On November 25, 2024, the New York State Court of Appeals, the highest court in the State of New York, issued a 5-2 decision upholding Uber’s “clickwrap” agreement requiring arbitration of all disputes in a case of a passenger who was injured by another vehicle after exiting a vehicle affiliated with Uber.
Addressing for the first time the validity of an arbitration agreement entered via an e-commerce application, on November 24, 2024, the New York Court of Appeals held in Wu v Uber Technologies, Inc. that the email notification and “clickwrap” process Uber used to secure a customer’s acceptance of an update to its terms of use, accomplished by means of a series of clicks on the customer’s smartphone, resulted in the formation of an arbitration agreement, warranting a stay of the customer’s personal injury action and an order compelling arbitration. This is a huge win for Uber. It is also a win for all those who decry the legal system and would prefer a much more civil way of resolving disputes via arbitration rather than litigation.
A clickwrap agreement is a legal way for a user to consent to a company’s terms and conditions by clicking a button or checking a box that says, “I agree.” They are also known as clickthrough agreements. Clickwrap agreements can help businesses limit risk and improve the customer experience.
In its decision, the Court of Appeals further determined that issues raised concerning the scope of the arbitration agreement – whether it applied to a personal injury action pending at the time the update was accepted – must be decided by the arbitrator pursuant to a clause of the agreement delegating the arbitrator exclusive authority to resolve disputes concerning the applicability and enforceability of the agreement.
In the underlying case, Emily Wu was a longstanding customer of Uber. In July 2020, after using her smartphone to request a ride using Uber’s software application, the plaintiff was injured when, upon exiting the car driven by the Uber-affiliated driver, she was struck by another vehicle. Plaintiff commenced a personal injury action against Uber in New York’s Supreme Court in November 2020.
In January 2021, Uber circulated a mass email to millions of its U.S. customers advising that it was updating its terms of use, including making changes to the arbitration agreement, and that customers would soon be prompted to agree to the update to continue using the ride-share service. The email encouraged customers to review the changes and contained hyperlinks that, if clicked, revealed the updated terms of use in their entirety, including a provision that required binding arbitration of any dispute or claim arising out of use of Uber services “at any time,” including “accidents resulting in personal injury . . . whether the . . . claim . . . accrued before or after the date you agreed to the Terms.” Further, the updated arbitration provision included a delegation clause granting the arbitrator the exclusive authority to resolve disputes relating to the interpretation, applicability, enforceability or formation of the agreement.
Plaintiff received and opened this email on January 15, 2021, two months after the commencement of her personal injury action. Soon after that, when the plaintiff next logged into the Uber app to request a ride, she was presented with a pop-up screen with the headline “We’ve updated our terms” and a blue hyperlink to the new terms of use.
At the bottom of the screen there was a checkbox – with the message, in bold print: “By checking the box, I have reviewed and agreed to the Terms of Use and acknowledge the Privacy Notice” – and a large black button labeled “Confirm.” The pop-up prevented plaintiff from proceeding further in the app unless and until she addressed the prompt. Plaintiff checked the box and clicked the “Confirm” button, clearing the pop-up window and securing a ride through the Uber app.
Uber answered the complaint followed by a notice of intent to arbitrate, referencing the January 2021 updated terms of use. Plaintiff moved to stay Uber’s arbitration demand and requested sanctions against Uber, contending the January 2021 arbitration agreement was procedurally and substantively unconscionable as applied to claims already pending in court and that she had never validly agreed to the updated terms. Plaintiff further argued that Uber’s communications and solicitation of assent relating to the updated arbitration agreement constituted improper communication with a represented party in violation of the “no-contact” rule of the Rules of Professional Conduct.
Uber cross-moved to compel arbitration and stay the litigation, contending the email and in-application processes used to secure plaintiff’s agreement were both proper and effective, and that no disciplinary rules had been violated given, among other things, that Uber was neither aware of the lawsuit nor that plaintiff was represented by counsel when the communications occurred.
The Supreme Court denied plaintiff’s motion and granted Uber’s cross motion to compel arbitration and stay the litigation. On appeal, the Appellate Division, First Department, unanimously affirmed. Both courts rejected plaintiff’s argument that she had not entered into an arbitration agreement, concluding that plaintiff was, at the least, on inquiry notice of the arbitration agreement in the January 2021 terms of use update and had assented to that agreement by clicking a checkbox and button confirming her consent – conduct a reasonable person would understand to constitute assent.
Both courts concluded that the plaintiff’s challenges to enforcement of the agreement, including that it was unconscionable and could not reasonably be applied to a lawsuit pending at the time it was entered, were issues for the arbitrator to decide under the delegation provision in the agreement. Finally, the Supreme Court rejected plaintiff’s claim for sanctions based on violation of the no-contact rule due to the absence of proof that Uber knew either that litigation was pending or that plaintiff was represented when the January 2021 communications were initiated. The Appellate Division granted plaintiff’s motion for leave to appeal to the Court of Appeals.
The Court of Appeals affirmed, with two judges dissenting. The court addressed at length the novel issue of under what circumstances a party can be held to have assented to an arbitration agreement via an e-commerce application. The Court reaffirmed New York’s “long and strong public policy favoring arbitration” and, as it was undisputed that any such agreement would be covered by the Federal Arbitration Act, cited federal statutory and decisional law for the proposition that arbitration agreements are enforceable under the same terms as other contracts, emphasizing, as the United States Supreme Court has repeatedly stated, that “arbitration is strictly a matter of consent.”
