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First Circuit Holds Online Arbitration Agreement Must Be "Reasonably Communicated and Accepted"

Ruling in a class action brought against Uber Technologies, Inc., the U.S. Court of Appeals for the First Circuit recently held that the company's arbitration clause could not be enforced because it was not "reasonably communicated" to its customers during the online contracting process.

The decision is a stark reminder that great attention needs to be paid to the physical and visual details of an online contract that contains an arbitration provision.

The named plaintiffs downloaded the Uber app on their cellphones and used it to create Uber accounts. They later sued Uber for charging unnecessary fees to passengers. The district court granted Uber's motion to compel arbitration and dismissed the case, but the appeals court reversed and remanded the case for further proceedings.

The court acknowledged that the Federal Arbitration Act (FAA) reflects a liberal federal policy favoring arbitration agreements. It cautioned, however, that in deciding a motion to compel arbitration a court must first determine whether a "written agreement to arbitrate" exists.

The court applied Massachusetts law to this contract formation question, noting that the Massachusetts Supreme Judicial Court has not addressed the issue of contract formation for online agreements. From a lower court Massachusetts decision, the First Circuit discerned that Massachusetts law requires a two-step inquiry: first, whether the contract terms were "reasonably communicated" to the plaintiffs, and secondly, whether the terms were "accepted."

Uber argued that its online presentation was sufficiently conspicuous to bind the plaintiffs whether or not they chose to click through the relevant terms. The appeals court disagreed, emphasizing that the link to Uber's Terms of Service "did not have the common appearance of a hyperlink" because it was presented in a gray rectangular box in white bold text, rather than being "blue and underlined." Moreover, the court found, Uber's web screens contained other terms displayed with similar features. According to the court, "[i]f everything on the screen is written with conspicuous features, then nothing is conspicuous."

The First Circuit joins the U.S. Courts of Appeals for the Second and the Ninth Circuits in denying an online arbitration agreement on the grounds that it was not clearly and conspicuously presented to the company's customers.

Copyright © by Ballard Spahr LLP


About this Author

Kaplinksy, partner, New York, finance

Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

Mark Levin, Ballard Spahr Law Firm, Litigation Attorney

Mark J. Levin is known for his work in complex commercial, insurance, and class-action litigation, with particular experience in consumer finance litigation, the structuring and enforcement of consumer arbitration clauses, and the defense of insurance companies in class actions. He testified in 2007 for the lending industry before a subcommittee of the U.S. House Judiciary Committee at an oversight hearing on whether mandatory arbitration in consumer contracts is fair to consumers.

Mr. Levin has represented banks in defending against the first private class-action lawsuits under the Federal Trust Indenture Act, nuclear power plant owners in a year-long arbitration against an international insurance consortium, and school districts in a major funding lawsuit to recover state funds. He is currently involved in defending banks, other lending companies, and insurance companies in a wide variety of consumer class actions, including numerous class actions brought under the Pennsylvania Unfair Trade Practices and Consumer Protection Law.