First Circuit Holds Uber’s Online Mandatory Arbitration Clause is Unenforceable

The United States Court of Appeals for the First Circuit has ruled that an arbitration clause contained in a ride-sharing app company’s online contract is unenforceable under Massachusetts law.  In Cullinane v. Uber Technologies, Inc., No. 16-2023 (1st Cir. June 25, 2018), several new Uber customers downloaded the company’s ride-sharing app to their cell phone in order to secure transportation to Boston’s Logan International Airport.  In order to use the transportation app, the new customers were required to register for an Uber account and agree to the company’s Terms of Service & Privacy Policy.  The Terms of Service included an alternate dispute resolution clause that prohibited collective action claims and required customers to resolve any disputes with Uber through binding arbitration.  Although a hyperlink to the two policies was included on two separate app registration screens, customers were not required to click on or view the link prior to proceeding with registration.

After registering and using the Uber app, several customers were charged toll surcharges in addition to the ride-sharing costs they agreed to pay.  As a result, the customers filed a class action lawsuit against Uber in a Massachusetts Superior Court.  Uber responded to the lawsuit by removing the case to federal court and filing a motion to compel arbitration based on the mandatory dispute resolution clause included in the company’s Terms of Service.  The United States District Court for the District of Massachusetts granted Uber’s motion and dismissed the lawsuit.  The plaintiffs then filed an appeal with the nation’s First Circuit Court of Appeals.

On appeal, the court first acknowledged that federal policy favors arbitration under the Federal Arbitration Act (“FAA”).  Despite this, the court stated a valid agreement to arbitrate must exist before the FAA applies.  The appellate court then analyzed whether Uber’s mandatory arbitration policy was enforceable.  The court said:

Uber makes no claim that any of the Plaintiffs actually saw the arbitration clause or even clicked on the “Terms of Service & Privacy Policy” button. Rather, it relies solely on a claim that its online presentation was sufficiently conspicuous as to bind the Plaintiffs whether or not they chose to click through the relevant terms. Therefore, we must determine whether the terms of the Agreement were “reasonably communicated” to the Plaintiffs. We note that “in the context of web-based contracts . . . clarity and conspicuousness are a function of the design and content of the relevant interface.” Meyer v. Uber Techs., Inc., 868 F.3d 66, 75 (2d Cir. 2017).

Next, the First Circuit stated Massachusetts law defines the term “conspicuous” as “so written, displayed or presented that a reasonable person against which it is to operate ought to have noticed it.”  According to the appellate court:

After reviewing the Uber App registration process, we find that the Plaintiffs were not reasonably notified of the terms of the Agreement. We note at the outset that Uber chose not to use a common method of conspicuously informing users of the existence and location of terms and conditions: requiring users to click a box stating that they agree to a set of terms, often provided by hyperlink, before continuing to the next screen. Instead, Uber chose to rely on simply displaying a notice of deemed acquiescence and a link to the terms. In order to determine whether that approach reasonably notified users of the Agreement, we begin our analysis with how this link was displayed.

The court determined the hyperlink to the company’s Terms of Service & Privacy Policy “did not have the common appearance of a hyperlink.”  In addition, the court found the “hyperlink was not a conspicuous term as defined by Massachusetts law.”  The court added:

Furthermore, when we consider the characteristics of the text used to notify potential users that the creation of an Uber account would bind them to the linked terms, we note that this phrase was even less conspicuous than the “Terms of Service & Privacy Policy” hyperlink. This notice was displayed in a dark gray small-sized non-bolded font against a black background. The notice simply did not have any distinguishable feature that would set it apart from all the other terms surrounding it.

Because other terms on the Uber app registration page “diminished the conspicuousness of the ‘Terms of Service & Privacy Policy’ hyperlink and the notice,” the appellate court held “the terms of the Agreement were not reasonably communicated to the Plaintiffs.”  Finally, the First Circuit Court of Appeals reversed the district court’s order granting the app company’s motion to compel the dispute to arbitration and remanded the case for further proceedings.

Interestingly, both the Second and Ninth Circuit Courts of Appeal previously issued similar holdings in Nicosia v. Amazon.com, Inc., No. 15-423 (2d Cir. 2016) and Nguyen v. Barnes & Noble, Inc., No. 12-56628 (9th Cir. 2014).

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