This essay discusses legal developments involving digital and other wrap contracts.1 Last year’s essay explained that courts were continuing to articulate the standard of reasonable or constructive notice and manifestation of assent but that their application of the standard was evolving.2 This year’s cases include a trio in Part II involving Uber which, read together, provide further clarity regarding what presentation features are likely to result in a finding of reasonable notice and what features when absent are likely to result in a finding that the notice was not conspicuous and therefore not effective. The trio of Uber cases also reflect a growing trend among some courts to require notice of specific terms in order for those terms to be enforceable.
The next cases, in Part III, highlight the problems created by multiple versions of contracts. Businesses often use more than one version of a contract and their contracts may be delivered in more than one format. A business may, for example, use a digital contract on its website and then subsequently send a paper contract, or it may mail a paper contract that references the terms of a digital contract. Two cases involving terms accompanying issuance of credit cards serve as a reminder that companies should keep good records of their contracts and their communications with customers. Multiple versions of contracts and communications that reference them may make it harder to prove that the customer actually received a particular agreement and agreed to the disputed term.
The cases in Part IV involve a company’s obligation to pay hefty arbitration filling fees when numerous parties subject to the company’s mandatory arbitration clause exercised their right to demand arbitration. These cases serve as a reminder that wrap contracts, like all contracts, are mutual in nature; their terms may favor the drafter but they may also be enforced against the drafter.
Finally, a note about the images of the screenshots in this essay. The screen-shots examined by the court had certain elements in color. Due to the constraints of printing capabilities at the The Business Lawyer, the images published in this essay are in black and white only. Although the essay notes where the original images feature colors, the visual impact made by the image which was often critical to the court’s analysis cannot be conveyed by this explanatory text. Fortunately, the digital version of this essay contains links to the images with the color elements on the The Business Lawyer website here: https://www.americanbar.org/groups/business_law/publications/the_business_lawyer/. These images will more accurately convey what courts considered when evaluating whether notice was reasonable.
In Theodore v. Uber Technologies, Inc.,3 the plaintiff sued Uber for not providing wheelchair-accessible vehicles to all areas of the Commonwealth of Massachusetts in violation of Title III of the Americans with Disabilities Act.4 Uber moved to compel arbitration and Theodore contended that there was no valid agreement to arbitrate. The court noted that Massachusetts courts follow a two-step inquiry to determine the enforceability of online agreements.5 First, the court determines whether the contract terms were “reasonably communicated” to the plaintiff.6 Second, it evaluates whether terms were accepted and, if so, the manner of acceptance.7
In determining whether the terms were reasonably communicated the court looked at whether they were “sufficiently conspicuous”8 and turned to the Uniform Commercial Code for the definition of conspicuous as “written, displayed or presented [such] that a reasonable person against which it is to operate ought to have noticed it.”9 The court noted that relevant characteristics include “larger and contrasting font, the use of headings in capitals, or somehow setting off the term from the surrounding text by the use of symbols or other marks.”10 The court further explained that, where the terms were visible only after clicking on a hyperlink, there were “additional considerations” which required the court to examine the language used to notify users of the availability of the terms, the prominence of the link, and “any other information” relevant to determining whether the terms were reasonably communicated.11 The court noted that the First Circuit in Cullinane v. Uber Technologies, Inc.12 had held that Uber did not “reasonably communicate” the terms under Massachusetts law, and proceeded to consider whether the differences between the sign-up screen presented to Theodore and that at issue in Cullinane called for a different result.13 First, the user in Cullinane was not required to click the link to the Terms of Service in order to proceed.14 (See Fig. 1.) In addition, the link to the Terms and Conditions in Cullinane was in a gray rectangular box with white text similar to other terms, so that the hyperlink was “not accentuated by comparison,” and the text was “not the largest font on the page.”15 Furthermore, the text stating that creating the account would bind the user was “even less conspicuous” than the hyperlink.16
Later that same month, a different judge in the same federal district in Massachusetts provided even more clarity in its “micro” level analysis in a case involving an Uber driver seeking to enjoin Uber from misclassifying its drivers. In Capriole v. Uber Technologies, Inc.,20 as in Theodore, the court examined the specific details of Uber’s presentation of the terms and compared them to those in Cullinane, noting that there were “critical differences” between the two presentations.21 Capriole was presented with a screen that stated “TO GO ONLINE, YOU MUST REVIEW ALL THE DOCUMENTS BELOW AND AGREE TO THE CONTRACTS BELOW.” Below that notification were hyperlinks to two documents, including the agreement. The court noted that in order to continue, the user had to click a “large blue button” that said, “YES, I AGREE.” After clicking the button, a pop-out box required Capriole to “PLEASE CONFIRM THAT YOU HAVE REVIEWED ALL THE DOCUMENTS AND AGREE TO ALL THE NEW CONTRACTS” by clicking “Yes I Agree.”22 The court, denying the plaintiff ’s motion, stated that “Uber may have been better served by using a blue hyperlink” but that the other aspects of the presentation conformed with precedent regarding the definition of reasonable communication.23 It proceeded to summarize the relevant factors:
