ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

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Tuesday, September 1, 2015

Uber’s Safety Checks

Uber.  It just seems to always be in the news for one more lawsuit, doesn’t it.  In late August, the district attorneys for San Francisco and Los Angeles filed a civil complaint against the company alleging that it is making misrepresentations about its safety procedures.  The complaint, i.a., reads that Uber’s “false and misleading statements are so woven into the fabric of Uber’s safety narrative that they render Uber’s entire safety message misleading.” 

On its website, Uber promises that “from the moment you request a ride to the moment you arrive, the Uber experience has been designed from the ground up with your safety in mind” and that “Ridesharing and livery drivers in the U.S. are screened through a process that includes county, federal, and multi-state criminal background checks. Uber also reviews drivers’ motor vehicle records throughout their time driving with Uber.”

However, Uber does not use fingerprint identication technology, which means that the company cannot search state and federal databases, only commercial ones. 

The result? People with highly questionable backgrounds end up being on Uber’s payroll.  For example, one “Uber driver was convicted of second-degree murder in 1982. He spent 26 years in prison, was released in 2008 and applied to Uber. A background report turned up no records relating to his murder conviction. He gave rides to over 1,100 Uber customers.” Yikes.  Another “Another driver was convicted on felony charges for lewd acts with children. He gave over 5,600 rides to Uber customers.” 

Add this to the ongoing lawsuit about whether Uber’s drivers should be legally classified as “employees” or “contractors,” and Uber is in a mound of legal trouble.

Certainly, a misrepresentation seems to have been made if the company deliberately touts its safety and its “industry-leading background check process” yet only uses a commercial database that does not even necessarily ensure that its drivers are who they say they are.

Still, Uber remains one of the most valuable start-ups in the world.  It and similar “sharing economy” companies such as Airbnb have gained a good foothold on a market with a clear demand for new types of services.  So far, so good.  But initial success should not and does not equate with a “free-for all” situation just because these new companies are highly successful, at least initially.  It seems that they are learning that lesson.  Lyft, for example, already settled with prosecutors in regards to its safety.  Perhaps Uber will follow suit.

September 1, 2015 in Commentary, Current Affairs, E-commerce, In the News, Labor Contracts, Web/Tech | Permalink | Comments (0)

Monday, August 24, 2015

Contracting to Pollute

Hugely successful auto-maker Tesla is making very good money not only on its electric cars, but also on its contracts selling zero emission credits to rivaling automakers. New environmental standards in eleven states require that by 2025, 15% of a car company’s sold fleet must be so-called “zero emission” vehicles.  If a company cannot meet existing standards, they can purchase zero emissions credits from other companies that can. Tesla is one of those.

This year, Tesla has sold approximately $68 million worth of credits to competing automakers, which represents 12% of its overall revenue. Overall, Tesla is doing very well: its net profit for the first quarter of this year was more than $11 million and its shares have been reported to be up more than 165% so far this year.

This raises the question that I also raised here on this blog in another post earlier this summer: is the emissions trading scheme a good idea, or does it simply allow for glorified “contracts to pollute”? As with many other things in the law, both could be seen to be the case. See this report that casts doubt on whether carbon credits help or hurt the agenda. Some call them "hot air,"perhaps for good reason. But at least Tesla is, hopefully, challenging other automakers to innovate to pollute less.

Another question, though, is the use of the euphemism “zero emissions.” Electric vehicles are arguably better seen from an environmental point of view than traditional cars, but they are not “zero” emissions.  They could, instead, be called “emissions elsewhere” vehicles.  That, of course, does not sound nearly as good. However, the electricity used for electric cars is produced somewhere. The true question is: by what means? If the electricity stems from dirty coal-fired power plants, the solution is not as good as it sounds, although concentrating the pollution in one large plant may be better than having many individual cars produce power on the road. That is a question for another forum. Suffice it to say that choice is good, and if car buyers could also in all locales could always decide exactly how to source their electricity (from, for instance, solar power), the matter would be different. That is not (yet) the case. So for now, “zero emission” vehicles are actually not so.

August 24, 2015 in Current Affairs, In the News, Legislation, Travel, Web/Tech | Permalink | Comments (0)

Good Enough Notice -- Even if Not for Assent

A recent case out of the Eastern District of California, Handy v. LogMeIn, found that there was notice good enough to defeat a consumer's claims under California's Unfair Competition and False Advertising Laws -- even if that notice might not be sufficient for contract formation.

Darren Hardy obtained LogMeInFree which was provided free of charge and allowed users to remotely access a desktop computer from another computer.  Some time later, he purchased Ignition for $29.99 which allowed him to access a computer using a tablet or smart phone.  Four years later, the defendant, LogMeIn, discontinued the free LogMeIn product although it offered LogMeInPro for $49/year for two computers.  Handy claimed that LogMeIn, when marketing Ignition, should have informed consumers that LogMeInFree could be discontinued in the future.

