RACHEL CULLINANE, JACQUELINE NUNEZ, ELIZABETH SCHAUL, AND ROSS McDONAGH, on behalf of themselves and all others similarly situated, Plaintiffs, v. UBER TECHNOLOGIES, INC., Defendant.
CIVIL ACTION NO. 14-14750-DPW
UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS
July 11, 2016
DOUGLAS P. WOODLOCK
July 11, 2016
The practice of avoiding consumer class action litigation through the use of arbitration agreements is the subject of current scholarly disapproval1 and skeptical investigative journalism.2 It appears that at least one agency of the federal government is considering regulating the use of such agreements in so far as the subject matter is within its jurisdiction.3 Nevertheless, the legal foundation provided in Supreme Court
The plaintiff in this case extends an invitation to disassemble the judicial construct permitting a bar to class action litigation for consumer arbitration agreements. The invitation suggests teasing out distinctions that truly make no difference. This is not an institutionally authorized nor intellectually honest way to change practice and legal policy regarding the permissible scope of arbitration. Change, if it is to come, must be effected by a refinement through legislation and/or regulation that imposes restrictions on arbitration agreements, or by a reversal of direction on the part of the Supreme Court. It is not within the writ of the lower courts to
The plaintiffs in this putative class action are a group of users of the ride-sharing phone application designed and managed by defendant Uber Technologies. They allege that Uber overcharged them for travel to and from Boston Logan Airport and East Boston by imposing fictitious fees hidden in charges for legitimate local tolls. The plaintiffs seek class action relief pursuant to
I. BACKGROUND
A. Factual Background
1. The Parties
Uber Technologies (“Uber“) is a ride-sharing service that transports customers throughout Boston for a fee. [2d Am. Compl., Doc. 54 ¶ 1] Uber‘s customers call for Uber vehicles, and pay for the requested ride, through use of Uber‘s smartphone app. [Id. ¶ 1]
The named plaintiffs seek to represent a class of customers of Uber residing in Suffolk and Middlesex Counties,
2. Account Creation Process
In order to use the Uber application to call for transportation, users must first create an account, either
In order to create an account, a user must proceed through three steps, each with its own screen inside the smartphone app. [Doc. 32-1 Ex. A-D] The first screen, entitled “Create an Account“, prompts the user to input an e-mail address and mobile phone number, and to create a password for the account she is attempting to create. [Doc. 32-1 Ex. A-1, B-1, C-1, D-1] This screen also contains gray text on a black background immediately below the blank white input boxes and above the phone keyboard that says, “We use your email and mobile number to send you ride confirmations and receipts.” [Id.]
A second screen, entitled “Create a Profile“, prompts users to enter their first and last names and to submit a photograph. [Doc. 32-1 Ex. A-2, B-2, C-2, D-2] This screen contains gray text on a black background that says, “Your name and photo helps [sic] your driver to identify you at pickup“. [Id.] This text is in the same location as the gray text from the previous screen.
The third and final screen in the account creation process, entitled “Link Payment“, prompts the user to enter a credit card number to link a card to ride requests for payment. [Doc. 32-1 Ex. A-3, B-3, C-3, D-3, D-4]. In the most recent version of the
After entering payment information, the user must then click a button with the word “Done” in the top-right-hand corner of the screen in order to create an account. [Doc. 32-1 Ex. A-3, B-3, C-3, D-3, D-4; Doc. 32-1 ¶ 15] This button is grayed out and unclickable until the user enters her payment information. [Doc. 32-1 Ex. A-3, B-3, C-3, D-3, D-4] Users must complete all of the information requested in the input boxes on each screen and click the “Done” button on the last screen in order to create an account. [Doc. 32-1 ¶ 15].
3. Uber Terms and Conditions
The Uber Terms & Conditions (“Agreement“) are contained in
The Agreement states that it “constitute[s] a legal agreement between [user] and Uber. . . . In order to use the Service [] and the associated Application [], you must agree to the terms and conditions that are set out below.” [Doc. 32-6 Ex. A-B at 1] The contract also states that, by using any of Uber‘s services, the user “expressly acknowledge[s] and agree[s] to be bound by the terms and conditions of the Agreement.” [Id.]
The Agreement contains a section starting on page 9 (page 8 of the newer agreement) under the heading “Dispute Resolution.”
agree 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 (collectively, “Disputes“) will be settled by binding arbitration, except that each party retains the right to bring an individual action in small claims court. . . . You acknowledge and agree that you and Company 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. Further, unless both you and Company otherwise agree in writing, the arbitrator may not consolidate more than one person‘s claims, and may not otherwise preside over any form of any class or representative proceeding.
