion to arbitrate in the courts.  But his “uncounseled response” was silence.  The court was clearly bothered by the fact that the new bank sent its proposed amendment directly to all of its customers, without advising either the plaintiffs’ attorney or the court.  Therefore, while it did not want to write “an ethics opinion,” it still refused to find the 2013 amendment was enforceable.

This is an important decision for many reasons.  First, it offers future courts an alternative argument to  “waiver” in situations like this one.  (As the 4th Circuit decision showed, waiver didn’t seem to sit well.)  Second, it offers an important reminder to defendants that courts do not take kindly to repeated motions to compel arbitration based on evolving arbitration agreements.  While they may be willing to overlook it if the “redo” motion is due to a change in the legal landscape, that’s probably the only good reason.  That means the left hand (the litigators and the in-house counsel overseeing them) always need to know what the right hand (whomever is deciding what goes in the customer contracts) is doing.

In a recent opinion, the Fourth Circuit cited waiver as its basis to refuse to compel arbitration, but the result seems animated by a sense that the arbitration agreements were unenforceable.  Degidio v. Crazy Horse Saloon & Restaurant, Inc., __ F.3d __, 2018 WL 456905 (4th Cir. Jan. 18, 2018).

The case involved a putative collective and class action case by “exotic dancers” at a club in South Carolina, alleging they were wrongly classified as independent contractors and thereby denied minimum wages and other statutory protections.  The complaint was filed against the club in August of 2013.  [I can’t call it a saloon.  We aren’t in the wild west.]  At that point, it is undisputed that none of the potential plaintiffs had arbitration agreements with the club.

The club participated in discovery for a year.  In November and December 2014, the club obtained arbitration agreements with some of its dancers “as a condition of performing.”  In December of 2014, the club moved for summary judgment on the merits, arguing the dancers were properly classified as independent contractors.  Then in January of 2015, the club brought a motion to compel arbitration against plaintiffs who had signed arbitration agreements.  The district court denied the motion, raising concerns about the enforceability of the arbitration agreements.  The club brought a new summary judgment motion on the merits in October of 2015.  When that was denied, the club sought additional discovery on the merits, attempted to certify questions to the South Carolina Supreme Court, and then moved to compel arbitration against nine plaintiffs who had opted into the litigation after its last motion.  That motion was also denied.

The Fourth Circuit set the stage for its discussion by noting that litigants may waive their rights to arbitration by “substantially utilizing the litigation machinery.”  Without citing any further case law about waiver, the opinion proceeded to review the significant extent of the club’s use of “litigation machinery” (summarized above).  The court was particularly upset at the apparent gamesmanship:

The only possible purpose of the arbitration agreements, then, was to give [the club] an option to revisit the case in the event that the district court issued an unfavorable opinion [on summary judgment].  In other words, Crazy Horse did not seek to use arbitration as an efficient alternative to litigation; it instead used arbitration as an insurance policy in an attempt to give itself a second opportunity to evade liability.

In response to the club’s argument that it could not have moved to compel arbitration until the entertainers who had actually signed the agreements opted into the case, the court suggested that it should have informed the district court of its intentions so that the court did not waste judicial resources.  In addition, the court did not want to “give defendants a perverse incentive to wait as long as possible to compel arbitration.”

At the close of this waiver discussion, the court veers into what seems to be the heart of the matter: its conclusion that the arbitration agreements were “misleading” and “sham agreements.”  The arbitration agreements told the dancers that they only reason they could keep tips and set their own schedules was because they were independent contractors, and that would change if they joined the Degidio lawsuit.  The court noted that information was false.  Furthermore, the court was upset that the agreements were presented to plaintiffs “in a furtive manner,” evading the district court’s ability to supervise contact between the potential plaintiffs and counsel.  “The setting here was ripe for duress.”  However, the court does not undertake any analysis of unconscionability or other bases to find the agreements unenforceable under South Carolina law.  It just affirms the decision to deny the motion to compel arbitration.

I find this a puzzling case.  Normally, parties are allowed to agree to arbitrate a dispute that has already begun.  And litigation conduct before that agreement can’t count as a waiver.  Furthermore, parties don’t usually tell the judge about motions that they don’t yet have a basis to bring.  So, unless FLSA cases are really so different, this seems like a case that should have been analyzed on the validity of the arbitration agreements.  It is decidedly underhanded to convince people to sign arbitration agreements by misrepresenting the law.  Maybe South Carolina unconscionability doctrines are very difficult?