LogMeIn's "Terms and Conditions of Use" stated that users accepted

 "BY COMPLETING THE ELECTRONIC ACCEPTANCE PROCESS, CLICKING THE "SUBMIT"  OR "ACCEPT" BUTTONS, SIGNING, USING ANY OF THE PRODUCTS OR OTHERWISE INDICATING YOUR ACCEPTANCE OF THESE TERMS .  ."

The Terms allowed the company to "to modify or discontinue any Product for any reason or no reason with or without notice to You or the Contracting Party. LMI shall not be liable to You or the Contracting Party or any third party should LMI exercise its right to revise these Terms or modify or discontinue a Product."  It also allowed the company to "in its sole discretion immediately terminate these Terms and this subscription, license and right to use any Product if . . . LMI decides, in its sole discretion, to discontinue offering the Product. LMI shall not be liable to You, the Contracting Party or any third party for termination of the Service or use of the Products . . ."

The plaintiff argued that he didn't remember being prompted to review the Terms and Conditions prior to buying Ignition or during his use of it.  He also stated that if he had known that LogMeInFree would be discontinued, he would not have purchased Ignition.

California's False Advertising Law (Cal. Bus. & Prof. Code section 17500) states that it is unlawful for any company to make any untrue or misleading statement in advertising.  California Unfair Competition Law (Cal. Bus. &  Prof. Code section 17200) prohibits "unlawful, unfair, or fraudulent" business practices.  Because the plaintiff's claims under both Laws relied upon claims that the defendant engaged in knowing deception, the plaintiff was subject to the heightened pleading standards of Rule 9(b) of the FRCP. 

The Court granted the defendant's motion to dismiss because the plaintiff failed to meet the heightened pleading standard for fraud.  It found that the plaintiff failed to provide sufficient factual detail to state his claims for several reasons although I'll only discuss the contract-related one.  The court found that LogMeIn provided notice that LogMeInFree could be terminated in its Terms and Conditions of Use.  While Handy argued that the Terms were not binding as they were a "browsewrap," the court stated that missed the point:

   "Whether the Terms and Conditions constituted an enforceable contract is irrelevant to whether the Terms and Conditions related to LogMeInFree provided notice to prospective purchasers of the Ignition app that LogMeInFree could be discontinued....the fact that Defendant posted on its website information that told users that LogMeInFree could be terminated undermines Plaintiff's claims. Though this information was not forced on Plaintiff through a clickwrap, the evidence makes clear that Defendant did publish the fact that it reserved the right to terminate the free app, LogMeInFree."

In other words, the court found that terms on a website could provide sufficient notice to defeat a claim based upon deception even if the notice wasn't sufficient to meet the standards for contractual assent. 

 

 

August 24, 2015 in Recent Cases, Web/Tech | Permalink | Comments (0)

Friday, August 21, 2015

They Did It!

Earlier this summer, I blogged on cheating website Ashley Madison promising to provide "100% discreet service" and a group of hackers threatening to reveal the website's customers if the website was not removed.  Well, it was not, and this past week, the group made good on its promise or threat, depending on how one views the issue, to make the stolen database easily available to the general public

In spite of Ashley Madison's promise to be "100% discreet" (whatever that means), the fine print used in its contracts also states, "We cannot ensure the security or privacy of information you provide through the Internet."  No contractual promises seen to have been breached if that had been the only promise made.  But as Steve Hedley wrote in his comment (see below), some of those inconvenienced by the hack include a number who paid a fee of $19 specifically for a "full delete". Does US contract law really allow Ashley Madison to take their money and then rely on fine print to justify a complete failure?  That is a very good point and indeed does not seem to be the case.  It could, of course, be that those who paid for a full delete got it and were _not_ among the ones in the publicized batch, but judging solely from media reports on this account, complaints have been made that the promised "full deletes" were not undertaken, so it seems that at least some that paid _additional_ money to become deleted from the website did not get what they paid for.  That's a breach.  Thanks, Steve Hedley, for that comment. 

But the matter is more serious and sad than that: the website was/is apparently also used for finding homosexual partners, which is illegal and carries the death penalty in countries such as Iran, Saudi Arabia, and the United Arab Emirates, where two users were listed.

Not surprisingly, this story again shows the importance of internet data security.  One would think that after the recent HomeDepot, Target and other database breach episodes, people would have learned, but apparently, this is not the case.

 

August 21, 2015 in Commentary, Current Affairs, E-commerce, In the News, Web/Tech | Permalink | Comments (2)

Sunday, August 2, 2015

The Legal War on Traditional Cable Companies Continues

Remember Aereo, the company trying to provide select TV programs and movies using alternatives to traditional cable TV programming?  That company went bankrupt after a U.S.  Supreme Court ruling last year.

A federal court in Los Angeles just ruled that online TV provider FilmOn X should be allowed to transmit the programs of the nation’s large broadcasters such as ABC, CBS and Fox online, albeit not on TV screens.  See Fox Television Stations, Inc. v. FilmOn X, LLC, in the U.S. District Court for the Central District of California, No. 12-cv-6921. Of course, the traditional broadcasters have been aggressively opposing such services and the litigation so far.  Recognizing the huge commercial consequences of his ruling, Judge Wu certified the case for an immediate appeal to the Ninth Circuit Court of Appeals.

