FAA (Arbitration)

April 2017

Mobile Design Flaw Puts Enforceability Of Arbitration At Risk

Metter v. Uber
Motion to compel arbitration denied – Uber allegedly charged fees for cancelling an Uber rider request, but failed to alert users of cancellation fees before making a request. Plaintiff further alleged that cancellation fee amounts are not disclosed until after billed. Uber argued cancellation fees are disclosed in its terms – agreed to at account sign-up – and moved to compel arbitration (based on arbitration provisions contained in the same terms).

The court found the Uber registration process was not a browsewrap agreement, the process had sufficiently conspicuous disclosures, and a jury trial waiver need not be a standalone disclosure. However, the way Uber implemented the registration, on a screen requiring text inputs that obscured the critical disclosures, essentially reduced the registration to a browsewrap agreement.
The court noted that attention could be drawn to the credit card fields (away from the terms), and there was no instruction to scroll down to see the terms.

The court agreed plaintiff was able to identify specific features of the Uber app functionality that reasonably explained why he may never have saw – thus never been aware of – terms that included arbitration provisions. Therefore, the court could not conclude as a matter of law that plaintiff had actual notice of, or assented to, Uber’s terms.
[N.D. CA; 3:16-cv-06652]
jbho: when optimizing for mobile, don’t forget your sign-up pages!

How nice it would have been to add a simple checkbox, or extra step in the flow to confirm a user was exposed to the terms. Although, app designers may well have resisted adding something like that. A fine balance to be sure, but now we have an example of why a little added sign-up friction may be a good thing.

This could be just the tip of the iceberg for Uber. If plaintiff prevails, this could ends up invalidating the terms agreed to by millions of users. Eeek!


March 2017

Arbitrability Depends On The Active Agreement

Johnson v. Uber
Motion to compel arbitration denied – Uber allegedly sent unsolicited (ATDS) texts to plaintiff’s mobile, asking him to complete his application to become an Uber driver (sent in 2016). Texts allegedly continued despite replying STOP. Plaintiff did have an Uber rider account (created in 2013), but stated he deleted that account in an effort to get texts to stop. Uber argued the claims should be arbitrated under the (2013) Uber rider account agreement.

The court ruled that Uber had failed to provide evidence to show plaintiff’s 2013 signup experience provided reasonable notice of the agreement, as well as assent to the arbitration provisions contained within. Uber had only provided evidence of the present-day signup process, not the 2013 process. Moreover, documents in a different case showed the 2014 signup process was ‘substantially’ different from the present-day process. The court determined discovery was required, and the arbitration issue could be revisited in a motion for summary judgement (if appropriate).
[N.D. Ill; 1:16-cv-05468]
jbho: demonstrates the importance of good records of consent.

It will be interesting to see if Uber can show whether plaintiff affirmatively consent to the terms over the course of subsequent user agreement updates. One to watch.


Online Lender Wins Motion to Compel Arbitration

Bethune v. LendingClub Corporation
Arbitration compelled – LendingClub Corporation (LLC) allegedly charged plaintiff a usurious interest rate on his loan (29.97%), an interest rate that was illegal in plaintiff’s home state (New York). Plaintiff alleged LLC arranged loans through Utah based Web Bank, so loans issued would not be subject to New York (or other) state usury laws. Plaintiff further alleged that WebBank performed no traditional banking functions on the loans, thus was used only as a “pass through” by LLC. Plaintiff filed claims under various state usury laws, the New York Consumer Protection Act, and the Racketeer Influenced and Corrupt Organizations (RICO) act.

Plaintiff did not dispute his loan was governed by an agreement, and that LLC and Web Bank were parties to the agreement – an agreement which contained arbitration provisions requiring all claims relating to or arising from the agreement be handled in arbitration. The arbitration provisions also contained a class action waiver, as well as an opt-out notice (an opt-out that plaintiff did not alleged he exercised).

The court found the agreement explicitly delegated the question of arbitrability to the arbitrator. Plaintiff’s only dispute was that the agreement was unconscionable, since he was from New York and the agreement applied Utah law. The court ruled this dispute concerned choice-of-law provisions and not arbitration provisions, and choice-of-law provisions – per the agreement – were to be decided in arbitration. Additionally, per the class waiver clauses, arbitration would proceed on an individual basis.
[S.D. N.Y.; 1:16-cv-02578]
jbho: case provides a nice template for constructing arbitration agreements. Additionally, although not addressed, having a clear and conspicuous opt-out should help defeat any unconscionabilty claims.


February 2017

Warranty Brochure Not a Binding Contract

Norcia v. Samsung
Affirmed – Samsung allegedly programmed its Galaxy S4 phone to fool benchmarking apps, and allegedly artificially boosted phone performance when it detected it was being measured. Samsung argued arbitration should be compelled through an arbitration agreement contained in the phone packaging in which the phone was purchased. An in-box 101 page Product Safety & Warranty brochure specified all disputes would be resolved through arbitration, and required any opt-out be submitted within 30 calendar days of purchase.

