On Jan. 4, the Massachusetts Supreme Judicial Court issued a ruling in Kauders v. Uber Technologies Inc. that has important implications for the enforceability of online and/or app contracts, and the arbitration agreements included in them.[1]

In short, the court concluded that Uber's terms and conditions did not constitute a contract with the plaintiffs, because the app's registration process did not provide users with reasonable notice of the terms and conditions, and did not obtain a clear manifestation of assent to the terms.

In doing so, the court analyzed the features of the Uber app that undercut contract formation, and commented on features that might have worked better. This ruling seems likely to become a notable addition to the burgeoning body of case law addressing how contracts can be formed over the internet.

Background

The plaintiff, Christopher Kauders, registered as a rider with Uber using its app. After several Uber drivers refused rides to Kauders, who is blind and relies on a guide dog, he filed suit against Uber in 2016, alleging violations of a state antidiscrimination law.[2]

Uber filed a motion to compel arbitration, on the basis of an arbitration clause found within its app's terms and conditions. Kauders opposed the motion, arguing that the terms and conditions of Uber's app were not a binding contract. The trial court granted the motion, and arbitration concluded in Uber's favor on June 4, 2018.

However, when Uber moved to confirm its arbitration award, Kauders again raised the contract formation issue in a motion to reconsider, and the trial court reversed its earlier decision, citing a recent decision in which the U.S. Court of Appeals for the First Circuit decided that Uber's registration process did not create an enforceable contract.[3]

Uber appealed, and the Massachusetts Supreme Judicial Court assumed jurisdiction.

The Decision

After addressing two procedural questions,[4] the court reached the merits of the appeal, holding Uber's terms and conditions did not constitute a binding contract, because Uber's interface "did not provide reasonable notice ... of the terms and conditions" or "obtain a clear manifestation of assent," even though "both ... could have been easily achieved."

While acknowledging that federal policy favors arbitration agreements, the court stated that policy considerations did not override "the principle that a court may submit to arbitration only those disputes ... that the parties have agreed to submit." As a result, the court applied basic contract formation principles to online and/or app contract formation, just as it would to regular contracts, examining whether the offeror had provided reasonable notice and obtained clear assent.

The court concluded that Uber had not provided Kauders with reasonable notice under either an actual notice or totality of the circumstances test. The terms and conditions failed the actual notice test because Uber did not provide any evidence of actual notice — which occurs where the user is shown to have reviewed or otherwise interacted with the terms before agreeing to them.

Uber also failed to establish that the user had been given reasonable notice of the terms and conditions in the context of the totality of the circumstances. The factors assessed in this test include the form of the contract, the size and nature of the transaction, and the design and content of the interface.

The court found that Uber failed to provide reasonable notice because the presentation of its terms and conditions had multiple shortcomings.

First, Uber's particular terms and conditions were not at all obvious to users. Rather, they included near-complete releases from liability and other terms highly favorable to Uber, without any obvious notice to consumers that these important terms lurked in the terms and conditions.

Second, the interface did not require any user interaction. Though the terms and conditions were linked on the last page of Uber's registration interface, the user was not required to click the link or otherwise view them, or to click any box specifically confirming acceptance of those terms. Rather, the user simply had to enter his payment method information to enable him to click the final button, labeled "Done."

Third, the choice to label the final button "Done," rather than "I agree," prevented the user from drawing any direct or unambiguous connection between the action of clicking the button and acceptance of Uber's terms.

Fourth, the overall layout minimized and masked the disclosure of the terms and conditions. While Uber had included a statement effectively asserting that, by creating an Uber account, users agreed to the company's terms and conditions and privacy policy, it had formatted the part that described the implications of creating an account in a less noticeable text style.

It had also designed each page of the registration process so that the user was asked to focus on and fill in information in the top part of each page, but it placed the terms and conditions disclosure on the bottom of the last page, where it might not even be seen, depending on what payment method a user chose. The title of the last page also focused exclusively on payment, without any mention of the terms and conditions.

Fifth, Uber's interface required the user to click twice to view the terms and conditions — the first link was to a page where the terms and conditions and privacy policy were separately linked, requiring the user to click again to access those terms.

Sixth, the court noted that Uber had added insult to injury by actively choosing this non-user-friendly interface, comparing it very unfavorably to the interface Uber offered those registering as drivers rather than riders — a much clearer interface that required user interaction with the terms and conditions and an expression of assent.

Since Uber failed the notice requirement, the court found that no contract had been formed. It went on to explain that Uber had also failed the manifest assent requirement.

The court distinguished regularly enforced clickwrap agreements — which obtain express affirmative assent from a user, by requiring him to check a box or take some other physical action assenting to the terms — from generally not enforced browsewrap agreements — where a site's terms and conditions of use are posted as a hyperlink available to the user, but the user is not required to interact with them in any way.