Said FilmOn’s lawyer in an interview: “The broadcasters have been trying to keep their foot on the throat of innovation.  The court’s decision … is a win for technology and the American public.” 

The ultimate outcome will, of course, to a very large extent or perhaps exclusively depend on an interpretation of the Copyright Act and not so much contracts law as such, but the case is still a promising step in the direction of allowing consumers to enter into contracts for only what they actually need or want and not, at bottom, what giant companies want to charge consumers to protect income streams obtained through yesteryear’s business methods.  Currently, many companies still “bundle” TV packages instead of allowing customers to select individual stations.  In an increasingly busy world, this does not seem to make sense anymore.  Time will tell what happens in this area after the appeal to the Ninth Circuit and other developments.  Personally, I have no doubt that traditional broadcasting companies will have to give in to new purchasing trends or lose their positions on the market.

August 2, 2015 in Current Affairs, E-commerce, Famous Cases, In the News, Legislation, Television, Web/Tech | Permalink | Comments (0)

Monday, July 27, 2015

Weekly News Roundup

Bitcoin_logo.svgAs Fortune Magazine reported here, Lifelock has sued a bitcoin digital wallet company called Xapo.  Xapo's founder and CEO, Wences Casares, formerly owned a company that was purchased by Lifelock, and he became a Lifelock employee at that point.  Lifelock alleges that he used a product from his old company to create Xapo.  Casares responds that Lifelock had no interest in the product.  Casares moved to dismiss the suit in California Superior Court, and that motion was denied.  Fortune provides more complete background on the case here.  For some reason, Fortune describes the suit as sounding in fraud, but it sounds more like a breach of contract/IP issue to me.  Other websites (e.g., Bitcoin News Service here and Bitcoin Magazine here) describe the suit as sounding in breach of contract.

 This is not exactly news, but the Daily Telegraph is reporting on sex contracts at U.S. colleges and universities as though it were news.  While the report features some discouraging information about the frequency of sexual assault at UK and U.S. universities, it adopts a snide tone regarding sex contracts and concludes that they are "overly simplistic and potentially harmful."  Although the report acknowledges that the contracts are "conversation starters" and are not intended to be binding contracts, it proceeds to treat them as contracts and to point out the obvious -- like that people are entitled to change their minds about sex.   Ugh.  It's not as if this is not something that has occurred to the designers of sex contracts.  The models of such contracts that we have discussed here include language requiring consent on an on-going basis to each new sex act.  This approach is easy to mock, but, as we've seen before, those who denigrate serious approaches to the problem of sexual assault on college campuses fail to provide alternatives.  The Telegraph cites to an organization called the "Good Lad Workshop" that encourages college students to be good guys.  It is clear that the spokesman for the organization knows nothing about how actual sex contracts work.

July 27, 2015 in In the News, Web/Tech | Permalink | Comments (0)

Monday, July 20, 2015

Statutory and Contractual Rights to be Forgotten - Also in Naughty Cases

In 2014, the Court of Justice of the European Union famously held that “[i]ndividuals have the right - under certain conditions - to ask search engines to remove links with personal information about them. This applies where “the information is inaccurate, inadequate, irrelevant or excessive” for the purpose of otherwise legitimate data collection. “A case-by-case assessment is needed considering the type of information in question, its sensitivity for the individual’s private life and the interest of the public in having access to that information.”

A few days ago, infamous adultery-enabling website Ashley Madison and “sister” site (no pun intended) EstablishedMen.com, which “connects ambitious and attractive young women with successful and generous benefactors to fulfill their lifestyle needs,” was hacked into by “The Impact Team,” a group of apparently offended hackers who threatened to release “all customer records, including profiles with all the customers’ secret sexual fantasies and matching credit card transactions, real names and addresses, and employee documents and emails” unless the owner of the sites, Avid Life Media, removes the controversial websites from the Internet permanently. 

Notwithstanding legal issues regarding, perhaps, prostitution, do customers have a right to be forgotten?  Not in general in the USA so far. Even if a provision similar to the EU law applied here, it would only govern search engines. Ashley Madison had, however, contractually promised its paying users a “full delete” in return for a fee of $19.  The problem? Apparently that the site(s) still kept purchase details with names.  Further, of course, that the company promised and still promises “100% discreet service.”  Both seemingly clear contractual promises.

Although the above example may, for perhaps good reason, simply cause you to think that the so-called “clients” above have only gotten what they asked for, the underlying bigger issues remain: why in the world, after first Target, then HomeDepot and others, can companies not find out how to securely protect their customers’ data “100%”? And why should we, in the United States, not have a general right to be deleted not only from companies’ records, but from search engines, if we want to? I admittedly live a very boring life. I don’t have anything to hide. But if I once in a blue moon sign up for something as simple as Meetup.com to go hiking with others, my name and/or image is almost certain to appear within a few days online. I find that annoying. I don’t want my students, for example, to know where I occasionally may meet friends for happy hour. But unless I invest relatively large amount of time in figuring out how to use and not use new technology (which I see that I have to, given the popularity of LinkedIn and the like), I may end up online anyway. That’s not what I signed up for.

