07 September 2016

Why Design Matters: It Can Determine Whether an Online Agreement is Enforceable

*Updated on September 8, 2016

The Southern District of New York recently issued a ruling that raises new issues with customer consent and arbitration contracts in a simple click-through agreement, adding to the increasing judicial skepticism over the enforceability of browse-wrap agreements, despite the Supreme Court’s seeming endorsement of consumer arbitration clauses in AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), based on preemption by the Federal Arbitration Act. Soon after this decision, however, the Ninth Circuit issued a ruling that went the other way and found that the arbitration terms in Uber’s terms and conditions were enforceable. Central to these cases has been findings relating to the degree to which terms of use can be considered binding.

The recent ruling from Judge Rakoff in the SDNY arose in the context of a motion to compel arbitration in a case brought against Uber.  The court refused to compel arbitration, finding that the plaintiff had not accepted the Terms of Use that contained the arbitration provision and were included in the Uber app. Meyer v. Kalanick, No. 15-cv-09796 (S.D.N.Y. July 29, 2016).  Judge Rakoff focused on the alleged lack of notification to consumers when using a mobile app and “situations where the consumer is not even asked to affirmatively indicate her consent” but rather the “mere act of accessing a service” is “allegedly consenting to an entire lengthy set of terms and conditions.”

Judge Rakoff scrutinized the company’s click-through method of requesting user consent. The court held that there was a lack of a binding agreement, in part, because the account registration process and acceptance of the terms allegedly made it difficult to view the terms. Judge Rakoff focused in particular on the following aspects of the registration process:

  • Checking a box expressly confirming agreement or consent was not required.
  • Reviewing the Terms before registering was not required.
  • Language indicating consent to the Terms and the hyperlink to the Terms was not prominently displayed due to its color, placement, and size. The court found that it was too far below the “Register” button and did not ensure a user’s eye would see it before clicking “Register.”
  • Nothing in the phrase “Terms of Service” indicates that the Terms included a waiver of the right to bring an action in court. Thus, even if the plaintiff had seen the language indicating consent to the Terms, it would be reasonable to assume the Terms of Service was a description of the services that Uber would provide to the user.
  • The hyperlinked “Terms of Service” text took the user to a new screen that did not contain the Terms, and required an additional step to actually view the Terms.
  • After accessing the Terms, the user must “scroll down several pages in order to come across” the agreement to arbitrate. There was no other indication that the Terms contained this arbitration clause.

Focusing on these factors, the court concluded that there was not enforceable agreement between the plaintiff and Uber, and the arbitration provision was not binding.

In a separate case involving similar issues, the Ninth Circuit ordered the parties to arbitrate the dispute (including the validity of the arbitration agreement itself). In its decision issued on September 7, 2016, the court concluded that the district court improperly assumed the authority to decide the enforceability of the arbitration agreements, as this question was “clearly and unmistakably delegated” to the arbitrator in the contract which was accepted by the plaintiffs, and such delegation was not unconscionable. The Ninth Circuit focused on the propriety of the district court considering the threshold question of the arbitration clause (instead of leaving that wholly for the arbitrator to decide). Finding such consideration improper, the Ninth Circuit did not consider whether there was otherwise a valid, binding contract between the parties. (The district court had already considered that contract question and concluded that while the parties validly assented to be bound by the terms, they were ultimately unenforceable as unconscionable. Mohamed v. Uber Technologies, 109 F. Supp. 3d 1185 (N.D. Cal. 2015).)

As these cases make clear, the design of the process of obtaining consumer consent matters for courts (or arbitrators) that analyze the issue through the lens of contract formation; and it can determine whether a company’s terms and conditions are enforceable.  Although there are often pressures to make registration processes as consumer-friendly and seamless as possible, courts are suggesting a variety of considerations that may bear on enforceability.  Whether a coherent set of principles evolves from these cases, and whether the Supreme Court would agree that these cases are consistent with its prior teaching, however, remains to be seen.

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