FAA (Arbitration)

October 2017

 
On-Box Disclosure Not Enough To Compel Arbitration

Velasquez-Reyes v. Samsung
Dismissed – Samsung allegedly misrepresented the water resistant nature of its Galaxy S7 phones. Samsung argued to compel arbitration per the Health & Safety Warranty Guide included in the S7 box, a guide that contained arbitration provisions. Samsung argued plaintiff was on notice of those provisions due to a disclosure on the box S7 stating

(d)evice purchase subject to additional Samsung terms and conditions.”

The court found that although the on-the-box disclosure distinguished the case from Norcia v. Samsung (9th Circ. 14-16994), the disclosure still fell short. The disclosure did not expressly state opening a box or using the phone constituted consent to terms in the Health & Safety Warranty Guide, and the language only generically indicated that the S7 purchase was subject to “additional terms and conditions.”

Thus plaintiff was not on notice and could not be bound to the arbitration terms.
[C.D. CA; 5:16–cv-01953]
jbho: Perhaps a more explicit disclosure on the external packaging would have made a difference. Would then a link to the terms, so they could be read before opening, be sufficient? How much would need to be on the box v. made available though alternative means?

As it stood, the court did not think much of the post-Norcia disclosure, stating: “the language here, written in tiny font and sandwiched between Samsung and Android copyright and trademark information is too vague and inconspicuous to provide notice of the consumer’s consent to arbitrate all claims.”

Then there is the question of how phones are typically purchased. Consumers usually don’t handle the packaging at service provider stores, so would any disclosure matter? The court noted here similar to Norcia, the box was unpacked by a service provider (Verizon) employee, who disposed of the packaging and internal documentation for plaintiff.

Perhaps the more prudent route would be for phone manufactures to be named a third-party beneficiary to the service provider agreements?

 

August 2017


Uber Sign-Up Sufficiently Conspicuous To Compel Arbitration

Meyer v. Uber
Vacated and remanded – Uber allegedly conspired with its drivers to price-gouge customers by using surge pricing, multiplying fares up to eight times the normal rate. Uber moved to compel arbitration. The district court declined to compel, finding the Uber sign-up process did not sufficiently put plaintiff on notice of the Terms of Service, so he could not unambiguously manifest assent to the terms or arbitration provisions contained therein.

The appellate court found that a reasonably prudent smartphone user would understand how apps and hyperlinks work, and that terms would be connected to the creation of an account. Additionally, the court found:
• the screen with the agreement was uncluttered
• the entire screen was visible, with no need to scroll
• dark print contrasted with a white background
• hyperlinks were blue and underlined
• the language “By creating an Uber account, you agree …” was a clear prompt to read and agree to the (contractual) Terms and Conditions
• although lengthy, the terms were clearly linked and the Dispute Resolution section with the jury trial waiver was bolded
meyer-uber
The appellate court also found that the mismatch between the disclosure language ‘creating’ and the button text ‘REGISTER’ did not diminish assent to the terms, and the dual function of the ‘REGISTER’ button did not detract from the fact a continuing relationship was being established that would require some terms and conditions.

Thus, plaintiff assented to the terms and agreed to arbitrate his claims with Uber.
[2nd Circ.; 16-2750]
jbho: I still think it’s a good idea to sync your button text with your disclosure language.

Interesting that the court did not contemplate the obfuscation of the terms by the keyboard as in Metter v. Uber (N.D. CA; 3:16-cv-06652). It will be interesting if the decision here carries over to the 9th.


Mobile Design Again Undermines Contract Formation, Arbitrability

McKee v. Amazon (Audible)
Motion to compel arbitration denied – Amazon allegedly failed to adequately inform Audible subscription holders there was a ceiling on credits, and any unused credits would be forfeited when cancelling a subscription. Plaintiff also alleged the automatic payment renewal information failed to inform consumers they would be charged every month in perpetuity, without notice, against any card associated with any Amazon account (more).

On Amazon’s motion to compel arbitration, the court found that although the parties agreed that Audible’s Conditions of Use (COU) contained arbitration provisions, Plaintiff never assented to them. The court examined the three times plaintiff interacted with signup flows:

Mobile Web – 26 June 2016
The court found the mobile web experience plaintiff used to sign up did not adequately indicate acceptance of the COU. The COU text was not hyperlinked, and the ‘terms’ link far below the ‘Start Now’ button, in the smallest font on the page, only linked to a terms page that provided another link to the COU. Additionally, the court felt the label ‘Start Now’ would not indicate any “contractual consequences” to a reasonable consumer. Furthermore, plaintiff never completed a purchase; he only clicked the ‘Start Now’ button to initiate a free trial. Thus, due to the “linguistic imprecision” he did not even agree to the ‘terms.’ Finally, a user had to scroll down to see the disclosure text below the ‘Start Now’ button, and a user could proceed without ever seeing those disclosures.