As for Ashley Madison, the company has apparently been adding users so rapidly that it has been considering an initial public offering. You can truly get everything on the Internet these days, perhaps apart from data security.

July 20, 2015 in Commentary, Current Affairs, E-commerce, Famous Cases, In the News, Web/Tech | Permalink | Comments (0)

Tuesday, June 23, 2015

PayPal's New Agreement and the FCC

Last week, the Federal Communications Commission acted to approve a number of proposals that update the TCPA (Telephone Consumer Protection Act), popularly known as the  "Do Not Call" law that prohibits companies from interrupting consumers' dinner time conversations with pesky telemarketing calls.  They closed a number of existing loopholes and clarified that phone companies can now block robocalls and robotexts to cell phones. The ruling also makes it easier for consumers who have previously consented to withdraw consent. 

So what does this have to do with contracts?  We all know how easy it is to consent to online terms.  PayPal does, too.  PayPal recently informed its customers that it was unilaterally amending its User Agreement.  As anyone reading this blog knows, there are serious problems with unilateral modification clauses, especially in the context of wrap contracts that nobody reads.  Yet, some courts have found that these clauses are enforceable (others have found they are not because they lack consideration and/or notice/assent).  PayPal's recent announced modifications caught the attention of the Federal Communications Commission.  The FCC Chief expressed concern that PayPal's prospective agreement may run afoul of federal law.  The TCPA requires express written consent before any company can make annoying prerecorded telemarketing calls to consumers.  The written consent, however, isn't the ridiculous version of consent that suffices as contractual consent in some courtrooms.  There are certain requirements including that the agreement be "clear and conspicuous" and that the person is "not required to sign the agreement...as a condition of purchasing the property, goods, or services."  In other words, it can't be a "take it or leave it" situation.  Pay Pal's amended User Agreement, however, appears to contain "take-it-or-leave-it" language as it doesn't indicate how customers may refuse to consent to receive calls without having their account shut down.  Furthermore, unlike contract law where blanket assent is okay, blanket consent is not okay under the FCC rules.  (This blog post provides a nice overview of the issues and also notes that eBay (PayPal's soon-to-be former parent) encountered similar problems with the New York Attorney General). 

PayPal's agreement is not the only reason the FCC acted last week, but as Bob Sullivan points out in this post here, it may have been the reason it acted so quickly.  Expect to see an updated version of PayPal's agreement in the near future.

 

 

 

June 23, 2015 in Current Affairs, In the News, Miscellaneous, Web/Tech | Permalink | Comments (0)

Thursday, June 18, 2015

Uber Is the New Britney Spears

We used to count on Britney Spears as the leading source for blog fodder.  Move aside Britney.  Uber just passed you by.  We have two new Uber stories just in California alone.

First, last week the District Court for the Northern District of California issued its opinion in Mohamed v. Uber Technologies.  Paul Mollica of the Employment Law Blog called that decision a "blockbuster," because it ruled Uber's arbitration agreement with its drivers unconscionable and therefore unenforceable.  The opinion is very long, so we will simply bullet point the highlights.  With respect to contracts entered into in 2013, the court found:

  • Valid contracts were formed between plaintiffs and Uber, notwithstanding plaintiffs' claims that they never read the agreements and that doing so was "somewhat onerous";
  • While Uber sought to delegate questions of enforceability to the arbiter, the court found that its attempt to do so was not "clear and unmistakable" as the contract included a provision that "any disputes, actions, claims or causes of action arising out of or in connection with this Agreement or the Uber Service or Software shall be subject to the exclusive jurisdiction of the state and federal courts located in the City and County of San Francisco, California"; 
  • In the alternative, the agreement was unconscionable and therefore unenforceable;
  • The procedural unconscionability standard of "oppression," generally assumed in form contracting, was not overcome in this instance by an opt-out clause; the opt-out was inconspicuous and perhaps illusory;
  • The procedural unconscionability standard of "surprise" was also met because the arbitration provision was "hidden in [Uber's] prolix form" contract; and
  • Uber's arbitration provisions are substantively unconscionable because the arbitration fees create for some plaintiffs an insuperable bar to the prosecution of their claims.

The court acknowledged that the unconscionability question was a closer question with respect of the 2014 contracts but still found them both procedurally and substantively unconscionable.

There is much more to the opinion, but that is the basic gist.

Eric GoldmanIn other news, as reported in The New York Times here, the California Labor Commissioner's Office issued a ruling earlier this month in which it found that Uber drivers are employees, not independent contractors as the company claims.  The (mercifully short!) ruling can be found here through the good offices of Santa Clara Law Prof, Eric Goldman (pictured).