[Doc. 32-6 Ex. A-B at 9] (emphasis in original). Under a sub-heading entitled “Arbitration Rules and Governing Law“, the Agreement states, “The arbitration will be administered by the American Arbitration Association (“AAA“) in accordance with the Commercial Arbitration Rules and the Supplementary Procedures for Consumer Related Disputes (the “AAA Rules“) then in effect. . . . The Federal Arbitration Act will govern the interpretation and enforcement of this section.” [Id.] The Agreement also provides that, should a user‘s claim be for an amount under $75,000, Uber will pay any arbitration-related fees. [Id.]
B. Procedural History
Plaintiffs Cullinane and Nunez, on behalf of themselves and
Uber removed the case to this Court pursuant to the Class Action Fairness Act (CAFA),
Plaintiffs have successively filed two amended complaints. The first amended complaint added Schaul and McDonagh as named plaintiffs, and added the East Boston toll (experienced by Mr. McDonagh) claim to the claims based on the Surcharge. The plaintiffs also added a sixth count to their complaint, alleging that the hidden charges constitute unfair and deceptive acts in violation of
For its part, Uber filed a motion to compel arbitration and stay or, in the alternative, to dismiss. The threshold question whether arbitration must be compelled will be addressed in this Memorandum. Because I conclude the answer to that question is “yes,” it is for the arbitration tribunal to determine the merits of the claim. Since arbitration must be compelled and nothing else remains for resolution in this court at this time, I will dismiss the case upon the order to compel arbitration.
II. STANDARD OF REVIEW
A party seeking to compel arbitration “must demonstrate that a valid agreement to arbitrate exists, that the movant is entitled to invoke the arbitration clause, that the other party is bound by that clause, and that the claim asserted comes within the clause‘s scope.” Soto-Fonalledas v. Ritz-Carlton San Juan Hotel Spa & Casino, 640 F.3d 471, 474 (1st Cir. 2011). Section 2 of the FAA provides that an arbitration clause in a written contract “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
A. Validity of the Agreement
1. Contract Formation
In order to assess whether or not the claims raised by plaintiffs should be resolved by arbitration, I must first address the question “whether . . . there exists a written agreement to arbitrate.” Lenfest v. Verizon Enter. Solutions, LLC, 52 F. Supp. 3d 259, 262-63 (D. Mass. 2014). This is the first step of the analysis because, if the contract containing the arbitration agreement was never binding on the plaintiffs, the arbitration clause cannot be enforced against them.
It is fundamental in addressing challenges to arbitration agreements to recognize that “arbitration is a matter of contract.” Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010). “The FAA thereby places arbitration agreements on an equal footing with other contracts . . . and requires courts to enforce them according to their terms.” Id. at 67-68 (internal citations omitted). However, it is similarly bed rock that the savings clause of § 2 of the FAA preserves “generally applicable contract defenses,” as long as those defenses do not “stand as an obstacle to the accomplishment of the FAA‘s objectives.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S.Ct. 1740, 1748 (2011).
In online adhesion contracts, the analysis under Massachusetts law is the same as in most courts around the country that have analyzed issues similar to this one. When it comes to specific clauses in adhesion contracts, under Massachusetts law, courts “have held that such clauses will be enforced provided they have been reasonably communicated and accepted and if, considering all the circumstances, it is reasonable to enforce the provision at issue.” Ajemian v. Yahoo!, Inc., 83 Mass. App. Ct. 565, 573-74, 987 N.E.2d 604, 611 (2013). While Ajemian analyzed the enforcement of forum selection and limitations clauses, the analysis is the same here. The basic inquiry as to enforceability boils down to basic contract theory of notice and informed assent with respect to the terms in question.
In this case, the defense to contract formation asserted by the plaintiffs is lack of notice of or assent to the terms of the Agreement. Plaintiffs argue that the Agreement is an online “browsewrap” adhesion contract. The defendants maintain that the Agreement and its place in the account creation process is more akin to a “clickwrap” agreement, and call it a “hybrid” agreement. I do not find such summary descriptions of detailed agreements particularly helpful to meaningful analysis. Rather, in order better to explain the differences between various types of online “wrap” agreements, I will provide a few pages of history.