McKee-ex4

Thus plaintiff had not assented to the COU, when he signed-up, and the underlying arbitration provisions were unenforceable.

Mobile App – 26 October 2016
The court found that this sign-in process was also insufficient to bind plaintiff to the COU:
• there were similar problems with the appearance and location of the COU disclosure
• the disclosure could be obscured by the keyboard
• the lack of consistency between ‘Continue’ & ‘By signing in…’
• the lack of consistent wording between ‘Conditions of Use’ & ‘Terms of Use’,

McKee-ex11

Thus, the app sign-in did not put plaintiff on notice he was bound to arbitration provisions in the COU.

Amazon Echo – 19 April 2016
The court found that this sign-in process cured many of the defects in the Audible flows. However, this process suffered from its own failures and was also insufficient to bind plaintiff to the COU. The court express concern that a single click binding a user to a “laundry list of user agreements,” including:
• Alexa Terms of Use
• Amazon.com Conditions of Use
• Amazon.com Privacy Notice
• Amazon Prime Terms & Conditions
• Amazon Music Terms of Use
• Kindle Store Terms of Use
• Audible Conditions of Use
was procedurally unconscionable. Moreover, a reasonable consumer registering for the Amazon Echo would not expect to be bound to “terms of use governing his or her contractual relationship with separate corporate entities, let alone one he or she has never dealt with.”

Finally, the chapeau language for the above stated, “(i)f you use or access Alexa, you agree to (the above listed terms).” Thus in pressing the ‘Begin Setup’ button, plaintiff only agreed that he could be bound at some future point, when he actually used or accessed Alexa.McKee-ex12&13

Thus, the Echo sign-in did not sufficiently put plaintiff on notice he was bound to arbitration provisions in the Audible COU.

Amazon Purchases
The court did state that although plaintiff would be bound to arbitration provisions in the Amazon COU, these provision only applied to Amazon purchases. Audible was not sufficiently identified in the Amazon COU to be considered a party to the Amazon COU, and plaintiff had no notice of he would have been agreeing to the Audible COU. “The Court is unwilling to hold that a reasonable consumer signing into Amazon would believe he or she is also waiving the right to sue several additional corporations.”
[C.D CA; 2:17-cv-01941]
jbho: Things to keep in mind as you build your sign-up flows.

I’ve also seen other cases where contract formation was at risk due to similar flaws. For example:

Contrast these to Hoover v. Sears (D. N.J.; 3:16-cv-04520), where an overtly descriptive (high friction?) pin-pad sign-up flow was deemed sufficient to compel arbitration. 
Or Applebaum v. Lyft (S.D. N.Y.; 1:16-cv-07062), where Lyft cured deficiencies in its flow to sufficient to compel arbitration. 

July 2017


Initial Terms Not Binding, But Updated “Scrollwrap” Process Saves Contract Formation

Applebaum v. Lyft
Arbitration Compelled – Lyft allegedly overcharged riders in the NYC area for highway tolls by charging full toll amounts, irrespective of any discounts drivers received for using E-Z Pass transponders. Plaintiff alleged Lyft represented toll charges would be billed as a ‘pass-though’ charge, but receipts did not indicate the actual toll amounts charged to a driver. Plaintiff claimed he was charged a $15 toll on a trip through the Holland Tunnel, using a Lyft driver with an E-Z Pass, and should only have been charged a toll of $12.50.

The court ruled that although the arbitration provisions in place at the time plaintiff signed up were unenforceable (April 2016), Lyft cured those deficiencies, and plaintiff later agreed to new, updated terms (September 2016). Plaintiff argued the new terms should not apply to disputes that were already the subject of litigation, but the court found the September 2016 terms were sufficiently broad to leave that decision to the arbitrator.
[S.D. N.Y.; 1:16-cv-07062]
jbho: I think the important point here is recognizing the difference between the ‘before’ and ‘after’ signups, and using them as a guide in designing any onboarding flows.