The issue arose in the context of a driver seeking reimbursement for unpaid wages and expenses.  The facts of the case are bizarre and don't seem all that crucial to the key finding of the hearing officer.  Although plaintiff''s claim was dismissed on the merits, Uber has appealed, as it cannot let the finding that its drivers are employees stand.

But the finding is a real blockbuster, especially as Uber claims that similar proceedings in other states have resulted in a  finding that Uber drivers are independent contractors.  Here's the key language from the ruling:

    Defendants hold themselves out to as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation.  The reality, however, is that Defendants are involved in every aspect of the operation.  Defendants vet prospective drivers . . . Drivers cannot use Defendants' application unless they pass Defendants' background and DMV checks

Meredith    Defendants control the tools the drivers use . . . Defendants monitor the Transportation Drivers' approval ratings and terminate their access to the application if the rating falls below a specific level (4.6 stars).

As the Times points out,  few people would choose to be independent contractors if they had the option to be employees.  Our former co-blogger Meredith Miller has written about similar issues involving freelancers, and we blogged about it here.  So far, it appears that five states have declared that Uber drivers are independent contractors, while Florida has joined California in finding them to be employees.  For more on the implications of this ruling, you can check out this story in Forbes, featuring insights from friend of the blog, Miriam Cherry.

June 18, 2015 in In the News, Recent Cases, Travel, Web/Tech | Permalink | Comments (0)

Monday, June 8, 2015

Class Actions, Arbitration and the Importance of Contract Formation

I wanted to follow up on Jeremy Telman's posts about two cases, Andermann v. Sprint Spectrum and Berkson v. Gogo.  Both cases involved consumers and standard form contracts.  Both Sprint and Gogo sought to enforce an arbitration clause in their contracts and both companies presumably wanted to do so to avoid a class action.  In Andermann v. Sprint Spectrum, there was no question regarding contract formation.  The contract issue in that case involved the validity of the assignment of the contract  from US Cellular to Sprint.  The court found that the assignment was valid and consequently, so was the arbitration clause.

In Berkson v. Gogo, on the other hand, the issue was whether there was a contract formed between the plaintiffs and Gogo.  As Jeremy notes in his post, this is an important case because it so thoroughly analyzes the existing wrap contract law.  It also has important implications for consumers and the future of class actions.

Many arbitration clauses preclude class actions (of any kind).  Judge Posner notes in his opinion in Andermann v. Sprint Spectrun:

"It may seem odd that (Sprint) wants arbitration....But doubtless it wants arbitration because  the arbitration clause disallows class arbitration.  If the Andermann's claims have to be  arbitrated all by themselves, they probably won't be brought at all, because the Andermanns if they prevail will be entitled only to modest statutory damages."

Judge Posner may have been troubled by this if the facts were different.  The Andermanns are claiming that Sprint's calls to them are unsolicited advertisements that violate the  Telephone Consumer Protection Act, but Sprint needed to inform them that their service would be terminated because U.S. Cellular's phones were incompatible with Sprint's network.  How else would they be able to contact their customers whose service would soon be terminated, Posner rhetorically asks, "Post on highway billboards or subway advertisements?....Post the messages in the ad sections of newspapers? In television commercials?"   Sprint's conduct here "likely falls" within an exception to the law and hence, Posner notes "the claims are unlikely to prevail."

It's a different situation in Berkson v. Gogo.  In that case, Gogo is allegedly charging consumers' credit cards on a monthly recurring basis without their knowledge.  The plaintiffs were consumers who signed up to use Gogo's Wi-Fi service on an airplane, thinking it was only for one month.   When Welsh, one of the plaintiffs, noticed the recurring charges, he was given a "partial refund."  Welsh then hired a lawyer.  Welsh's lawyer sent Gogo a letter notifying the company of the intent to file a class action lawsuit if it did not correct its practices and notify everyone who might have been charged in this manner.  Gogo then allegedly sent a refund check directly to Welsh, not his lawyer (which would violate the rule not to directly contact someone represented by counsel).  When Berkson, another plaintiff, noticed the charges and complained, the charges stopped; however, when he requested a refund for the period he was charged for the service but did not use it, the company allegedly refused. 

I think that most people would agree that, if the facts alleged are true, Gogo likely violated consumer protection statutes.  It also acted poorly by making it so hard to get a refund.  Companies should not be permitted to act like this and consumers shouldn't have to threaten class action lawsuits to get their money back.  (Gogo doesn't seem to dispute that they were charged during months they did not use the service).

This is where contract formation becomes so important.  The class action in Berkson v. Gogo was allowed to proceed because the court found that there was no valid contract formation. 