Uber provided notice of the existence of the Agreement using capital letters, gave the opportunity to Capriole to read the Agreement prior to assent, and did not allow Capriole to move forward with using the App until Capriole agreed, twice, that he had reviewed the Agreement and agreed to the contract. Furthermore, unlike in Cullinane where there was no opportunity for customers to affirmatively accept the agreement, Uber has provided proof that Capriole clicked to agree.24
In another case involving Uber, a Pennsylvania court addressed the question of contract formation in the online context. In Kemenosh v. Uber Technologies, Inc.,25 the plaintiff sued Uber after sustaining injuries when the driver of a car she procured through the Uber app ran a red light. Uber sought to compel arbitration pursuant to an arbitration clause in its Terms of Service. Kemenosh had used an iPhone to register for the Uber app.26 During the registration process Kemenosh was presented with a series of screens, including one containing a hyperlink to the Terms of Service.27 Uber asserted that Kemenosh would not have been able to register without going through the process.28 Kemenosh asserted that she did not see the terms of service hyperlink and did not click on any hyperlinks when she registered with Uber.29
The different conclusions reached by the courts in these three cases involving Uber (four, including Cullinane) may, at first, seem inconsistent. However, a closer examination reveals the emergence of a few principles and guidelines. First, terms accessible only via a hyperlink—often referred to as a multi-wrap or hybrid wrap—should be clearly labeled and marked so that the user’s intent to agree to terms is clearly and unambiguously expressed. Furthermore, conspicuousness of terms alone is not sufficient to establish reasonable notice. Rather, conspicuousness is one factor in determining assent. Finally, the reasonableness of notice depends upon the nature of the transaction because the parties may expect certain terms in some transactions but may not expect them in others. Term that are unexpected given the nature of the transaction require specific notice, and blanket assent to terms may not suffice to establish assent to these unexpected terms. In the two cases where the court found a lack of assent, the users were Uber riders. In the one case where the court found assent, the user was a driver. A court could conclude that the reasonable expectations of a rider regarding Uber’s terms differ from the reasonable expectations of an Uber driver. As the court in Kemenosh noted, an Uber rider using the app expects the terms will address the exchange of payment for transportation but a rider may not expect terms that are unnecessary to process the transaction. The transaction is discrete; despite the credit card information being retained by Uber, the user does not consider that it has a relationship with Uber that continues after the ride is over. Each ride is a distinct transaction. The transaction between a driver and Uber, on the other hand, is relational. Accordingly, a driver for Uber likely understands its interaction with Uber differently than a rider does, and might be more inclined to expect that legal terms, including arbitration, will govern their relationship.
In a case not involving Uber, Colgate v. JUUL Labs, Inc.,39 a federal district court in the Northern District of California determined that JUUL’s “sign-in” wrap agreement did not provide customers with notice of an arbitration agreement in JUUL’s Terms and Conditions. The court stated that “contracts cannot be formed on the basis of stealth drafting.”40 After some discussion of clickwrap and browsewrap agreements, which it referred to as the “two main types of contracts formed on the internet,” the court noted that some contracts are “a blend of the two,” including a type known as “sign-in wrap.”41 It explained that a “sign-in wrap” allows a user to sign up to use a service via the Internet and presents the user with a “signup screen” that “states that acceptance of a separate agreement is required before the user can access the service.”42 The court noted that plaintiffs did not have actual notice of the hyperlink to the Terms of Service and considered whether the website put them on inquiry notice.43 JUUL presented all but one of the plaintiffs with the following screen:
The court found that the hyperlink was not conspicuous enough to put the plaintiffs on inquiry notice as the hyperlink was “wholly indistinguishable from the surrounding text,” and it noted that users “cannot be reasonably expected to click on every word of the sentence in case one of them is actually a link.”44
In Babcock v. Neutron Holdings, Inc.,48 the court granted a motion to compel arbitration after concluding that, under California law, the user had inquiry notice of the User Agreement containing the arbitration clause. The plaintiff, Babcock, had lost control of a Lime e-scooter and suffered injuries. She sued Lime for negligence and Lime moved to compel arbitration under its User Agreement. The court discussed the steps required to rent a Lime e-scooter, which included downloading the Lime smartphone app and creating an account. The court noted that under California law, a user who lacks actual knowledge of a contract’s terms is bound if “a reasonably prudent user” would be put on “inquiry notice of the terms of the contract.”49 Inquiry notice turns on the “clarity and conspicuousness” of the terms, which “are a function of the design and content of the relevant interface.”50
The court determined that the Lime User Agreement fit into the “sign-in wrap” category because the user accepts by tapping “I Agree” before being permitted to use the service.51 The court found that the “blue boldface hyperlink” to the terms, which contained the arbitration clause, combined with the “unambiguous” warning that doing so means the user has “read and agreed to Lime’s User Agreement,” was conspicuous enough to put a reasonably prudent smart-phone user on inquiry notice of the arbitration provision.52 The opinion included a screenshot of the Lime App sign-up page.