Last Thursday, the Second Circuit found that the arbitration agreement in Uber’s Terms of Service was conspicuous enough to be binding and enforceable.  As a result, the claims of a putative class of consumers will be dismissed unless they can show that Uber waived its right to arbitrate their claims.  Meyer v. Uber Technologies, Inc., 2017 WL 3526682 (2d Cir. Aug. 17, 2017).  [This proves my point from last week, that formation is one of the big issues this year in arbitration law.]

For those of you who still take yellow taxis, Uber is a “ride-hailing service,” where customers use an “app” on their smart phones to alert a nearby Uber driver that the customer wants a ride to a specific location. Critically to this case, when customers open an account with Uber, they see black text at the bottom of the registration screen advising that “by creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.”  The phrase “terms of service” is in blue font and hyperlinked to a page where the customer can read those terms.  The terms include an arbitration agreement that waives the right to any class or consolidated action.

A potential class of Uber customers started a lawsuit in New York alleging that Uber allows illegal price fixing.  In response, Uber first moved to dismiss for failure to state a claim.  Upon losing that motion, Uber moved to compel arbitration and the federal district court denied that motion also, finding that the parties never formed an arbitration agreement because the consumers did not meaningfully consent.

On appeal, the Second Circuit vacated and remanded.  It applied California contract law in its de novo review, and applied California’s rule that a customer who lacks actual notice of the terms of an agreement can be bound if a “reasonably prudent user would be on inquiry notice of the terms.”  In its analysis, the court noted that Uber did not use a “clickwrap” agreement, which involves consumers having to click “I agree” after being presented with a list of terms and conditions, and which is “routinely uph[e]ld” by courts.  Even so, the court concluded that the design of the registration screens were clear enough to put the plaintiff on inquiry notice of the arbitration provision.  What were those design features?

  • Hyperlinked text to terms and conditions appears right below the registration button;
  • The entire screen is visible at once (no scrolling required);
  • The screen is “uncluttered”; and
  • Although font is “small,” dark print contrasts with white background.

Therefore, the Second Circuit concluded that the named plaintiff “agreed to arbitrate his claims with Uber.”  However, the Court threw the class a bone by remanding on the question of whether Uber waived its right to arbitrate by bringing the motion to dismiss on the merits.

What’s fascinating about this opinion is not just that Uber is a famous company that is facing intriguing antitrust allegation.  No, what’s fascinating from the arbitration angle is that the Second Circuit came out on the opposite side of this same issue almost exactly one year ago in Nicosia v. Amazon.com, Inc., 2016 WL 4473225 (Aug. 25, 2016).  The same judge wrote both opinions.

In Nicosia, the named class representative had placed an order on Amazon in 2012.  Instead of a true “clickwrap” agreement, there was simply language on the Order Page stating that “by placing your order, you agree to Amazon.com’s privacy notice and conditions of use.” The conditions of use were hyperlinked to the relevant terms.  Sounds pretty much the same as Uber’s setup, right?  Well, applying Washington law, the Second Circuit found that reasonable minds could differ about whether that notice was sufficiently conspicuous to be binding.  It complained that the critical sentence was in a “smaller font,” that there were too many other distracting things taking place on the order page (summary of purchase and delivery information, suggestions to try Amazon Locker, opportunity to enter gift cards and have a free trial of Amazon Prime, for example.)  There were other links on the page, in different colors and fonts.  Critically, it found “[n]othing about the’Place your order’ button alone suggests that additional terms apply, and the presentation of terms is not directly adjacent to the ‘Place your Order” button…”  Therefore, the Second Circuit reversed the district court’s dismissal based on the arbitration provision.

As the fundamental context of on-line purchases has not changed in the last year, and the Second Circuit’s recitation of California and Washington law appears pretty similar, one has to conclude that the difference between these two cases is the graphic design of the key pages.  In particular, the level of “clutter” on Amazon’s page is the primary difference-maker between these two cases.  I imagine many internet retailers will reconsider the number of fonts, colors, and promotions on their final “order” pages this next week…