If there was a contract formed between Gogo and the plaintiffs, the arbitration clause would likely have been effective.  (I say "would likely have been" because it wasn't even included until after Berkson signed up for the service.  But let's put that aside for now and continue....).  The arbitration clause - you guessed it - contained the following clause:

"To the fullest extent permitted by applicable law, NO ARBITRATION OR OTHER CLAIM UNDER THIS AGREEMENT SHALL BE JOINED TO ANY OTHER ARBITRATION OR CLAIM, INCLUDING ANY ARBITRATION OR CLAIM INVOLVING ANY OTHER CURRENT OR FORMER USER OF THE SITE OR THE SERVICES, AND NO CLASS ARBITRATION PROCEEDINGS SHALL BE PERMITTED. In the event that this CLASS ACTION WAIVER is deemed unenforceable, then any putative class action may only proceed in a court of competent jurisdiction and not in arbitration.

WE BOTH AGREE THAT, WHETHER ANY CLAIM IS IN ARBITRATION OR IN COURT, YOU AND GOGO BOTH WAIVE ANY RIGHT TO A JURY TRIAL INVOLVING ANY CLAIMS OR DISPUTES BETWEEN US."

Now, under the recent line of federal cases (AT&T Mobility v. Concepcion, American Express v. Italian Colors, etc) interpreting the FAA, if a contract contains a mandatory arbitration clause, an arbitrator pretty much decides everything unless (1) the arbitration agreement is unconscionable; or (2) the agreement to arbitrate was never formed

Regarding (1), this doesn't mean that a court may determine whether any other contract provision was unconscionable - only the arbitration clause.  So, if there's another clause that you want to argue is unconscionable -- let's say a recurring billing provision that is not conspicuous just as a random example -- you have to take that to the arbitrator.  Furthermore, it's much harder now (after the line of US Supreme cases noted above)  to argue that an arbitration clause is unconscionable.  While many state courts had previously found mandatory arbitration clauses and class action waivers unconscionable, they may no longer find them unconscionable just because they impose arbitration.  In other words, in order to be found unconscionable, the arbitration clauses have to be one-sided (i.e. only the consumer has to arbitrate) or impose hefty filing fees, etc.  This, as I mentioned in a prior post, is why so many of these clauses contain opt-out provisions.   Gogo's arbitration clause also contained an opt-out provision.  But, as readers of this blog know, NOBODY reads wrap contract terms and I would be surprised if anyone opted out.  The clause was also in capitalized letters and so would be conspicuous -- if only anyone clicked on the link and scrolled down to see it.

This is why Judge Weinstein's opinion is so important -he recognizes the burden that wrap contracts place on consumers:

"It is not unreasonable to assume that there is a difference between paper and electronic contracting....In the absence of contrary proof, it can be assumed that the burden should be on the offeror to impress upon the offeree -- i.e., the average internet user - the importance of the details of the binding contract being entered into...The burden should include the duty to explain the relevance of the critical terms governing the offeree's substantive rights contained in the contract."

 

If a contract contains a mandatory arbitration clause, a consumer who has been wronged and wants to argue that a standard form contract is unconscionable, would probably have to take it to an arbitrator unless there was no agreement to arbitrate in the first place.  If there was no agreement formed at all, that would mean no agreement to arbitrate. 

This is why it is so important not to find contract formation so easily and expect unconscionability to do all the heavy lifting of consumer protection.  An arbitrator very well might do a good job - but we don't know that because an arbitration is a closed hearing.   Arbitrators also don't go through the rigorous screening process that judges go through (both elected and appointed judges are thoroughly scrutinized).  Furthermore, arbitral decsions are not generally made public, and so arbitration doesn't help with providing guidelines for acceptable business behavior.  Judge Posner notes in his opinion, "It's not clear that arbitration, which can be expensive...and which fails to create precedents to guide the resolution of future disputes, should be preferred to litigation." Furthermore, if the arbitration clause contains a "no class" provision, it also forces a consumer to face a company's intimidating attorneys all alone ((because no lawyer is taking this type of case on a contingency basis and no consumer is going to pay a lawyer to attend this type of arbitration).

Berkson v. Gogo is notable for recognizing that website design and contract presentation matter in determining contract formation.  Not every click is perceived the same way by consumers -- scrollwraps (where scrolling is required to read through all the terms) provides more notice than a "sign-in-wrap" which is merely a hyperlink next to a SIGN UP button.   The reality is that nobody clicks on the Terms hyperlink with a sign-in wrap.  As Judge Weinstein notes:

"The starting point of analysis must be the method through which an electronic contract of adhesion is formed.  The inquiry does not begin, as defendants argue, with the content of the provisions themselves."

There are some who think that there's no harm in finding contract formation so easily because courts and the doctrine of unconscionability will protect consumers from really bad contract terms.  They should think again.  Mandatory arbitration clauses affect consumers' ability to seek redress which is why we should start taking contract formation seriously.