The court noted that the words User Agreement were “in large black boldface font” and shown at the page’s center, larger than any other word on the page.53 The court noted that the “only full sentence on the entire sign-up page” explains the legal effect of tapping “I Agree,” and that only the words User Agreement and Privacy Note are in blue boldface font, signifying that they are hyperlinks. The court concluded:
Taken together, the large black boldface User Agreement title, the non-bold black User Agreement acknowledgement, the blue boldface User Agreement hyperlink, and the lime-green “I Agree” confirmation button create a user friendly display. The assortment of contrasting colors, and bold and non-bold fonts, combine with empty white space to visually separate each piece of information so that the user clearly understands that by tapping “I Agree,” he or she is agreeing to be bound by the User Agreement’s terms, which are readily accessible by tapping on the blue boldface hyperlink.54
The cases in this Part II illustrate that courts continue to grapple with the meaning of reasonable notice in the online context but there are some noticeable patterns. Increasingly, courts are incorporating screenshots into their opinions and engaging in micro-level analysis that depends not simply on the color of hyperlinks, but the color of the text and other design elements,55 the placement of hyperlinks, the text used to attract the user’s attention, and whether there is specific notice of terms that would otherwise be unexpected. The trend of cases is to require more than a click on a button adjacent to a hyperlink that simply states agreement to terms of service. The button itself should indicate the words of agreement, and the user should be required to click upon the button. Although it is difficult to predict what any individual court may decide, generally, the words that expressly indicate an intent to enter into a contract, such as “I Agree” or “Agree,” will be a prerequisite to online formation. In addition, the Agree button should be conspicuous, meaning it should be readily identifiable and stand out from the other graphics and text on the page without scrolling. Furthermore, there should be specific notice of any otherwise unexpected terms. Finally, otherwise unexpected terms should be conspicuous at the time the user is asked to manifest consent, rather than being accessible only by clicking the hyperlink.
Continuing the trend observed last year, courts are requiring companies to provide evidence that the recipient received notice of the specific version of the agreement that the company is seeking to enforce and not just evidence that its standard terms and conditions contained a particular term on a given date. The evidentiary burden combined with the evolving form of contracts is causing courts to tangle uncomfortably with terminology. Furthermore, the frequency with which companies are revising their agreements and the different ways that they obtain consent often create uncertainty regarding whether assent to a particular term was obtained.
