Source: https://www.hausfeld.com/news-press/when-does-stealth-contracting-for-arbitration-become-too-sneaky
Timestamp: 2019-04-21 12:50:08+00:00

Document:
Related Lawyers: Walter D. Kelley Jr.
Authors: By Walter D. Kelley Jr.
Over the past twenty years, the United States Supreme Court has construed the Federal Arbitration Act to permit arbitration of such previously exclusive federal causes of action as antitrust, securities, RICO, Truth in Lending Act, Magnuson-Moss Warranty Act and Credit Repair Organizations Act.  The Supreme Court has also upheld waivers of jury trials, class actions, collective actions and representative actions.
Not surprisingly, many consumer-facing businesses have taken advantage of these decisions by inserting into their contracts of adhesion customer waivers of certain rights granted by the United States Constitution (jury trials, access to public courts) and the Federal Rules of Civil Procedure (class and collective actions). The vast majority of these so-called “contracts” are entered into over the internet.
There are four basic types of internet contracts: (1) Browserwrap contracts occur when the seller merely states that use of its website or app constitutes an assent to all terms and conditions; (2) Clickwrap contracts are formed when the seller requires the consumer to click “I Agree” or similar words before making a purchase, but does not require the consumer to review the applicable terms and conditions; (3) Scrollwrap contracts require the consumer physically to scroll through the seller’s terms and conditions and then click “I Agree” before making a purchase; and, (4) Sign-In Wrap contracts couple agreement to the website’s terms and conditions with registration to use the website. All types have been enforced in certain iterations, although the likelihood of enforcement increases as the waivers of rights are displayed more conspicuously and as the consumer is forced to engage in more affirmative acts of agreement.
Why, then, would a consumer-facing business obscure mandatory arbitration provisions and class action waivers in its internet contracts? The Supreme Court has essentially granted web-based businesses carte blanche to put their customers on terms, and the businesses probably don’t fear losing sales due to full disclosure. After all, the premise underlying a contract of adhesion is that the other party will sign anything. Studies have shown that most consumers do not bother to read sellers’ terms and conditions, even when semi-forced to do so in Scrollwrap and Sign-In Wrap contracts. Prominent disclosure coupled with multiple clicks of consumer assent is the safest legal course of action.
Despite all this, consumers facing companies continue to engage in what I have previously termed stealth contracting for arbitration,  i.e., burying arbitration and waiver provisions in fine print that is located many screens away from the homepage. Two recent Federal Courts of Appeal cases, both involving Uber, illustrate the risk a company runs when it settles for anything less than a strikingly prominent disclosure of what will happen in the event of a dispute.
In addition to being spatially coupled with the mechanism for manifesting assent—i.e., the register button—the notice is temporally coupled…[N]otice of the Terms of Service is provided simultaneously to enrollment, thereby connecting the contractual terms to the services to which they apply. We think a reasonable smartphone user would understand that the terms were connected to the creation of a user account.
The Second Circuit’s opinion in Meyer was, at the time it was issued, the most recent addition to an unbroken string of decisions enforcing Uber’s arbitration and waiver provisions. This record of success might lead an alert reader (such as a general counsel) to conclude that Uber’s processes and procedures constitute a model that consumer-facing businesses can imitate to ensure that their customers won’t see the inside of a courtroom. However, the reader would be wrong - - at least in the First Circuit, with jurisdiction covering New England and Puerto Rico.
How does one reconcile the two cases? The First Circuit did not acknowledge the Second Circuit’s contrary holding in Myer v. Uber, even though the First Circuit’s opinion was issued approximately nine months after the Second Circuit’s, and the parties had briefed Meyer extensively.
One obvious possible answer is choice of law. The First Circuit applied Massachusetts law, whereas the Second Circuit applied California law. However, the reasonable notice tests applied by the two courts don’t seem meaningfully different, and the Second Circuit observed that New York and California law are essentially the same. Presumably New York and Massachusetts common law on contract formation are also nearly identical.
Another possible explanation lies in the smartphones involved in each case. The plaintiffs in Cullinane accessed the Uber app through iPhones, while the Meyer plaintiffs used Android devices. The screen shots reproduced in each opinion show that the smartphones displayed the Uber app in different ways. Specifically, the Android presentation had a white background while the iPhone version had a dark background. While the First Circuit commented on the difficulty of reading text against the dark background,  its decision really centered on the fact that Uber’s business-related text was more prominent than its legal-related text.
Uber’s executives undoubtedly saw more value in promoting the app’s business purpose (facilitating use of the ride hailing app and getting paid for doing so) than they did in notifying customers of what will happen in the event of a dispute. After all, businesses are organized and operated to make a profit. Monetizing a web site can be slowed if the legal tail is allowed to wag the business dog.
However, emphasizing legal disclosures over business/finance instructions may be the price a business has to pay to deny its customers access to court. The Frist Circuit’s decision can be understood best as reflecting a general unease over mandatory arbitration provisions and class action waivers imposed on an unsophisticated public. While the Supreme Court repeatedly has promoted arbitration, state contract law provides a way for lower courts to slow down (and occasionally derail) the speeding train.
 See Direct TV, Inc. v. Imburgia, 136 U.S. 463, 468 (2015) AT&T Mobility, LLC v. Concepion, 563 U.S. 333, 346-52 (2011); Stolt-Nielsen, S.A. v. Animal-Feeds Int’l Corp., 559 U.S. 662, 681-86 (2010); Mandatory Arbitration at 2.
 Meyer v. Kalanick, 200 F. Supp.3d 408, 415 (S.D.N.Y. 2016), vacated sub nom, Meyer v. Uber Technologies, Inc., 868 F. 3d 66 (2d. Cir. 2017); Arbitration Update at 2.
 Meyer v. Uber, 868 F.3d at 77.
 Meyer v. Uber, 868 F. 3d at 74.
 Compare id. at 81-82 with Cullinane v. Uber, 893 F. 3d at 57-58.
 Cullinane v. Uber, 893 F. 3d at 63-64.
*Walter D. Kelley Jr. is a partner in the Washington, D.C. office, and a former United States District Judge for the Eastern District of Virginia.

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