First Circuit’s Decision Provides Guidance on Enforceable Website Terms, Conditions

Three attorneys with Sidley Austin LLP examine the case First Circuit ruling in Cullinane v. Uber Technologies Inc. The authors discuss the impact of the court’s decision which is a hot topic—the enforceability of arbitration provisions in online contracts.

The e-commerce marketplace continues to burgeon in novel ways, ever expanding the ways consumers can conveniently purchase goods and services, whether via the internet, an application, or buttons, like the Amazon Dash button. As e-commerce retailers continue to develop new and innovative ways to sell their goods and services to customers, they must remain vigilant in ensuring the creation of enforceable and binding e-commerce arbitration agreements with their customer base.

One of the risks of selling to a large customer base is that even retailers of relatively inexpensive goods or services may be exposed to large damages awards when an alleged injury is multiplied by consumers nationwide in a class action lawsuit.

A powerful defense to the consumer class action has been arbitration agreements that include class action waivers. E-commerce retailers can include an arbitration provision that limits the arbitration to the particular parties in the transaction, which can avoid the risk that a single class action jury verdict will result in substantial damages. In AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) and DirecTV Inc. v. Imburgia, 136 S. Ct. 463 (2015), the U.S. Supreme Court confirmed that class actions waivers in arbitration provisions are enforceable.

The potential cost-saving and strategic benefits of class action waivers are clear, but, before Concepcion and Imburgia can apply, the consumer must be bound to an arbitration agreement. Courts continue to weigh in on the enforceability of e-commerce arbitration agreements. The conspicuousness of the arbitration agreement and the form of assent that retailers require from consumers remain paramount.

Recently, in Cullinane v. Uber Technologies Inc., 893 F.3d 53, 2018 BL 224487 (1st Cir. 2018), the First Circuit evaluated the enforceability of arbitration provisions in online contracts. The First Circuit found Uber’s arbitration provision, which contained a class action waiver, unenforceable because Uber did not make its terms of service sufficiently conspicuous. Cullinane highlights the importance of obtaining customers’ affirmative consent to an online contract and reaffirms that conspicuousness of the arbitration agreement and the form of assent that retailers require from consumers remain paramount.

This article provides a brief summary of Cullinane for context, and provides guidance to e-commerce retailers and practitioners respecting the provision of a conspicuous notice regarding the presence of an arbitration agreement and suggestions to obtain a consumer’s affirmative assent to the arbitration agreement.

Uber’s Contract Formation Process

In Cullinane, four plaintiffs sued Uber, the provider of the popular ride-sharing service, claiming that Uber charged surcharges and tolls that were not required to be charged to Uber riders. All plaintiffs downloaded the Uber application on iPhones and used the Uber application to create Uber accounts between Dec. 31, 2012, and Jan. 10, 2014.

Uber moved to compel arbitration and stay or dismiss the case, which was granted by the district court. The plaintiffs appealed.

The registration process required users to go through three different screens to complete the process. Cullinane, 2018 BL 224487, at *2-3. Of particular concern to the three-judge panel in Cullinane was the last screen, the “Link Card” or “Link Payment” screen, which contained a link to the Terms of Service and the arbitration agreement. Id. at *3.

The Link Card screen varied slightly during the thirteen-month period during which the four plaintiffs registered. But essentially, the Link Card screen required the consumer to enter payment information by either manually typing in a credit card number or taking a picture of (scanning) the credit card. During all relevant times, the Link Card screen contained the following statement, “By creating an Uber account, you agree to” followed by a gray box which contained the phrase, in bold white letters, “Terms of Service & Privacy Policy.” Id. at *3.

The Terms of Service contained a Dispute Resolution provision stating that “any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof or the use of the Service or Application … will be settled by binding arbitration.” Id. at *4. The provision also stated that “You acknowledge and agree that you and [Uber] are each waiving the right to a trial by jury or to participate as a plaintiff or class User in any purported class action or representative proceeding.” Id. The consumer could click on the “DONE” button once the payment information was entered. Id. The Uber application did not require the user to click on the Terms of Service button to complete the registration process, nor did it require a customer to affirmatively check a box indicating that the customer agreed to the Terms of Service.

Applying state-law contract principles, the Cullinane court held that the plaintiffs were not reasonably notified of the terms of the Terms of Service, which contained the Dispute Resolution provision.

The Cullinane court held that the Terms of Service were not conspicuous for two reasons.

First, Uber did not use a common method of conspicuously informing users of the existence and location of terms and conditions, i.e., requiring users to affirmatively click a box stating that they agreed to a set of terms, provided by hyperlink, before continuing to the next screen. Id. at *7. Instead, Uber displayed a notice of deemed acquiescence and a link to the terms that did not look like a traditional hyperlink, blue and underlined. Id.