According to the court, the terms plaintiff would have seen in April 2016 (below left) were unenforceable since:

  • The ‘Terms of Service’ link was insufficiently clear:
    • presented “in the smallest font on the screen, dwarfed by the jumbo-sized pink ‘Next’ bar at the bottom of the screen and the bold header ‘Add Phone Number’ at the top”
    • used difficult to read light blue font on a white background
    • failed to clearly identify a link (e.g., by not using underlining, bolding, capitalization, italicization, or large font), particularly in contrast to how links were presented in the Terms of Service itself
  • The ‘Next’ button implied the Terms of Service applied only to the verification text, “especially given that the word ‘Next’ implied that there were additional steps in the registration process”
  • Generic terms like ‘terms of service,’ ‘terms of use,’ or ‘terms and conditions’ were not sufficient – in and of themselves – for a reasonable consumer to believe s/he was entering a binding or final contract

Thus, “(e)valuating the totality of the circumstances, a reasonably prudent consumer would not have been on inquiry notice of the terms of the February 8, 2016 Terms of Service.”
clickwrap-v-scrollwrap
The September 2016 terms (above right) were enforceable since:

  • Terms of Service were presented as a “scrollwrap”
  • The screen explicitly stated “(b)efore you can proceed you must read & accept the latest Terms of Service”
  • The terms began with the warning “These Terms of Service constitute a legally binding agreement . . . between you and Lyft, Inc.”
  • The flow required users to click on a conspicuous ‘I accept’ button before proceeding

So now the challenge is to implement a lightweight, frictionless onboarding flows, but include the chokepoints and disclosures needed to ensure contract formation. hmmmm.


Arbitration Denied Due To Too Many Links

McGhee v. NAB
Motion to compel arbitration denied – North American Bancard (NAB) allegedly marketed its card reader (sold as Pay Anywhere) as free, with no setup fees, monthly fees, or other hidden fees. Plaintiff claimed that although NAB would earn revenues based on a set percentage of transactions processed through the Pay Anywhere card reader, NAB represented he would never be charged or otherwise owe anything unless and until he used the card reader to process credit card transactions. Plaintiff alleged that despite never using the card reader, NAB began processing charges against his bank account. Plaintiff further alleged that NAB continued to charge his account after being promised they would cease, and to date NAB has refused to refund any of the (allegedly unwarranted) charges. NAB moved to compel arbitration, based on clauses in the Terms and Conditions to which plaintiff agreed when he created his account.

The court found that plaintiff did agree to the ‘Terms and Conditions’ when he clicked on a button adjacent to text reading “I have read and agree to the Terms and Conditions.” However, the arbitration clauses NAB sought to enforce were contained in a separate Pay Anywhere User Agreement, which was only hyperlinked in the initial ‘Terms and Conditions.’ Additionally, forum selection clauses in the ‘Terms and Conditions’ (Georgia) conflicted with the Pay Anywhere User Agreement forum (Michigan). Given that conflict, the court found the directly linked ‘Terms and Conditions’ controlled. Thus while plaintiff had agreed to the directly linked ‘Terms and Conditions,’ the court found he did not assent to the underlying (once removed) Pay Anywhere User Agreement, and there was no valid agreement upon which to compel arbitration.
[S.D. CA; 3:17-cv-00586]
jbho: any critical clauses in your clickwrap agreement must be directly available, and clearly and conspicuously communicated.

Also worth noting, the court found the NAB implementation to be a ‘modified clickwrap,’ since the ‘Terms and Conditions’ were a click away, rather than a forced scroll on the page (scrollwrap?). Nonetheless, the court said it would have enforced the arbitration provisions under the “prototypical modified clickwrap agreement,” if not for the forum confusion. The court thus declined to enforce the ‘off page’ reference, hinting the extra hop essentially rendered the Pay Anywhere User Agreement a(n) (unenforceable) browsewrap. At least in this case.

Ultimately, it appears the conflict between the two agreements removed the Pay Anywhere User Agreement from consideration. So a reminder if you are going to have a multiple documents that make up the entire agreement, those documents must be harmonized.

Finally, the court noted the Terms and Conditions the court did find enforceable included a forum selection clause and class action waiver. So although plaintiff prevailed here, the case may soon be over anyway.

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.
metter-v-uber
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.

UPDATE: 2Oct2017 – certiorari denied, without explanation
https://www.supremecourt.gov/orders/courtorders/100217zor_o7jp.pdf (P. 36; 17-1)

[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.

airbnb-example.png

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.”

amazon-example

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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s