By George Sitaras (Managing Partner) and Anubhav Khamroi (Associate).
Last week, on November 25, 2024, the New York Court of Appeals in a 5-2 split decision upheld the enforceability of an arbitration agreement (or at least parts of it) embedded within the fine print of Uber’s updated “terms of use” (which was presented to all users through a clickwrap process), in relation to a personal injury action which the plaintiff had commenced in court two months before she indicated her assent to Uber’s updated terms of use by means of a series of clicks on her smartphone.
As noted on several occasions by the US Supreme Court, whenever there are motions to compel or stay an arbitration, such cases primarily involve two questions –
(i) the ‘Who’ question (i.e., who decides whether the alleged claims are subject to the arbitration clause – the courts or an arbitrator), and
(ii) the ‘Which’ question (i.e., which claims, if any, must be referred to arbitration).
In the Emily v. Uber decision, the majority opinion solely dealt with the ‘Who’ question. Indeed, while this decision will have broad implications on how we interact with web-based and mobile applications going forward, this case is being interpreted in popular media to say more things than what the Court of Appeals in-fact penned down and therefore, we at S&A, have tried to dissect the key aspects of the opinion and would like to hear your thoughts and views on the case. As such, the majority opinion in Emily v. Uber is indeed interesting, not only for what it expressly says, but more so, for what it does not end up ruling upon.
OVERVIEW OF KEY FACTS:
- Emily Wu, who was struck by a car and sustained serious injuries when her Uber driver dropped her off at a busy intersection in Brooklyn, commenced a personal injury action against Uber in November 2020, primarily alleging a negligence claim based on the respondeat superior theory. Two months after the complaint was served through NY Secretary of State, Uber in January 2021, updated its “terms of use” for its customers and next time when Emily logged into the Uber app on her smartphone, she was presented with an in-app pop-up screen with the headline, “We’ve updated our terms”, with hyperlinks to the updated terms (the “Updated 2021 Uber Terms”). Toward the bottom of that screen was a “checkbox” placed besides a bolded text stating: “By checking the box, I have reviewed and agreed to the Terms of Use and acknowledge the Privacy Notice.”
- It is undisputed that Emily checked the box and clicked the “Confirm” option. On March 3, 2021, Emily moved for a default judgment against Uber based on Uber’s failure to respond to the summons and complaint within the time afforded under New York law. However, Uber finally responded on March 15, 2021, by raising an affirmative defense in its Answer that Emily had agreed to arbitrate her claims. Thereafter, on March 23, 2021, Uber sent a Notice of Intent to Arbitrate in accordance with CPLR 7503, citing the Updated 2021 Uber Terms.
KEY LANGUAGE IN UPDATED 2021 UBER TERMS:
- Section 2 of the Updated 2021 Uber Terms contains an immensely broad arbitration clause, expressly encompassing “any claim” against Uber, including not only personal injury claims but any claim arising from the customers’ “relationship with Uber”, and without any exceptions for claims which may have already accrued, or actions already commenced and sub judice in court:
“By agreeing to the Terms, you agree that you are required to resolve any claim that you may have against Uber on an individual basis in arbitration as set forth in this Arbitration Agreement…..
Except as expressly provided below in Section 2(b), you and Uber agree that any dispute, claim or controversy in any way arising out of or relating to (i) these Terms and prior versions of these Terms, or the existence, breach, termination, enforcement, interpretation, scope, waiver, or validity thereof, (ii) your access to or use of the Services at any time, (iii) incidents or accidents resulting in personal injury that you allege occurred in connection with your use of the Services, whether the dispute, claim or controversy occurred or accrued before or after the date you agreed to the Terms, or (iv) your relationship with Uber, will be settled by binding arbitration between you and Uber, and not in any court of law”. (emphasis added).
- Section 2 also provided for a delegation provision (i.e., a clause pursuant to which parties can agree to refer arbitrability questions to an arbitrator) granting an arbitrator the exclusive jurisdiction to have the final say on the threshold arbitrability issues raised by either party.
WHAT THE COURT IN-FACT HELD:
- The Court divided the case into two critical parts: (a) formation of a contract (i.e., were the Updated 2021 Uber Terms in fact agreed to between Emily and Uber) and (b) enforceability of such terms (i.e., whether the Updated 2021 Uber Terms are enforceable under New York law). As explained below, Court dealt mostly with the first question of formation and then, relying on the delegation provision, passed the ball to the arbitrator to decide the enforceability arguments raised by Emily — that the arbitration provision (and the manner in which it was presented to her) suffer from unconscionability, misrepresentations, and other illegalities.
- The Court held that “contract formation is governed by an objective rather than a subjective standard, there is no requirement that a party have correctly understood—or even reviewed—the terms presented by the offeror for their manifestation of acceptance to be effective” as long as the offeree (i.e., Uber’s users) were put on inquiry notice of the contractual terms. In other words, “a user does not need to have actually read and understood the terms of an internet contract to be so bound; rather, where a “reasonably prudent user” would have been on inquiry notice of contractual terms, an offeree may still be bound by them”. Therefore, the Court agreed with Uber that the clickwrap process satisfied the requirements of contract formation under New York law.
- As the next step, the Court noted that, while Emily challenged the enforceability of the Updated 2021 Uber Terms to the extent it required Emily to arbitrate her personal injury claims which were already pending in court, she did not allege that the “delegation provision itself was hidden from her, is unconscionable, or is against public policy”.
- Relying on the delegation provision (which is severable from the remainder of the arbitration clause), the Court of Appeals indeed took an easy way out of dealing with the substantive merits of Emily’s arguments, while observing that “the delegation provision must be enforced regardless of the substance of the remainder of the contract”.
WHAT THE COURT DID NOT HOLD:
- Whether such a broad arbitration provision, permitting Uber to compel Emily to have her pre-existing personal injury claims be decided by an arbitrator, is enforceable under New York law, will now be adjudicated by the arbitrator (and was not decided by the Court of Appeals).
- The Court of Appeals did not present any views on the purported deceptive or unconscionable conduct of Uber in presenting the Updated 2021 Uber Terms through a clickwrap process (with the knowledge that an action initiated by Emily is already pending in court), and whether such conduct or purported misrepresentations impact the enforceability of the arbitration provision.
CONCLUSION AND FINAL THOUGHTS:
- The majority opinion can be summarized in one line – due to a severable and broad delegation clause, the issue of whether Emily’s pre-existing personal injury claims will be decided through arbitration, or if her pending suit will be allowed to proceed, is for an arbitrator to decide, and not the courts.
- The language in the Updated 2021 Uber Terms is also a good learning for corporate lawyers drafting arbitration clauses, looking to protect their clients from publicly accessible claims, because its breadth (in metaphorical terms) is perhaps like the ‘black hole’, precluding any claim whatsoever (already accrued or arising in the future) to escape its scope so long as the customer’s claim arose from their “relationship” with Uber.
For any questions in relation to this post or whether this recent decision will impact your contracts (which may include an arbitration clause), please feel free to reach out to the S&A team.
(This post is for general information purposes only and is not intended to provide, nor is it to be used as, a substitute for legal advice.)