The Court relied on its own long-standing precedent “that a binding contract requires an objective manifestation of mutual assent, through either words or conduct, to the essential terms comprising the agreement.” Citing its 1870 decision in Blossom v Dodd (43 NY 264), the Court emphasized that “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. Instead, courts ask whether the offeree was put on inquiry notice of the contractual terms,” which occurs “when those terms are clearly and conspicuously presented to the offeree as a contract and made available for review.” It is then incumbent on the offeree to read and assess the proposed terms – “a person who accepts a written contract without first undertaking this review generally bears the risk that the agreement may contain provisions they do not like or expect.”
The Court concluded that “[t]here is no sound reason why [black letter contract formation] principles… should not be applied to web-based contracts,” as other “state and federal courts across the country” had concluded. The Court cited with approval decisions that “look[ed] to the design and content of the relevant interface to determine if the contract terms were presented to the offeree in a way that would put her on inquiry notice of such terms” or whether a link was “buried at the bottom of the page or tucked away in obscure corners of the website where users are unlikely to see it.”
Noting that “formation of a web-based contract under New York law also requires a clear and objective manifestation of assent,” the Court clarified that, “[a]lthough an internet or smartphone user need not explicitly say ‘I agree’ to the contractual terms, they must engage in conduct that a reasonably prudent user would understand to constitute assent.” And it defined a “reasonably prudent user” as “one who is neither ‘highly savvy’ nor ‘a complete stranger’ to computers or smartphones – that is, someone who has general familiarity with how to navigate a website, use a scroll bar, recognize a hyperlink, and download an application.”
The Court then closely analyzed the circumstances surrounding and the language used in the Uber communications relating to the updated terms of use. Beginning with the email notification advising of the upcoming change in policy, the Court noted that the headline of the email – “Updated Terms of Use” – clearly informed plaintiff that she would soon be asked to review and agree to Uber’s updated terms. Moreover, the brief description of the nature of the changes specifically referenced “changes to the Arbitration Agreement.” And the specific updated terms were accessible through several hyperlinks in the email labeled “Review terms” and “Terms of Use.” Finally, the email advised plaintiff that she could agree to the terms by tapping “Confirm” in a pop-up window that would automatically appear next time she accessed the Uber app on her smartphone.
This is what occurred when plaintiff opened the Uber app a few days after receiving the email, when a popup screen stated that Uber had updated its terms and encouraged the user to “read our updated Terms in full,” followed by a hyperlink to the complete Terms of Use in the middle of the screen.
The court concluded that “[a] reasonably prudent user would have understood from the color, underlining, and placement of that text… that clicking on the words ‘Terms of Use’ would permit them to review those terms in their entirety.” Moreover, “Uber provided plaintiff with an unambiguous means of accepting the terms by including a checkbox, “Confirm” button, and bolded text expressly stating ‘By checking the box, I have reviewed and agree to the Terms of Use.’”
Thus, the Court reasoned that Uber’s “clickwrap” process, under which customers were required to affirmatively click a button to communicate acceptance of terms of use, “put plaintiff on inquiry notice of the January 2021 terms – including the prominently placed arbitration agreement – and she manifested her assent to those terms by both clicking on the box and pressing the ‘confirm’ button.” Thus, an agreement to arbitrate was formed.
Rather than attacking the use of a clickwrap process generally, plaintiff had contended that no valid agreement was created because the updated terms were unconscionable and unenforceable to the extent they purported to require arbitration of a claim already pending in court and that the communications were insufficient to draw her attention to this aspect of the updated terms, which she characterized as “actively misleading” and “buried” in the agreement.
But having determined that “Uber’s clickwrap process satisfied the contract-formation requirements of offer and acceptance” and absent any specific challenge to the delegation clause itself, the Court determined that plaintiff’s arguments presented issues for the arbitrator to decide as they went to the question “whether the arbitration agreement is legally binding, as opposed to whether it was in fact agreed to.”
Finally, as to the asserted ethical violation under the no-contact rule, the Court concluded there was record support for the finding that Uber lacked actual knowledge of the litigation at the time it solicited assent to the updated terms of use, rendering the rule inapplicable.
Two Judges dissented, reasoning that the case involved a contract formation problem, as opposed to a problem involving the scope of an existing arbitration clause, and courts resolve formation issues. According to the dissent, a reasonable person would not have understood the updated terms to cover pre-existing claims already filed in court. On that issue, the dissent would have held that the update did not put a reasonable person on notice that acceptance of the revised terms of use would force them to arbitrate previously filed, currently pending claims and, as such, there was no meeting of the minds. Alluding to an “apparent, if not actual, violation of” the no-contact rule, the dissent concluded “Uber should not be able to force plaintiff out of her chosen forum on the specious ground that a reasonable person in her position, having retained counsel, filed a claim, and engaged in motion practice, suddenly decided that arbitration was the better course.”
As a general principle, the Court of Appeals held that a binding arbitration agreement can be formed by a customer’s interface with a “clickwrap” process via an e-commerce application.
For-Hire Vehicle bases in New York City, along with other E-commerce companies reviewing their procedures in the wake of this decision – and counsel that represent them – would be well-advised to take a comprehensive view of the communications and notifications given customers, rather than focusing myopically on a single interaction or “click” during an in-app interaction.
Overall, arbitration of disputes quickly resolves a matter without needing a drawn-out litigation process. Arbitration is generally considered less expensive than going through the courts. This is particularly beneficial for parties looking to manage their budgets while resolving legal disputes. One of the most significant downsides of arbitration is that it offers very limited options for appeal. Once the arbitrator makes a decision, it’s usually final unless there was a substantial legal oversight. Also, the informal nature of the arbitration process could lead to less regulatory oversight, making it crucial to choose a reputable arbitrator.
Others would be wise to follow in Uber’s footsteps and, to the extent possible, insist on arbitration of disputes. It can be costly to go through the “clickwrap” process, but the cost of litigation can also prove to be daunting and extremely costly. It is important to think and act to address potential legal issues before they become legal problems.
