Extracted from Law360
Cars and class actions seem to go together like fastness and furiousness, robots and disguises and Lightning McQueen and Mater. Even the 1991 film Class Action revolved around a fictional car-related mass tort case. But, in the wake of AT&T Mobility v. Concepcion and American Express v. Italian Colors Restaurant, class arbitration waivers are often enforced, slamming the brakes on many putative consumer class actions before they get over the starting line.
In California, one of several tests of the robustness of class arbitration waivers is revving up in a field of consumer class actions filed against Uber Technologies Inc. by customers alleging the company's $1 “Safe Rides Fee” was deceptively charged to fund background checks that were not “industry-leading” as advertised. Other recent cases out of California suggest that notice and choice-of-law issues could stymie arbitration agreements, so it will be interesting to see if the Uber cases can cross the finish line or if they’ll go careening off a cliff like Thelma & Louise. Based upon the U.S. Supreme Court’s stance to date, class arbitration waivers will remain a force to be reckoned with, taking down class actions like KITT running over any baddie who messes with Michael Knight.
Uber was recently hit with a spate of putative consumer class actions filed in December 2014 and January 2015. In Philliben v. Uber Technologies Inc., No. 3:14-cv-05615 (N.D. Cal. Dec. 23, 2014), Pappey v. Uber Technologies Inc., No. 3:15-cv-00064 (N.D. Cal. Jan. 6, 2015) and Sabatino v. Uber Technologies Inc., No. 3:15-cv-00363 (N.D. Cal. Jan. 26, 2015), consumers alleged Uber deceptively represented its $1 “Safe Rides Fee” as funding for “industry-leading” background checks, among other safety programs. The complaints allege causes of action for false advertising, unlawful business practices under California Business & Professions Code § 17200 and violations of the California Consumer Legal Remedies Act.
At the core of these claims is the grievance that Uber’s background check process does not require fingerprinting. The argument is, without this kind of identity verification, an applicant could submit the identification of a friend with no criminal record and thus circumvent the background checking process, allowing someone like Taxi Driver’s Travis Bickle to end up as your Uber driver. The plaintiffs claim that background checks without fingerprinting could thus not be “industry-leading.” Not coincidentally, the Philliben, Pappey and Sabatino cases were all filed shortly after a lawsuit against Uber brought by the San Francisco and Los Angeles district attorneys on Dec. 9, 2014. The suit, which seeks injunctive relief regarding Uber’s safety-related marketing, was the culmination of an investigation of Uber that was in turn prompted by a criminal case against an Uber driver for battery. The driver, who had a criminal record, ostensibly should have been weeded out by a thorough background check.
In all three consumer class actions, Uber has moved to stay the district court proceedings pending arbitration. Despite the genteel phrasing of the motions, they are really motions to compel arbitration and not merely motions to stay — there is no indication that arbitration has begun and the motions include many pages of argument on assent, scope and unconscionability (or rather lack thereof) of the arbitration provision. Uber’s Terms of Service, which every user agrees to upon downloading and registering for the app, includes an arbitration provision with a class arbitration waiver.
Arbitration may be the quicker and more affordable way to resolve disputes, but it is difficult to imagine a plaintiff moving forward on an individual basis over a $1 charge. Like the police cars in the legendary chase scene at the end of The Blues Brothers, these claims are likely to fall crumpled by the wayside. To avoid such a fate, the plaintiffs in all three cases are very likely to argue in their oppositions (not yet filed at the time of this writing) that the arbitration provisions are unenforceable. The complaints themselves tee up an argument likely to appear in the oppositions. The plaintiffs allege that the hyperlink to the Terms of Service is inconspicuous and hidden by the smartphone’s electronic keyboard during the registration process and that users are not actually required to view it at all before agreeing to it. The plaintiffs may also invoke the choice-of-law provision, which designates California law — which has been historically hostile to class arbitration waivers — as controlling. So how might Uber’s arbitration agreement fare in light of recent Supreme Court and Ninth Circuit precedent?
Slamming the Brakes on Consumer Class Actions
The Supreme Court’s first lap around the class arbitration waiver track came in AT&T Mobility v. Concepcion, 563 U.S. 321 (2011), which held that a California rule rooted in California Civil Code § 1668 and the Discover Bank v. Superior Court holding, which invalidated class arbitration waivers as unconscionable, was preempted by the Federal Arbitration Act. The California rule was preempted because it singled out a specific type of arbitration provision (i.e., class arbitration waivers) for invalidation, while the FAA provides that arbitration agreements may only be invalidated for “grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2 (emphasis added).