Card v. Wells Fargo Bank, N.A.56 demonstrates the potential pitfalls of using multiple forms and formats for contracting which may mislead a company into thinking consent to a particular agreement was in fact obtained. Wells Fargo approved the plaintiff ’s online application and claimed that it mailed a copy of the Customer Agreement which contained an arbitration clause to the plaintiff on several occasions.57 The plaintiff, in his declarations, stated that he did not recall receiving any arbitration agreement from Wells Fargo.58 Wells Fargo had a “permanent message system” that kept track of account activity, including the date of plaintiff ’s online application and the date of the mailings but the court found this insufficient as evidence.59
The court then discussed the online credit card application. Tangling with wrap terminology, it concluded that because the agreements were “merely linked, it was not a pure clickwrap agreement, although because there was purportedly an acknowledgement, it also is not a pure browsewrap agreement.”60 The court stated that even if it found that the plaintiff had clicked on the acknowledgement of receipt of the hyperlinked agreements and disclosures, it might still require additional information regarding the characteristics of the website, such as the nature and the placement of hyperlinks.61 It concluded that there was insufficient evidence of a valid arbitration agreement.62
In Mason v. Midland Funding LLC,63 the Eleventh Circuit stated that clickwrap agreements are enforceable only if the drafter “can demonstrate that the alleged acceptor, in fact, either digitally or by paper, received a copy of the agreement at issue.”64 The plaintiffs, Carter Mason and Anita Burnett, suing under the Fair Debt Collection Practices Act, applied online for a credit card, and then allegedly received their agreements in the mail. The defendants moved to dismiss, claiming that the plaintiffs were bound to arbitrate their claims because the online application required them to accept the terms and conditions, including an arbitration provision. The defendants also asserted that the plaintiffs were mailed a welcome packet that contained the agreement along with the credit card, which each plaintiff subsequently used.65
Applying Utah law, the court found that with respect to the plaintiff, Mason, the defendants “failed to connect the dots, with evidence, between Mason and an agreement to arbitrate.”66 First, the defendants provided only a declaration which failed to establish “what terms Mason actually saw” when he applied online.67 Furthermore, only the first two paragraphs of the terms and conditions were attached.68 The court stated that although the Terms and Conditions appeared to be hyperlinked, there was “no information about the contents of the linked page” and the terms were not on the same page as the application form.69 Accordingly, these “evidentiary gaps” meant the defendants failed to prove Mason was provided a copy of the arbitration agreement via the online application.70
Arbitration clauses have become ubiquitous in consumer form contracts in the past decade and many businesses believe that they are more efficient and cost-effective than trials. But as some businesses are starting to discover, arbitration is not without potentially significant costs, which became painfully clear to DoorDash when it tried to wiggle out of an arbitration clause that was contained in its own contract. In Abernathy v. DoorDash, Inc.,71 petitioners were 5,010 drivers for DoorDash who had signed declarations attesting to “click[ing] through” to Door Dash’s arbitration agreement.72 That provision stated that the parties agreed to arbitrate any claims with the American Arbitration Association (“AAA”). The AAA Commercial Arbitration Rules require individuals to each pay a filing fee of $300 and responding companies to pay a filing fee of $1,900.73 The petitioners claimed that they had been improperly classified as independent contractors rather than employees. They paid over $1.2 million in filing fees.74 DoorDash refused to pay the nearly $12 million in filing fees that the rules required it to pay, stating that it had “no obligation” to do so.75 The petitioners sued to compel arbitration, which the court granted with some stinging words for DoorDash:
The employer here, DoorDash, faced with having to actually honor its side of the bargain, now blanches at the cost of the filing fees it agreed to pay in the arbitration clause. No doubt, DoorDash never expected that so many would actually seek arbitration. Instead, in irony upon irony, DoorDash now wishes to resort to a class-wide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate. This hypocrisy will not be blessed, at least by this order.76
In Adams v. Postmates, Inc.,77 the defendant, Postmates, operated an online platform which facilitated food delivery by its couriers to customers ordering from participating restaurants. Couriers must execute Postmates’ Fleet Agreement, which classifies them as independent contractors and not employees of Postmates.78 The Fleet Agreement contained a mutual arbitration provision with a delegation clause.79 Petitioners were 5,257 couriers who submitted arbitration demands alleging that they have been misclassified as independent contractors in violation of the Fair Labor Standards Act.80 Postmates’ share of the arbitration filing fees was approximately $9.36 million, which it refused to pay, claiming that Petitioners’ arbitration demands were “improper.”81 The court, interpreting the plain meaning of the delegation clause, found that the parties were required to arbitrate their claims,82 although it left to the arbitrator the issue of whether Postmates was required to pay the arbitration fees.83
The past year’s cases demonstrate that courts are continuing to refine, on a micro-level, what details are required in order to meet the standard of conspicuousness and reasonable notice. These cases reinforce the importance of context and specific circumstances, and the absence of hard and fast rules. In applying the standard of reasonable notice and manifestation of consent courts assess whether a given notice is conspicuous enough to be enforceable and, further, whether the provision is presented in a way that demonstrates the contractual intent of the parties to be bound by that provision. In particular, the trend of cases demonstrates that the button indicating assent should be clearly labeled with the words “Agree” or “I Agree” rather than other words, such as “Register” or “Sign Up.” Adjacent language indicating agreement to terms accessible via a hyperlink may not be sufficient in the future to constitute assent online. Furthermore, courts continue to distinguish assent to general terms from assent to specific terms, finding that users do not assent to unexpected terms. Businesses are also learning that the convenience and efficiency of form contracts has downsides, and that they should not be lulled into treating wrap contracts as less significant than signed paper contracts simply because of their form or format.