The court explained that, particularly when users are interacting with a site or app for the purpose of short, low-cost transactions, they may not realize the company is implying their consent to a contract, unless they are asked to take some "action comparable to the solemnity of physically signing a written contract." In sum, the court came close to categorically condemning browsewrap agreements.

Implications

With this ruling, the Massachusetts Supreme Judicial Court joined a growing body of courts that have declined to enforce browsewrap agreements, including the First Circuit, as well as the U.S. Court of Appeals for the Second Circuit, the U.S. Court of Appeals for the Seventh Circuit and the U.S. Court of Appeals for the Ninth Circuit.

The Kauders decision relied directly on the First Circuit's 2018 decision in Cullinane v. Uber Technologies Inc., which refused to find an enforceable contract based on an identical registration process. Additionally, in 2019, the Ninth Circuit refused to enforce an arbitration agreement within a browsewrap agreement buried in a mobile casino app, using the same two-pronged analysis.[5]

The decision built on another Ninth Circuit case from 2014, Nguyen v. Barnes & Noble Inc.[6] Noting the "courts' traditional reluctance to enforce browsewrap agreements against individual consumers," the Ninth Circuit held:

[W]here a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on — without more — is insufficient to give rise to constructive notice.

A California court of appeals followed Nguyen in 2016,[7] and the Second Circuit reached a similar decision in 2010.[8]

The Seventh Circuit has gone even further, refusing to enforce a website's clickwrap agreement in Sgouros v. TransUnion Corp. Even though TransUnion had included scroll-through terms and a button reading "I Accept," the button and disclosure referred only to TransUnion's ability to obtain personal information, and did not mention the contractual terms and conditions or the arbitration clause, leaving ambiguity as to what exactly users were accepting.

Kauders also offers practical guidance to businesses that want to ensure their online agreements will be enforced by courts. Companies designing their websites and apps may wish to consider:

• Ensuring consumers view the terms and conditions, perhaps by a scroll box or by requiring consumers to click the terms and conditions link to advance past the screen with the hyperlink;
• Short of requiring consumers to view the terms, minimizing the number of actions a user must take to view the terms, such as directly linking the terms and conditions rather than taking the user to an intermediate page;
• Making the link and statement of implied assent to the terms and conditions conspicuous, perhaps by placing them on their own page with a specific heading, or at least using bold and consistent fonts;
• Requiring users to check a box or click a button clearly stating that they "agree" to the terms and conditions; and
• Giving notice at the button of the presence of important terms and conditions.

In Kauders, the court emphasized that the interface of the app that Uber used for its drivers contained several of these techniques, including requiring the user to click "Yes, I agree" twice after being given an opportunity to view the terms and conditions within the app, and in at least some cases, giving users several months to review and accept the terms and conditions.

Courts have sent a clear and consistent message: Online and/or app terms and conditions will not be enforced without reasonable notice and manifest assent. This trend implicates a broad variety of agreements beyond arbitration clauses, including class action waivers, releases or limits on liability, and privacy rights.

Moving forward, companies can expect to see courts continue to enforce this message rigorously in favor of individual users — and would do well to take to steps to ensure that their agreements will stand up in court.

[1] Kauders v. Uber Technologies Inc., 486 Mass. 557 (Jan. 4, 2021).

[2] Mass. Gen. L. ch. 272 § 98A.

[3] Cullinane v. Uber Technologies Inc., 893 F.3d 53 (1st Cir. 2018).

[4] As an initial matter, the court also held that the issue of arbitrability had been preserved for appellate review, and invoked principles of judicial economy to address the merits, although it held that the judge below had abused his discretion in granting the motion for reconsideration, and should have confirmed the arbitration award while ruling that the issue of arbitrability was preserved. This article focuses on the contract formation implications of the Kauders decision, but those interested in the procedural aspects can review the court's opinion, 486 Mass. at 565–70.

[5] Wilson v. Huuuge Inc., No. 18-36017, 2019 U.S. App. LEXIS 37952 (9th Cir. Dec. 20, 2019); see also Troy Jenkins & Alan Wingfield, A Lost Gamble on Enforcement of Electronic Terms and Conditions in a Browsewrap Agreement, Dec. 27, 2019, https://www.consumerfinancialserviceslawmonitor.com/2019/12/a-lost-gamble-on-enforcement-of-electronic-terms-and-conditions-in-a-browsewrap-agreement/.

[6] 763 F.3d 1171 (9th Cir. 2014).

[7] Long v. Provide Commerce Inc., 245 Cal. App. 4th 855 (2016).

[8] Hines v. Overstock.com Inc., 380 Fed. App'x 22, 2010 WL 2203030 (2d Cir. 2010).

Published in Law360 on January 25, 2021. Reprinted here with permission