Concepcion is widely regarded as a watershed moment for class arbitration waivers, but that hasn’t stopped some courts (particularly in the Second and Ninth Circuits) from trying to find ways around it. One such attempt arose in American Express v. Italian Colors Restaurant, where customers of American Express sought to avoid class arbitration waivers by arguing that they were contrary to federal antitrust laws. The Supreme Court held that the antitrust laws and federal class action procedures did not guarantee a right to the “effective vindication” of federal claims, so the fact that some claims would not be economically feasible to pursue on an individual basis did not invalidate the class arbitration waiver.
While rulings like this may seem like a victory lap for class arbitration waivers, more disputes are bubbling up to the Supreme Court this year. On March 23, the Supreme Court granted certiorari to review the California Court of Appeal’s decision in Imburgia v. DirecTV Inc., 225 Cal. App. 4th 338 (2014). The appellate court affirmed denial of DirecTV’s motion to compel arbitration, holding that Concepcion did not require a decision to the contrary. The plaintiffs in Imburgia sued over early termination fees and DirecTV invoked the arbitration provision, including a class arbitration waiver, in its customer agreement. The operative 2007 contract included language hedging the uncertainty in a pre-Concepcion world, providing that if “the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 is unenforceable.” The “law of your state” in Imburgia, specified by a contractual choice-of-law provision, was that of California. The court held that, under California law, the Discover Bank rule rendered the class arbitration waiver unenforceable.
But what if the “law of your state” was preempted, as held by Concepcion? The appellate court decision in Imburgia suggests that state laws can avoid preemption if contracts simply say so. Given the likelihood that the Supreme Court will hold that choice-of-law provisions cannot nullify federal preemption and will enforce the arbitration agreement in Imburgia, the Uber plaintiffs are not likely to get a lot of mileage out of this argument.
The consumers’ best chance to raise a yellow flag might be a recent Ninth Circuit case that declined to enforce an arbitration agreement on notice grounds. In Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014), the plaintiff brought a putative class action arising from an unsuccessful attempt to buy a discounted tablet that sold out. The Ninth Circuit refused to enforce the arbitration agreement in the bookseller’s Terms of Service, holding that the plaintiff did not have actual or constructive notice of the terms. The Terms of Service were available via a hyperlink at the bottom of each web page, but the customer was not prompted to view or agree to the terms. Will the Uber riders cruise to victory on a similar argument?
In Nguyen, the Ninth Circuit distinguished between two types of agreements: browsewrap and clickwrap. The Barnes & Noble terms were a browsewrap agreement, which is vulnerable to notice problems. A clickwrap agreement, on the other hand, usually requires the user to check a box stating that he agrees to the terms as part of a registration or installation process, so they don’t usually have similar notice problems. When registering for Uber, users are not required to actually check a box agreeing to the Terms of Service, but the terms are linked at the bottom of the smartphone screen, which is a lot more visible than fine print at the bottom of a web page. Thus, while Uber’s class arbitration waiver is of the sort that is routinely upheld, it is conceivable that the court could find a notice problem and decline to enforce the agreement.
Uber has already faced challenges enforcing its arbitration waiver in other contexts. A class action filed against Uber by drivers seeking to be treated as employees instead of independent contractors, O’Connor v. Uber Technologies Inc., No. 3:13-cv-03826 (N.D. Cal. Aug. 16, 2013), is proceeding to trial. Uber revised its driver agreement to include an arbitration provision in July 2013, just before O’Connor was filed (and shortly after the decision in American Express). Given the timing of the revision and the opt-out procedure made available to drivers at the time, the court in O’Connor allowed drivers to opt-out of the arbitration provision to join the class. Now that the arbitration provision is a fixture in the driver agreements, similar future accommodations are unlikely.
Arbitration Agreement Blind Spots
Philliben, Pappey and Sabatino may serve as potent reminders that even in a post-Concepcion world where class arbitration waivers have become as standard of a feature as backup cameras and built-in GPS, companies can’t forget about the contracting fundamentals. If cases like Imburgia and Nguyen give courts even a little wiggle room to circumvent class arbitration waivers — wiggle room that is not quickly shut down by the Supreme Court — the road forward could be a bit bumpier than expected, particularly if the way consumers are notified of the waiver creates notice issues. Companies would be well-advised to ensure that customers have to affirmatively assent to Terms of Service by, say, checking the box for a clickwrap agreement, and to avoid language suggesting that the parties agree to apply the specific laws of a state hostile to class arbitration waivers. Class arbitration waivers may be as bulletproof as KITT, but don’t forget about the enforceability of the overall agreement. Even KITT could get a speeding ticket.