In a 5-2 decision, New York State’s high court this week upheld Uber’s “clickwrap” agreement requiring arbitration of all disputes in a case of a passenger who was injured by another vehicle after exiting an Uber car.
The woman had argued that Uber was misleading about whether its agreement applied to her suit against Uber that she had filed two months before Uber sent out its updated terms of use in a mass email. Uber claims it did not learn of her complaint in a timely manner because of slow mail processing at its New York office during the Covid pandemic. She maintained that Uber knew either of her court action or that she was represented by counsel at the time she assented to Uber’s updated terms with clicks on her smartphone.
But the New York Court of Appeals found that not only is Uber’s clickwrap document a valid contract requiring her to arbitrate her injury claims, it also requires questions about whether the agreement itself was misleading to be settled in arbitration.
In upholding the Uber agreement, the high court upheld lower New York courts that ruled against the plaintiff and joined a number of state and federal courts across the country that have found web-based contracts satisfy “traditional contract formation law.” Other states include California, Connecticut, Illinois, and Massachusetts.
The opinion by Judge Anthony Cannataro states:
“We conclude that the “clickwrap” process Uber used to solicit plaintiff’s assent resulted in the formation of an agreement to arbitrate. Moreover, a key term of that agreement expressly delegates to an arbitrator the exclusive authority to resolve all disputes as to the applicability and enforceability of the agreement. Because plaintiff has not established that the delegation provision is invalid, her challenges to the portions of the agreement that purportedly apply to pending legal claims were properly directed to the arbitrator.”
Plaintiff Lawsuit
In July 2020, plaintiff Emily Wu requested a car using Uber’s software application on her smartphone. An Uber-affiliated driver took her to an intersection in Brooklyn where, according to the complaint, the driver discharged her in the middle of the roadway. Upon exiting the car, Wu was almost immediately struck by another vehicle, sustaining injuries.
Wu brought a personal injury action in November 2020 pleading a negligence claim against Uber on a respondeat superior theory.
Sometime after January 2021 a mass email from Uber alerted her to updated terms of use that she would need to accept to continue to use Uber services. When she later accessed Uber on her smartphone, she encountered a popup window announcing the new terms and a warning in bold, all-capitalized text that the arbitration agreement required her to resolve all disputes with Uber on an individual basis and, with limited exceptions, through final and binding arbitration.
Another section of the January 2021 terms set forth the arbitration agreement itself. This section said it expressly encompasses “any” personal injury “claim” that accrued prior to acceptance of the updated terms, “without exception for claims already commenced and pending in court.”
The Court of Appeals noted that contract formation is governed by an “objective rather than a subjective standard” and there is no requirement that a party have correctly understood—or even reviewed—the terms for their acceptance to be effective. Instead, courts ask whether the offeree was put on inquiry notice of the terms.
“An offeree is placed on inquiry notice of contractual terms when those terms are clearly and conspicuously presented to the offeree as a contract and made available for review. It then becomes the responsibility of the offeree, before manifesting assent, to “inquire” further by reading and assessing the proposed terms to determine whether they are acceptable. Under well-established law, a person who accepts a written contract without first undertaking this review generally bears the risk that the agreement may contain provisions they do not like or expect,” the court explained.
Wrongful Conduct
The high court acknowledged that sometimes there are instances where an offeree’s failure to review or appreciate terms arises from the other party’s wrongful conduct. But the court said the general rule in such cases is that the elements of offer and acceptance are still satisfied, although the “resulting contract may be voidable” due to the wrongful conduct.
The court continued, noting that under both the Federal Arbitration Act and New York law, parties may agree to have an arbitrator decide not only the merits of a dispute, but also “gateway questions of arbitrability,” such as whether their agreement to arbitrate “covers a particular controversy or whether one party should be relieved from the agreement due to the wrongful conduct of another party.”
The majority of the court concluded that “there is no sound reason” why these contract principles should not be “applied to web-based contracts in the same manner as they have long been applied to traditional written contracts.”
It was a split decision. The opinion by Judge Cannataro, was joined by Judges Michael Garcia, Madeline Singas, Shirley Troutman and Caitlin Halligan. Judge Jenny Rivera dissented in an opinion in which Chief Judge Rowan D. Wilson concurred.
Dissent
In dissent, Judge Rivera argued that the terms should not be applied to already-filed lawsuits.
Rivera noted that Uber sent millions of its customers a hyperlink to its updated terms of use with the mandatory arbitration provision months after Wu was injured and filed her action. Uber never sent the updated terms to Wu’s counsel and Wu contends she did not intend and did not agree by these updated terms to resolve her already-filed lawsuit through binding arbitration. Thus, the dissent questions whether any “meeting of the minds” or agreement between the parties was ever concluded.
“The majority acknowledges that contract formation in New York requires inquiry or actual notice of all material terms, but fails to recognize that mandated removal from court to arbitration of an already filed lawsuit is a material term for these parties that is separate and distinct from a general arbitration provision for future suits. Because plaintiff was not on actual or inquiry notice of such a consequential term, no contract was formed here, at least as to relevant litigation-related terms,” Rivera writes.
The dissenting opinion maintains that under traditional contract principles and precedent, the plaintiff—or any reasonable person—would not have understood the update encompassed their preexisting lawsuit. Rather, a reasonable person would understand the update applies only if the customer has not yet acted on their rights to sue.
Furthermore, Uber’s update uses prospective language and sets its effective date months after circulation. In the usual course, Uber’s counsel would have had to seek plaintiff’s consent to remove the case from court to arbitration, the dissent adds.
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