July 26, 2018, Trial News | The American Association For Justice

July 26, 2018, Trial News

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First Circuit rules unauthorized fees claims against Uber not subject to arbitration

Mandy Brown

The First Circuit has ruled that Uber may not compel arbitration of claims that the rideshare company charged unauthorized fees in violation of a Massachusetts consumer protection statute. The court found that the plaintiffs could not have agreed to the Uber user agreement, which included a forced arbitration clause, because they were not reasonably notified of its terms. Attorneys have called the court’s decision to reverse and deny the defendant’s motion an important victory for consumers. (Cullinane v. Uber Tech., Inc., 2018 WL 3099388 (1st Cir. June 25, 2018).)
 

illustration of dashboard with an electronic highway view

The First Circuit has ruled that Uber may not compel arbitration of claims that the rideshare company charged unauthorized fees in violation of a Massachusetts consumer protection statute. The court found that the plaintiffs could not have agreed to the Uber user agreement, which included a forced arbitration clause, because they were not reasonably notified of its terms. Attorneys have called the court’s decision to reverse and deny the defendant’s motion an important victory for consumers. (Cullinane v. Uber Tech., Inc., 2018 WL 3099388 (1st Cir. June 25, 2018).)

Between 2012 and 2014, the lawsuit’s four named plaintiffs downloaded and then used Uber’s app to arrange rides to and from Boston Logan International Airport. In November 2014, the plaintiffs filed a putative class action in Massachusetts state court on behalf of themselves and other Massachusetts Uber users, alleging that the company had passed along fictitious or unfounded fees for car tolls assessed along the route to the airport. Uber removed the case to federal court, and in August 2015, the plaintiffs filed a second amended complaint alleging unjust enrichment and a violation of the state's consumer protection law, chapter 93A.

Uber moved to compel arbitration, arguing that by registering for the app, the plaintiffs had agreed to its user terms and conditions, which included a forced arbitration clause. The district court granted Uber’s motion and dismissed the complaint.

On appeal, the First Circuit described in detail the app registration process, focusing on what users saw as they entered their credit card information, which was the third and final step in the process. Although some of the items on users’ screens appeared in bright colors, the language that by “creating an Uber account you agree to the Terms of Service & Privacy Policy” appeared in grey or white text against a black background. The court emphasized that the phrase “Terms of Service & Privacy Policy” appeared in bold white text within a gray rectangle.

The First Circuit noted that the Federal Arbitration Act (FAA) reflects a policy “favoring arbitration agreements,” but that it “does not require parties to arbitrate when they have not agreed to do so.” To determine whether the parties had agreed to Uber’s arbitration clause, the court applied the two-step inquiry established in Ajemian v. Yahoo!, Inc. (987 N.E.2d 604 (Mass. App. Ct. 2013)) for determining the enforceability of online agreements. This test asks whether the contract terms were “reasonably communicated” and whether the record shows that those terms were “accepted, and if so, the manner of acceptance.” The party seeking to enforce the online agreement bears the burden of showing that the terms were reasonably communicated and accepted.

Uber argued that the gray rectangle around the “Terms of Service” language clearly indicated that the phrase was a button that users could click to learn more. The court, however, rejected Uber’s argument that this presentation was “sufficiently conspicuous” to have communicated the terms. Users were not required to click a box stating that they had read and agreed to them, and Uber did not claim that any of the plaintiffs had read or even seen the forced arbitration clause. The court also noted that even if the “Terms of Service & Privacy Policy” was a clickable button, the text was neither blue nor underlined, which are the common indications of a hyperlink. The court also found that the terms of service were not “conspicuous” under Massachusetts law because the text was the same size as other items on the screen and had less noticeable color and placement.

“Because the [p]laintiffs were not reasonably notified of the terms of the agreement, they did not provide their unambiguous assent to those terms. We therefore find that Uber has failed to carry its burden on its motion to compel arbitration,” the court wrote. The First Circuit reversed and remanded.

“The First Circuit got it exactly right,” said Oakland, Calif., attorney Jennifer Bennett of Public Justice, which filed an amicus brief in support of the plaintiffs. “Companies shouldn’t be able to hide terms behind a link and then claim that users agreed to them. If a company wants its customers to agree to something, it should be required to tell them so—and get their actual consent. That’s basic contract law. This decision is an important victory for consumers because it confirms that companies can’t avoid these basic contract law requirements just because their terms are online or on a mobile app.”

New York City attorney and University of Denver law professor Nantiya Ruan, who worked on the same amicus brief, observed that these cases involve users at a severe bargaining disadvantage. “Sophisticated business drafters and the websites hosting these terms push online users into form electronic contracts that they never contemplated. At stake in this case is the important right to have one’s case reviewed in a public judicial forum, as well as the ability to band together collectively to share costs and access justice. This decision ensures that online businesses are not incentivized to design interfaces that encourage users to overlook important terms in the process of gaining access to a product or service.”