Although plaintiff did not opt-out (did not read) the Samsung brochure, the court found that Samsung could not enforce arbitration provisions through either:
the carrier agreement, or
– Samsung was not mentioned in the contract (Samsung was neither a signatory, nor a third-party beneficiary to the agreement)
the in-box brochure
– the outside of the Galaxy S4 box did not notify the consumer that opening the box would be considered agreement to the terms set forth in the brochure (thus inaction did not indicate acceptance)
– the way Samsung labeled the terms – “Product Safety & Warranty” – did not adequately put consumers on notice of obligations outside the warranty (“even if a customer may be bound by an in-the-box contract under certain circumstances, such a contract is ineffective where the customer does not receive adequate notice of its existence“)

Thus the District court did not err in denying Samsung’s motion to compel arbitration.
[9th Circ. 14-16994 (Orig: N.D. CA; 3:14-cv-00582)]
jbho: the court here also cited Knutsen v. Sirius (S.D. CA; 3:12-cv-00418) where a welcome kit could not bind plaintiff to a shrink wrap agreement, holding that although failing to read a contract is no excuse, no contract is formed “when the writing does not appear to be a contract and the terms are not called to the attention of the recipient.” Since the Samsung brochure was labeled “Product Safety & Warranty Information,” the court found there was no reason a consumer would expect the brochure was imposing an obligation on the buyer.


Contract Termination Revokes Consent

Stevens-Bratton v. TruGreen
Reversed and remanded – TruGreen allegedly made autodialed calls marketing lawn care services to plaintiff’s mobile, a number on the National Do Not Call (NDNC) list. Calls allegedly continued despite plaintiff’s request they cease. It was later revealed that plaintiff had formerly used TruGreen services. The TruGreen agreement contained clauses indicating consent to receive autodialed calls – including for “possible future services” – as well as arbitration provisions including class action waivers. Based on these, the district court denied class certification, and compelled arbitration.

Relevant timeline details:

  • 15May2013 – Plaintiff signs up for TruGreen services
  • 16Oct2013 – Prior Express Written Consent required for autodialed telemarketing calls to mobile phones
  • 09Nov2013 – Plaintiff adds her number to the National Do Not Call list
  • 15May2014 – Plaintiff cancels TruGreen services
  • 27Jan2015 – Calls in question begin

The appellate court found since there was no survival provision in the TruGreen agreement, the district court erred in determining that TruGreen retained a right to contact plaintiff after the contract had ended (construing the provision under normal principles of contract interpretation, interpreting ambiguity in favor of the non-drafting party). As the arbitration provisions had also expired, the district court erred in denying plaintiff’s motion for class certification as well.
[6th Circ.; 16-5161 (Orig: W.D. TN; 2:15-cv-02472)]
jbho: I’ve always advised it’s best to treat a closed account as opted-out.

On the other hand, any contract should have a termination section that describes the provisions that you want to survive termination of the agreement.


November 2016

Clickwrap Terms Make Arbitration Provisions Enforceable

Selden v. Airbnb
Arbitration compelled – Plaintiff was allegedly denied an Airbnb because of his race. He signed up for Airbnb using his facebook account, and was told a unit he tried to book was unavailable. Plaintiff subsequently created a fake account using a white profile picture, and was allowed to book the same unit. Plaintiff filed suit against Airbnb for unlawful racial discrimination. Airbnb moved to arbitrate.

The court found that the Airbnb “sign-up-wrap” agreement was valid, as text stating “By signing up, I agree to Airbnb’s Terms of Service, Privacy Policy, Guest Refund Policy, and Host Guarantee Terms” was clearly and conspicuously displayed – without scrolling – and the text linked to the various agreements.


Even if plaintiff only clicked ‘Sign up with Facebook’ at the top of the page, the relevant text was still visible, and he therefore agreed to be bound by the Terms of Service.

The Terms of Service included a mandatory arbitration clause. It stated, “(user) and Airbnb agree that ANY DISPUTE, CLAIM OR CONTROVERSY ARISING OUT OF OR RELATING TO THESE TERMS or the breach the breach, termination, enforcement, interpretation or validity thereof, or to the use of the Services or use of the Site or Application (collectively, ‘Disputes’) will be settled by binding arbitration.” (emphasis added). Since plaintiff’s race discrimination claims “(arose) out of or relate(d) to” his use of the Airbnb service, the court ruled the claims must be arbitrated.

Additionally, as plaintiff’s arbitration fees are paid for by Airbnb, the court found Airbnb’s arbitration clause did not meet the high bar for unconscionability.
[D. D.C.; 1:16-cv-00933]
jbho: this decision provides guidance on how to set up any click wrap agreements (or “sign-up-wrap” as the court calls it here).


August 2016

Enforceability Of Online Agreement In Question?

Nicosia v. Amazon
Dismissal for failure to state a claim (claims subject to mandatory arbitration) vacated – plaintiff purchased a weight loss product that has been removed from the market, and brought claims under the Consumer Product Safety Act.

The court classified Amazon’s contract as a hybrid between a clickwrap and a browsewrap agreement. A typical clickwrap agreement, the court explained, asks the user to click an “I agree” box after being presented with a list of terms or conditions of use. Here, plaintiff was not required to click on an “I agree” box after being presented with terms and conditions. Plaintiff was instead presented with a sentence stating, “By placing your order, you agree to Amazon.com’s privacy notice and conditions of use.”


The court found the message was not bold faced, capitalized, or conspicuous in light of the whole webpage. There was also substantial additional information on the webpage, displayed in multiple fonts and colors that obscured and distracted from the message about the conditions of use. Thus Amazon failed to show that the plaintiff was on notice of the arbitration provision and agreed to mandatory arbitration.
[2nd. Circ.; 15-423 (Orig.: E.D. N.Y; 14-cv-04513)]
jbho: if you want to establish a binding online contract, the language surrounding the check-the-box matters, and courts are perfectly willing to nitpick on this point.


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