The “wrap” contract terminology began with the advent of the “shrinkwrap” agreement. “The ‘shrinkwrap license’ gets its name from the fact that retail software packages are covered in plastic or cellophane ‘shrinkwrap‘, and some vendors . . . have written licenses that become effective as soon as the customer tears the wrapping from the package.” ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996). Although it was not always the case, courts now generally enforce shrinkwrap agreements “on the theory that people agree to the terms by using the [product] they have already purchased.” Mark A. Lemley, Terms of Use, 91 Minn. L. Rev. 459, 459-60. While shrinkwrap agreements, as the name suggests, formally apply only
“Browsewrap” agreements or licenses are those in which “the user does not see the contract at all but in which the license terms provide that using a Web site constitutes agreement to a contract whether the user knows it or not.” Lemley, 91 Minn. L. Rev. at 460. Browsewrap agreements have been characterized as those “[w]here the link to a website‘s terms of use is buried at the bottom of the page or tucked away in obscure corners of the website where users are unlikely to see it.” Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171, 1177 (9th Cir. 2014). Normally, in a browsewrap agreement, “the website will contain a notice that — merely by using the services of, obtaining information from, or initiating applications within the website — the user is agreeing to and is bound by the site‘s terms of service.” United States v. Drew, 259 F.R.D. 449, 462 n. 22 (C.D. Cal. 2009).
By contrast, a “clickwrap” agreement is an online contract “in which website users are required to click on an ‘I agree’ box after being presented with a list of terms and conditions of use.” Nguyen, 763 F.3d at 1175-76. Courts view the clicking of an “I agree” or “I accept” box (or similar mechanism) as a requirement that “the user manifest assent to the terms and
In Berkson, Judge Weinstein coined a new phrase, “sign-in-wrap“, to describe certain online agreements that fall between a browsewrap and a clickwrap. “Sign-in-wrap couples assent to the terms of a website with signing up for use of the site‘s services.” Berkson, 2015 WL 1600755 at *25. In a sign-in wrap, a user is presented with a button or link to view terms of use. It is usually not necessary to view the terms of use in order to use the web service, and sign-in-wrap agreements do not have an “I accept” box typical of clickwrap agreements. Instead, sign-in-wrap agreements usually contain language to the effect that,
3. Uber‘s Agreement
For purposes of analyzing the Agreement found in the Uber sign-up process, I will adopt Judge Weinstein‘s taxonomy and refer to the Uber Agreement as a sign-in-wrap agreement. Nevertheless, analysis of the Agreement‘s validity and enforceability turns more on customary and established principles of contract law than on newly-minted terms of classification. “While new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract.” Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004). “Mutual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract.” Specht v. Netscape Commc‘ns Corp., 306 F.3d 17, 29 (2d Cir. 2002).
Massachusetts courts have not yet had much opportunity to analyze online wrap agreements. However, in Ajemian, the Appeals Court made clear that the analysis in Massachusetts is the same as it is elsewhere in the jurisprudence of contract enforcement. Although the clauses sought to be enforced in Ajemian were a forum selection clause and a limitations clause, the essential question presented was the same: what level of
In analyzing online agreements, the Second Circuit has used the analogy of a roadside fruit stand displaying bins of apples; these apples have a sign above them displaying the price of the apples for potential consumers. See Register.com, 356 F.3d at
a. Reasonable Notice of Binding Contract
The process through which the plaintiffs established their accounts put them on reasonable notice that their affirmative act of signing up also bound them to Uber‘s Agreement. Whether or not plaintiffs had actual notice of the terms of the Agreement, all that matters is that plaintiffs had reasonable notice of the terms. “In Massachusetts courts, it has long been the rule that ‘[t]ypically, one who signs a written agreement is bound by its terms whether he reads and understands them or
The plaintiffs rely heavily on Judge Weinstein‘s decision in Berkson, where he ultimately found the notice provided to the plaintiffs in a sign-in-wrap situation to be insufficient. The first step of Judge Weinstein‘s four-part analysis of such adhesion contracts suggests that actual notice must be found on the basis of “substantial evidence from the website that the user was aware that she was binding herself to more than an offer of services or goods in exchange for money.” Berkson, 2015 WL 1600755 at *33. That step, however, obliquely disregards the customary contract analysis applied by the vast
b. Manifested Agreements
Although the plaintiffs were given reasonable notice, in order to enforce the Agreement, Uber must also show that the plaintiffs necessarily manifested agreement to the terms. To return to the apple analogy, in the Uber sign-up process, clicking “Done” and ordering the app is akin to the apple eater taking a bite of the apple. Although an even more “unambiguous manifestation of consent,” Specht, 306 F.3d at 35, might be for the apple eater also to check a box on a piece of paper next to
The language surrounding the button leading to the Agreement is unambiguous in alerting the user that creating an account will bind her to the Agreement. And the word “Done,” although perhaps slightly less precise than “I accept,” or “I agree,” makes clear that by clicking the button the user has consummated account registration, the very process that the notification warns users will bind them to the Agreement.
c. Conclusion
I conclude that the Agreement is a valid contract that is enforceable against the plaintiffs.