Second, the overall design of the Link Card and Link Payment screens rendered the “Terms of Service & Privacy Policy” hyperlink not conspicuous. The panel noted that the features of the “Terms of Service & Privacy Policy” hyperlink may have been sufficient to accentuate a hyperlink found within a registration process interface with a plain design and limited content. However, Uber’s Link Card and Link Payment screens had other more attention-grabbing features or other terms that were similar or larger in size and more noticeable attributes that diminished the “Terms of Service & Privacy Policy” hyperlink’s capability to grab the consumer’s attention. Id at *8-9.

Because the panel found that the plaintiffs were not reasonably notified of the terms of the arbitration agreement, and did not provide their unambiguous assent to those terms, the First Circuit reversed the district court’s grant of Uber’s motion to compel arbitration.

Conspicuous Notice Regarding Presence of Arbitration Agreement and Obtaining Assent

As explained in Cullinane, the conspicuousness of the arbitration agreement (or the terms of service where the arbitration provision is contained) is contextual and ultimately turns on the conspicuousness of the notice regarding the presence of terms of service relative to other information on the same screen. As the panel noted, “[i]f everything on the screen is written with conspicuous features, then nothing is conspicuous.” Id. at *8-9.

It is important to note that in Cullinane, Uber made no claim that any of the plaintiffs actually saw the arbitration clause or clicked on the “Terms of Service & Privacy Policy” hyperlink. Id. at *6. The key insight from Cullinane is that when it comes to creating enforceable arbitration agreements, retailers and practitioners would do best to follow the path of what has worked in the past. Utilize “traditional” methods of obtaining consent and use hyperlinks that look like traditional hyperlinks.

What is striking is that almost a year ago, the Second Circuit extolled the design of Uber’s application. There, it found that the reference to Uber’s terms of service was not jumbled and upheld Uber’s enforcement of its arbitration agreement and the class action waiver within it. In its reasoning, the Second Circuit recommended some practices that would make the terms of service conspicuous.

• Large Font

• Contrasting Font

• Headings and Capitals

• Setting off text

• Where the agreement is linked, the description of the link is also relevant.

What is apparent from these two courts’ differing opinions is that there is in fact no clear standard on when terms on a website are sufficiently conspicuous. One way to mitigate risk is to require consumers to use a check-box to accept the terms. In other words, users should be required to click a box adjacent to an affirmation similar to “By clicking on the box, you are indicating that you have read and agree to the Terms of Service,” “By checking the box, I agree to the Terms of Service” or “I agree to the Terms of Service” or some other variation to affirmatively manifest consent to being bound by the terms of service.

Other best practices include making it clear the “Accept” button relates to the agreement to the terms, rather than something else. Any hyperlink to the terms should be obvious (e.g., “Terms of Use” is underlined and has decent size lettering and visible coloring). Finally, when using hyperlinks, the terms should have a central or obvious location on the webpage (e.g., the hyperlink is directly above or adjacent to the “I Agree” button).

Conclusion

To create binding arbitration agreements with consumers, businesses must ensure that the necessary elements for a contract under state-law principles are satisfied. In disputes with consumers, whether the consumer was provided reasonable notice of and gave assent to an arbitration provision remains a significant issue. While the above suggestions may not be required for enforceability, businesses with an online presence should strive to make sure their terms of service are conspicuously displayed relative to other information displayed on the same screen. They should also ensure their website or application is designed to require consumers to affirmatively demonstrate assent to the terms of a contract as this may mean the difference between an individual consumer arbitration versus a class action litigation.
Michael Mallow is a partner in Sidley’s Century City, Calif., office and co-leader of the firm’s Consumer Class Actions practice. Mallow is a highly experienced trial attorney representing clients in complex litigation, class action, and regulatory matters, including cases in which plaintiffs seek economic losses for product defects, unfair competition false and deceptive advertising cases, and lawsuits alleging business torts, privacy laws, and entertainment and intellectual property.

Alexis Miller Buese is a partner in Sidley’s Los Angeles office. She is a litigator practicing in all aspects of commercial litigation, including contract disputes, real estate and consumer class action litigation. As part of her practice Alexis advises clients on creating enforceable e-commerce agreements, including the drafting and implementation of effective terms and conditions.

Darlene Cho is an associate in Sidley’s Century City office. She is an experienced class action litigator and defends clients against claims of false and misleading advertising, for violations of consumer protection statutes, and for breach of express and implied warranties.
This article has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create, and the receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. The content herein does not reflect the views of the firm.