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Uber Helps Me Revise My Contracts Syllabus

posted by Mark Weidemaier

I've been meaning to post about this recent decision, by Judge Rakoff in the Southern District of New York, denying motions by Uber and its CEO Travis Kalanick to compel arbitration of a class action lawsuit. More coverage here (Bloomberg) and here (Law360). The lawsuit alleges that Uber suppresses price competition among drivers in violation of the antitrust laws. The court's opinion covers some arcane issues of arbitration law, such as the defendants' argument that the plaintiff had to arbitrate the question whether an arbitration agreement existed. (Answer: No.*) But mostly, the opinion is about contract law--or rather, about how not to design a system for forming contracts on-line.

The plaintiff created an account in 2014 using the Uber mobile app, but the process of account formation seems pretty similar on the company's current website. Users input contact and payment information, click a button that says something like "register" or "create account," and that's pretty much it. Below the button, in smaller font, is a message like this: "By creating an Uber account, you agree to the TERMS OF USE & PRIVACY POLICY." The all-caps text links to the privacy policy and terms of use; the latter includes the arbitration clause. There's a picture of the relevant app screen on the last page of Judge Rakoff's opinion. 

If a reasonably prudent person who took these steps would have known she was agreeing to the terms of use, then the plaintiff is bound by those terms. On that question, the defendants have a decent argument. It's not like the reference to the terms and conditions was obscured by a wall of text. Indeed, the court's opinion begins by highlighting the importance of the right to a jury trial, which gives the impression that the judge would have been more receptive to Uber's contract-law arguments had the case not involved an arbitration clause. If that's so, then the decision arguably is contrary to federal arbitration law. Still, despite these caveats, the court reached the defensible conclusion that the plaintiff did not have "reasonably conspicuous" notice of the terms of use.

What's most surprising is that Uber used such sloppy internet contracting practices. It's quite easy to present the user of a website or app with clear notice that a contract is being formed and a clear indication of how to find the contract's terms. And it's equally easy to get some affirmative indication of assent to the contract. Many websites, for instance, require the user to check a box indicating their agreement to the contract's terms. Courts usually enforce those contracts whether or not users read the terms and whether or not there is any meaningful alternative but to assent. This is one reason why contract law isn't a very good tool for regulating the substance of mass consumer and employment contracts.

In any event, although Judge Rakoff's decision is interlocutory, and most interlocutory orders aren't immediately appealable, the Federal Arbitration Act allows immediate appeals of orders refusing to compel arbitration. The defendants have appealed, so we will see whether the decision stands. In the meantime, I'm adding it to my contracts syllabus.

 *I mean, really: This argument is so obviously wrong I just can't take it seriously. Both defendants hired prestigious law firms, whose lawyers know or can figure out arbitration law. Maybe there's some theory that judges are more likely to accept plausible arguments if you first lob a few terrible ones at them? In any event, Uber apparently conceded at oral argument that the court should decide the question.

Update (August 18, 2017): The Second Circuit has reversed Judge Rakoff, holding that the Uber app provided reasonably conspicuous notice of the arbitration clause and that the plaintiff unambiguously manifested assent to the contract. 

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