B. Enforceability of the Arbitration Clause
Having decided that the Agreement is generally valid and enforceable against the plaintiffs, I must now determine whether the specific arbitration clause is valid. The question is “whether the parties agreed to arbitrate [this] dispute. The
In Awuah I, the First Circuit considered whether or not arbitration was an appropriate remedy for a dispute between multiple franchisees and Coverall, the franchisor. The arbitration agreement in question was as broad as the one at issue in this case:
all controversies, disputes or claims between Coverall . . . and Franchisee . . . arising out of or related to the relationship of the parties, this Agreement,
any related agreement between the parties, and/or any specification, standard or operating procedure of Coverall . . . shall be submitted promptly for arbitration. . . . Unless otherwise provided or the parties agree otherwise, arbitration shall be in accordance with the then current Rules of the American Arbitration Association.
As Judge Boudin observed for the court, the Rules of the AAA include Rule 7(a), which provides, in relevant part, “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” American Arbitration Association Commercial Arbitration Rules and Mediation Procedures Rule 7(a) (American Arbitration Association 2013). The First Circuit concluded that, where arbitration agreements unmistakably incorporate AAA rules (in particular Rule 7(a)), it is left to the arbitrator to decide what issues are arbitrable, and, further, to decide such defenses to arbitration clauses as unconscionability.
Once a court decides that the arbitration clause is broad enough to encompass the issues in dispute and that the parties agreed to have the contract governed by the AAA Rules, it must compel arbitration. To be sure, an exception was recognized by the Awuah I court. That exception applies to cases in which the arbitration itself may “be an illusory remedy.
whether the arbitration regime here is structured so as to prevent a litigant from having access to the arbitrator to resolve claims, including unconscionability defenses. The standard for such a showing of illusoriness would also be high — all formal dispute resolution involves costs and inconvenience. But if the remedy is truly illusory, a court should not order arbitration at all but decide the entire dispute itself.”
Id. at 13 (emphasis in original).
In defining what makes arbitration an “illusory” remedy, the First Circuit in Awuah I noted that “excessive arbitration costs” are a significant concern. Id. at 13. Awuah I does not define precisely what “excessive” costs may be, but, with respect to Uber‘s Agreement before me, this is not necessary. Uber explicitly states in the Agreement that it will bear the costs of any arbitration claim under $75,000, thereby relieving
It might be argued that waiver of the right to bring a class action also renders dispute resolution terms illusory. But Supreme Court precedent is clear that “[c]lass arbitration waivers are enforceable even where the cost of individual arbitration effectively prevents the pursuit of low-value claims” that would only be financially viable in a class context. Pazol v. Tough Modder, Inc., 100 F. Supp. 3d 74, 76 (D. Mass. 2015), rev‘d on other grounds, 819 F.3d 548 (1st Cir. 2016), (citing Am. Express Co. v. Italian Colors Rest., 133 S.Ct. 2304 (2013)). Thus, so-called forced “single-file” arbitration is not a bar to arbitration agreements generally. It follows that objection to “single-file” arbitration is no basis for a contention that arbitration is an illusory remedy.11
Having concluded that arbitration is not an illusory remedy for the plaintiffs, I must leave all other issues to the
C. Stay or Dismiss
The remaining question is whether to stay this case or to dismiss it.
Section 3 of the FAA requires that where issues brought before a court are arbitrable, the court shall stay the trial of the action until such arbitration has been had in accordance with the terms of the [arbitration] agreement. However, a court may dismiss, rather than stay, a case when all of the issues before the court are arbitrable.
Bercovitch v. Baldwin School, Inc., 133 F.3d 141, 156 n. 21 (1st Cir. 1998) (citations omitted). Having determined in resolving the instant motion that all further issues shall be decided by the arbitrator, nothing remains for me to decide. A stay is unnecessary to await further developments. Consequently, I will dismiss the case, with recognition that as a collateral aspect of that disposition, this decision is immediately appealable to
IV. CONCLUSION
For the reasons set forth above, I GRANT the defendant‘s Motion to Compel Arbitration [Dkt. No. 31] and direct the Clerk to dismiss the case.
/s/ Douglas P. Woodlock
DOUGLAS P. WOODLOCK
UNITED STATES DISTRICT JUDGE