 

 

June 8, 2015 in Current Affairs, E-commerce, Miscellaneous, Recent Cases, Web/Tech | Permalink | Comments (0)

Thursday, June 4, 2015

Important Wrap Contracts Decision from Judge Weinstein (EDNY)

JackbweinsteinPlaintiff Adam Berkson,  alleges that the defendant, Gogo, misled him and a putative class of similarly situated consumers, who signed up for in-flight wifi service through Gogo's website. Plaintiffs allege that the website led them to believe that they were signing up for a one-month subscription.  Gogo claims that its site clearly provides for automatic renewal, as well as mandatory arbitration and choice of venue.  Plaintiffs allege breach of the implied covenant of good faith and fair dealing, unjust enrichment, and violations of consumer protection statutes.  Gogo responded with a motion to transfer venue, compel arbitration and dismiss for lack of standing.  As the first two parts of Gogo's motion related to its terms of use, Judge Weinstein had to address plaintiffs' claim that they were not bound by hidden terms.  

In an 83-page memorandum and order of the case, available hereJudge Weinstein denied all three parts of Gogo's motion.  Judge Weinstein identifies three policy questions raised by the suit.  We are most interested in the first: 

[H]ow should courts deal with hybrid versions of “browsewrap” and “clickwrap” electronic contracts of adhesion (referred to in this memorandum as “sign-in-wraps”) that do not provide internet users with a compelling reason to examine terms favoring defendants?

We note in passing that in defining his terms and throughout the opinion, Judge Weinstein relies on Nancy Kim's book, Wrap Contracts.  He also takes note of other excellent work by scholars whose work has been featured on this blog, such as Oren Bar-Gill, Woodrow Hartzog Juliet Moringiello and Tess Wilkinson-Ryan, among others.

Judge Weinstein concluded that, in the circumstances present in the case, "the average internet user would not have been informed. . . that he was binding himself to a sign-in-wrap" and that the wrap contract thus "does not support the venue and arbitration clauses relied upon by defendants."  The relevant facts are a bit different for the two named plaintiffs, but the basic gist is that they would have to click on the words "terms of use" in order to gain access to them, and they could agree to those terms of use without clicking on the words.  In addition, Gogo's arbitration and venue provisions were not added until after plaintiffs signed up for the service.

After a truly impressive survey of the caselaw and the scholarly literature, Judge Weinstein emerges with some general principles:

  • “terms of use” will not be enforced where there is no evidence that the website user had notice of the agreement;
  • “terms of use” will be enforced when a user is encouraged by the design and content of the website and the agreement’s webpage to examine the terms clearly available through hyperlinkage; and
  • “terms of use” will not be enforced where the link to a website’s terms is buried at the bottom of a webpage or tucked away in obscure corners of the website where users are unlikely to see it.

Applying these principles, Judge Weinstein concludes that Gogo could not establish that the named plaintiffs knowingly bound themselves to Gogo's terms of use.  Along the way, Judge Weinstein notes that some of the wrap contract cases are not correctly decided and do not accurately apply precedent.  He also makes clear that the design and presentation of the contract matter in determining whether a consumer has had an opportunity to give meaningful consent to terms in a wrap contract.

A hearing on class standing is scheduled for July.  Stay tuned.

June 4, 2015 in Recent Cases, Travel, Web/Tech | Permalink | Comments (0)

Monday, June 1, 2015

Opt-out arbitration provisions

As I mentioned in a previous post, I recently took a look at Instagram's terms of use.  I found it interesting that it contained an opt-out provision for arbitration.  A clause at the top of the page states the following in bold:

ARBITRATION NOTICE: EXCEPT IF YOU OPT-OUT AND EXCEPT FOR CERTAIN TYPES OF DISPUTES DESCRIBED IN THE ARBITRATION SECTION BELOW, YOU AGREE THAT DISPUTES BETWEEN YOU AND INSTAGRAM WILL BE RESOLVED BY BINDING, INDIVIDUAL ARBITRATION AND YOU WAIVE YOUR RIGHT TO PARTICIPATE IN A CLASS ACTION LAWSUIT OR CLASS-WIDE ARBITRATION.

(Side note - I found it rather lazy for Instagram not to include section numbers in its TOU.  One of the reasons to have an opt-out provision is to guard against claims of unconscionability as in Hey, they had a choice!  They could have opted out!  It doesn't make sense then to make the user scroll through the entire agreement and try to find the arbitration clause instead of just referring to it). 

The arbitration clause itself permits the user to opt-out "within 30 days of the date that you first became subject to this arbitration provision."  Furthermore, the user has to provide written notice and send it to Instagram's offices. 

Of course, very few users will opt-out.  First of all, very few people read TOU.  Second, a lot of people don't know what arbitration is so they don't know to opt-out.  Finally, Instagram puts a "hurdle" in the user's way - they have to send a written notice.  The last time I had to mail a card, it took me several days.  I had to find an envelope, for one thing.  Then I had to find some stamps.  I don't even know where the post office is near my house and when I asked the cashier at the grocery store, he looked at me as though I were Rip Van Winkle --stamps?  

Contrast the written notice requirement to opt-out with how Instagram updates its TOU: 

"You agree that we may notify you of the Updated Terms by posting them on the Service, and that your use of the Service after the effective date of the Updated Terms (or engaging in such other conduct as we may reasonably specify) constitutes your agreement to the Updated Terms."

