Judge Shreds Uber; Says Company Can’t Prove Riders Are Giving Up Right To Sue

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Judge Shreds Uber; Says Company Can’t Prove Riders Are Giving Up Right To Sue

Uber, like a large and growing number of companies, has a clause in its terms of use that prohibits customers from suing the company or joining together in any sort of class action against the ride-hailing service. However, a federal judge recently scolded Uber over this contractual gamesmanship and deemed this particular clause unenforceable because the company can’t prove that users actually agreed to these terms.

Last December, an Uber user filed a potential class-action antitrust lawsuit against Uber founder and CEO Travis Kalanick over the way in which his company sets prices. After previous unsuccessful efforts to have the case dismissed, Kalanick successfully had Uber brought in as a co-defendant in the case. Then Uber asked the court to force the lawsuit into binding arbitration as required by the company’s terms of use.

That arbitration clause not only allows Uber to force the customer out of the courtroom and into private arbitration — where damages are limited, no precedents are set, and the arbitrator’s decision is final even if a glaring error is made — but also bars multiple customers from entering arbitration together as a class action. Thus, every individual Uber user would need to go in to arbitration on his/her own.

This is especially problematic for antitrust actions, which can be incredibly expensive to successfully mount. In order to make such a case worthwhile, you often need a large class of plaintiffs with the potential for a significant settlement or judgment against the defendant. One person bringing an antitrust case through arbitration is almost doomed to failure.

However, a divided U.S. Supreme Court said in 2013 in American Express v. Italian Colors that you can’t make this sort of “effective vindication” argument to get out of a class action ban that you agreed to.

So why did the judge in the Uber case say the arbitration clause can’t be invoked in this case?

In his order [PDF] denying Uber’s request to compel arbitration, U.S. District Court judge Ned Rakoff questioned whether Uber customers are actually agreeing to the company’s terms at all.

“Plaintiff denies that such an agreement was ever formed, on the ground that when he registered to use Uber, he did not have adequate notice of the existence of an arbitration agreement,” notes the judge. “The question of whether an arbitration agreement existed is for the Court and not an arbitrator to decide.”

Uber argued that the plaintiff admitted in his own complaint that a new Uber user must agree to the company’s terms of service in order to hail rides. However, the judge countered that Uber was not even making new customers go through the charade of clicking a “I agree” button.

Instead, as shown in the screengrab (taken from the judge’s order) to the left, the Uber app merely states that “By creating an Uber account, you agree to” the terms of service and privacy policy.

In denying Uber’s request to compel arbitration, Rakoff acknowledges that the Federal Arbitration Act says contract clauses can be used to force disputing parties into arbitration, but he also raises several important questions about the applicability of that 1925 law to an age where consumers may not even know they are signing contracts.

“[W]hat about situations where the consumer is not even asked to affirmatively indicate her consent?” writes the judge. “What about situations in which the consumer, by the mere act of accessing a service, is allegedly consenting to an entire lengthy set of terms and conditions? And what about the situation where the only indication to the consumer that she is so consenting appears in print so small that an ordinary consumer, if she could read it at all, would hardly notice it?”

With regard to the Uber app, Rakoff notes that there is no requirement for the new user to even check off a box that they read the terms of service; one could easily finalize their registration without reading, or even knowing about, these terms — let alone the restrictive arbitration clause.

Speaking of which, Rakoff points out that — unlike some companies that now reference the existence of an arbitration clause at the top of their terms of service — Uber’s arbitration clause is seven pages into the nine-page agreement full of “highly legalistic language that no ordinary consumer could be expected to understand.”

Given the small, inconspicuous size of the “By agreeing to…” language — especially relative to the other fields on that screen — the judge found that “it is hard to escape the inference that the creators of Uber’s registration screen hoped that the eye would be drawn seamlessly to the credit card information and register buttons instead of being distracted by the formalities in the language below.”

Since Uber can not demonstrate that the plaintiff had any knowledge that he was agreeing to the arbitration terms, or show that it did enough to even draw the plaintiff’s attention to those terms, the court denied its motion to compel arbitration.