Column: An appeals court just handed Uber a huge victory over its passengers

Travis Kalanick: No longer Uber's CEO, but still hiding behind the company's arbitration clause.
(Will Oliver / EPA)

For a brief, shining moment, a federal judge applied the principle of equality to Uber’s dealings with its passengers. The judge was Jed S. Rakoff of U.S. district court in New York, who in a price-fixing lawsuit last year overturned an obscure provision of the company’s customer agreement that required all disputes to be resolved by an arbitrator and barred class-action complaints.

Uber can breathe easier now, because that moment is over. On Friday, a federal appeals court overruled Rakoff and reinstated the arbitration provision.

Even though Spencer Meyer, the customer who brought the lawsuit, said he hadn’t seen the arbitration language when he set up his Uber account, the appeals court said he could have read it if he wanted to. It was right there, lurking within a “terms and conditions” page hyperlinked on his smartphone. Once he clicked the “I agree” button to set up his account, however, he was sunk, because the customer agreement incorporated the arbitration mandate whether he agreed to it or not.


The creators of Uber’s registration screen hoped the eye would be drawn seamlessly to the credit card... buttons instead of being distracted by the formalitie

— federal Judge Jed S. Rakoff

“Courts around the country have recognized that [an] electronic ‘click’ can suffice to signify the acceptance of a contract,” the appellate judges ruled.

You can count that as another example of a court that doesn’t have a clue about the real world.

Meyer’s lawsuit alleges that Uber and its former CEO, Travis Kalanick, were engaged in illegally price-fixing Uber fares. (Kalanick was ousted as CEO earlier this year, but he’s still on the Uber board and fighting to stay involved.) After Meyer filed his lawsuit seeking class-action certification in 2015, Kalanick and Uber moved to throw out the lawsuit and force Meyer into arbitration, citing the arbitration clause.

That’s when Rakoff cried foul.

It’s proper to note that Rakoff has been a long-term critic of mandatory arbitration. In an article for the New York Review of Books last November, he listed it as one of the chief factors denying ordinary Americans their day in court. Arbitration provisions, he wrote, were almost always the result of “one-sided contracts imposed on weaker parties who have no realistic ability to negotiate, let alone contest the terms.”

Among those who routinely and implicitly agree to arbitration clauses are employees, bank customers, software buyers and physician and hospital patients. These clauses put all of them at a disadvantage, because arbitrators can set their own standards for evidence and don’t have to set forth the reasoning behind their decisions. The arbitration clauses typically forbid punitive damages and class-action complaints. And although the clauses may allow both sides to share in selecting the arbitrator, these rump judges know where their bread is buttered; any given consumer may land in arbitration once in his or her life, but a company is a return client.

Rakoff observed that federal courts have favored arbitration for decades as a docket-paring device, but he pinpointed a 2011 Supreme Court decision involving AT&T wireless service, written by Justice Antonin Scalia for a pro-business majority, as throwing the door open even wider to the abridgment of Americans’ constitutional right to trial by jury.

He’s not the only skeptic. In 2014, President Obama decreed by executive order that complaints against federal contractors about workplace discrimination or abuse could be arbitrated only with the consent of the parties after the disputes arise. Surprise arbitration clauses, in other words, were out. The rule, naturally, is in the crosshairs of the Trump administration.

In his ruling against Uber in July 2016, Rakoff took aim at the “legal fiction,” bizarrely common among his fellow jurists, that ordinary consumers have waived their right to a jury trial “because they supposedly agreed to lengthy “terms and conditions” they often weren’t even aware of.

The Uber situation, he found, was a perfect example. He applied a microscope to the Uber account registration process. This began on Meyer’s Samsung smartphone with a couple of screens that invited the customer to enter their name, a password, their address and their credit card information.

At the bottom of the second page was a hyperlink to Uber’s “Terms of Service & Privacy Policy,” but that didn’t need to be clicked on to complete the account registration. Even if one does, the user would simply be taken to yet another page requiring a further click to access the policies themselves.

And what were they like? In Rakoff’s words, “nine pages of highly legalistic language that no ordinary consumer could be expected to understand.” To Rakoff, the presentation of the arbitration clause indicated that “the creators of Uber’s registration screen hoped 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.”

Who could possibly doubt that? The average consumer, having once tried to navigate any of these “agreements,” is all but conditioned to skip them, click on “I agree” without a second thought, and complete the transaction. When I tried to access Uber’s terms, I found them to be 6,000 words of legalese, with the arbitration clause a 1,000-word block buried deep within the whole.

On a smartphone, it’s practically impossible to read them, much less ponder them, as they come at least six or seven screens down. If there’s a way to print the entire agreement from an iPhone to give it serious consideration other than by grabbing it screen by screen, I couldn’t find it. The agreement is accessible on Uber’s website, but Uber’s entire business model is built around smartphone use, not the Web. Its pitch is that users will find it quick and easy to sign up, sign in and order a car; the hassle of digging out the arbitration agreement and reading it is exactly what it knows its target audience doesn’t want. And of course there’s no way to opt out of the arbitration clause, unless you don’t want an Uber account at all.

The appellate judges who examined Rakoff’s ruling seemed to be utterly oblivious to all this. Their conclusion, written by Appeals Judge Denny Chin, was that the arbitration clause was accessible enough. The hyperlink to the terms and conditions was on the same page as the account registration button — never mind that the terms and conditions themselves were at least two clicks away.

Chin pointed to a 2012 federal court ruling upholding click-through online agreements — which was itself based on a Supreme Court case upholding the fine print on the back of a Carnival Cruise Line ticket. “For those to whom the internet is an indispensable part of daily life,” the 2012 ruling held, “clicking the hyperlinked phrase is the twenty-first century equivalent of turning over the cruise ticket.” If you don’t read it, he said in effect, don’t come whining to us.

Is this enough? The appeals court essentially has given businesses in all walks of life the latitude to lard their terms and conditions with legal gibberish and hide them behind just enough click walls to discourage anyone from reading them. Consumer companies, doctors, hospitals, and employers know that almost no one reads these things, and that even if they do, they have no recourse if they want the merchandise or service, the medical treatment, or the job on offer.

There’s no technological obstacle, obviously, that would prevent Uber or any other service from posting, right on top of the registration page in big red letters: “IF YOU CLICK HERE, YOU GIVE UP YOUR RIGHT TO SUE US IN COURT.” There’s no reason why Congress shouldn’t mandate such disclosure. The only reason not to do so is to allow a business to conceal the truth. Why would any legislators or judges worth the name want to allow a business to mistreat its customers this way?

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