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On-line Arbitration Agreements: A Tale of Two “Click Wraps”

What makes an on-line arbitration agreement binding against a website user? In Meyer v. Uber Technologies, Inc., 2017 U.S. App. LEXIS 15497 (2d Cir. Aug. 17, 2017), the U.S. Court of Appeals for the Second Circuit issued a second decision on this issue, providing additional elucidation following its 2016 decision in Nicosia v. Amazon, Inc. 834 F.3d 220 (2d Cir. Aug. 24, 2016).The Nicosia and Meyer cases each involved an on-line agreement with a user who claimed not to have read the company’s terms and conditions, including an arbitration clause. In Meyer, Uber’s agreement to arbitrate was held to be enforceable against the user; in Nicosia, Amazon’s was not—at least on the record before the Court of Appeals.

In each case, the foundation principle was that “parties are not required to arbitrate unless they have agreed to do so.” In each case the user had, at some point, clicked an online button that the company maintained constituted an acceptance of “terms and conditions.” And in each case, the user claimed not to have read the terms and conditions. To determine whether a binding contract had been formed, the court evaluated whether the users had “inquiry notice” of the arbitration terms and conditions when they respectively clicked “Register” (in the Uber app) and “Place Your Order” (on the Amazon web page).

Regardless of the characterization of the “agreement” as click-wrap, browser-wrap, or a hybrid, basic principles of contract formation were at issue in each case. To form a contract, there must be mutual manifestation of assent. Where a party has inquiry notice of terms, the party’s act of accepting terms binds it even if the party has not read those terms. Inquiry notice means sufficient information has been provided such that a reasonably prudent person would investigate the matter further. (Black’s Law Dictionary, 7th ed. 2000.) The court explained in Nicosia: “an offeree is still bound by the [arbitration] provision if he or she is on inquiry notice of the term and assents to it through the conduct that a reasonable person would understand to constitute assent.” Nicosia, 834 F.3d at 233. In Meyer, the court stated: Whether or not there is inquiry notice depends on the ‘[c]larity and conspicuousness of arbitration terms,’ …; in the context of web-based contracts, ... clarity and conspicuousness are a function of the design and content of the relevant interface.” Meyer, 2017 U.S. App. LEXIS 15497 at *14.

Designers of websites can glean guidance from the two decisions:

  1. Reduce clutter. The primary difference between Uber’s contract and Amazon’s, as described in the two decisions, was the degree of on-line page clutter.
    1. Uber’s screen to complete a user’s registration was “uncluttered” and presented a simple decision: the user must click a button marked “Register,” underneath which the screen states “By creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY,” with hyperlinks to the Terms of Service and Privacy Policy.” Meyer, supra.
    2. On the other hand, Amazon’s registration page had considerable clutter, which the court compared to an apple stand having a wall filled with signs, some of which are prominently displayed and “contain information necessary for [a customer’s purchase],” and others that may be quickly disregarded, and “among them is a sign binding her to additional terms as a condition of her purchase.” Nicosia, 834 F.3d at 237. On the question of whether the apple stand owner had provided “reasonably conspicuous notice,” the court stated “[W]e think reasonable minds could disagree.”
  2. Avoid creating a need to scroll. Uber’s registration page also required no scrolling to see that the Terms of Service became binding upon clicking the Register button. It was all visible at once.
  3. Emphasize the presence of terms and conditions. The contrasting text in Uber’s app—dark print, white background, and hyperlinks that were blue and underlined—impressed the court as well. In Nicosia, the court was critical of Amazon’s use of verbiage that was “not bold, capitalized or conspicuous in light of the whole webpage.”

And this statement by the court in Meyer surely will be cited frequently: “a reasonably prudent smartphone user knows that text that is highlighted in blue and underlined is hyperlinked to another webpage where additional information will be found.” Meyer, 2017 U.S. App. LEXIS 15497 at *21.

  1. Record keeping. When seeking to enforce an arbitration clause, the company must present evidence that the user accepted the arbitration clause. This requires record-keeping to be able to show terms that the user accepted and any amendments that the user later accepted. In Meyer, Uber presented such evidence, which was undisputed. In Nicosia, Amazon’s earlier terms and conditions did not include an arbitration provision, and there was a dispute as to whether the user had been presented with the earlier terms and conditions as well as Amazon’s later amendment of its terms and conditions.

To federal court litigators, the cases offer a lesson in strategy as well. The cases had distinctly different procedural postures that required different analyses by the court. In Meyer, Uber had moved to compel arbitration. The court determined, based on undisputed facts, that Meyer had been on inquiry notice when he registered for Uber’s services via its app.

In Nicosia, however, Amazon had moved only to dismiss the customer’s complaint—a procedural posture that required the court to accept the plaintiff’s allegations as true and limited the evidence that the court could consider. The Court of Appeals held that Amazon had not shown as a matter of law for that purpose that an agreement had been formed, and that the District Court should not have dismissed Nicosia’s claims. Notably, the appellate court did not find that there was no agreement to arbitrate. It stated: “To be clear, we do not hold that there was no objective manifestation of mutual assent here as a matter of law. Rather, we conclude simply that reasonable minds could disagree on the reasonableness of notice.” (834 F.3d at 238.) Where reasonable minds can differ, Amazon failed to meet its burden on the motion to dismiss, and the court found that that motion should have been denied.

Notably, neither decision resulted in an order compelling arbitration. In Nicosia, the court (a) vacated an order that had dismissed the complaint, and (b) remanded for further proceedings. In Meyer, despite the existence of an enforceable agreement to arbitrate, the court remanded the case to evaluate Meyer’s argument that Uber had waived its right to arbitrate.

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Kevin N. Ainsworth

Member / Co-Chair, Cross-Border Asset Recovery Practice

Kevin N. Ainsworth is a litigator at Mintz. He represents clients in complex commercial disputes, including bondholder litigation involving international issuers and patent and trademark litigation. Kevin also has extensive mediation and arbitration experience.