So, Instagram only has to post changes to its website but the user has to mail a notice to its headquarters in order to opt-out of arbitration? Why not have all notices be effective if sent via email?  Maybe because some people might actually choose to opt-out of arbitration then.

Instagram's opt-out clause is not unusual - in fact, it's quite common.  The CFPB recently issued  its report on the use of arbitration clauses .  It found that a  fair number of banking and credit card agreements contained provisions allowing consumers to opt-out of arbitration clauses but that very few consumers chose to opt-out.  There were a number of other interesting findings and the report is well worth reading although the report is rather long.  Professor Jean Sternlight of University of Nevada - Las Vegas summarized some of the key findings here

 

 

 

 

June 1, 2015 in Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, May 28, 2015

Can Terms of Use Stop Richard Prince?

According to this article, the photographer, Richard Prince, is ripping off using other people’s Instagram photos – and selling them for lots of money ($90,000)!  Arguably, he can do this because it’s fair use  -- he blows the images up and makes minor changes to them, like removing captions and adding comments.  (One could also argue that it’s not fair use because he doesn’t change them enough).  Putting aside the copyright related issue (fair use or not fair use) and the privacy issue (are there any privacy related claims when you post on Instagram for the world to see – but don’t mean to have your photos used in this way?) – what intrigues me are the contract related issues.  I took a quick peek at Instagram's latest terms of use and there’s nothing in there that would really help someone whose photos were being used by Richard Prince.   And while Instagram's Community Guidelines are thoughtful and cover a variety of topics, they don’t address this problem.  But could its TOU address this issue – and should it?  What if Instagram put in its Terms of Use a provision that forbade visitors to its site from using other people's photographs for any purpose?  If so, what could the company do if a user violated that term?  It could, of course, ban the offending user from Instagram.  Could it sue for breach of contract – and if so, what damages could it claim? If people started to copy users’ photographs from Instagram and use them for their own purposes that would likely hurt Instagram’s business.  Instagram should consider how its Terms of Use can be amended to protect their users from this type of unauthorized use.

May 28, 2015 in Commentary, Current Affairs, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 26, 2015

Airbnb Update

We have previously blogged about “sharing economy” short-term rental company Airbnb at various times here.  Time for an update: The City of Santa Monica, California, just passed an ordinance that prohibits property owners and residents from renting out their places unless they remain on the property themselves.  This is estimated to prohibit no less than 80% of Airbnb’s Santa Monica listings (1,400 would be banned).  

The city plans to spend $410,000 in the first year to enforce the rule using three new full-time employees.  Violators may be fined by up to $500.  However, because Airbnb does not list addresses, staff will have to look at photos of the properties and drive around the city streets to try to identify the violators.   Doing so sounds awfully invasive and awkward, but that is nonetheless the plan.  Adds Assistant Planning Director Salvador Valles: “We can issue citations just based on the advertisement alone when we're using our business regulations.”  Other major cities are also trying to crack down on short-term rentals.

But why, you ask?  Good question.  In times when, as I have blogged about before and as is common knowledge, medium- and low-income earners are falling behind higher-income earners to a somewhat alarming extent, you would think the government could let people earn some additional money on what is, after all, their own property.  Cities, however, claim that short-term rentals drive up the rental prices by cutting into the number of residences that are available for long-term rentals.  “Even a study commissioned by Airbnb itself earlier this year found that Airbnb increases the price of a one-bedroom apartment in San Francisco by an average of $19 a month.”    Traffic concerns are also often mentioned in this context as are potential tax avoidance issues, although Airbnb has now started to deduct taxes from rental fees before transferring these to the landlords.

Airbnb’s end goal?  To go IPO.  The goal for at least some landlords?  Eighty-year-old Arlene Rosenblatt, for example, rents out her home in Santa Monica whenever she and her husband leave town to visit their seven grandchildren. She charges anywhere from $115 to $220 a night for her home, listing it on Airbnb and other sites and thus earning as much as $20,000 a year.  "I'm a retired schoolteacher," Rosenblatt says. "We don't get a lot of retirement income. My husband, all he has is his Social Security." 

Time will tell what happens in this latest clash between private property and contractual rights and government regulations. 

May 26, 2015 in Current Affairs, E-commerce, Famous Cases, In the News, Legislation, Travel, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, May 11, 2015

Weekly News Roundup

BoxingAccording to Philadelphia Magazine, two men who paid to watch the Mayweather-Paaquiano fight on pay-per-view are suing on behalf of a class of viewers who did not get their money's worth because Paquino had an undisclosed shoulder injury.  The suit claims damages for  breach of contract, fraud conspiracy and violation of consumer protection laws. Viewers paid between $89 and $100 to watch the fight.  The suit alleges that the fight should have been cancelled or postponed.

The LA Times reports that a group of students who contracted Leishmaniasis, a parasitic disease that causes painful skin ulcers, while on a trip to Israel are suing the trip's organizers for failing to take adequate precautions to protect the students.  The illness is allegedly caused by sand fly bites.  The suit names the North American Federation of Temple Youth and the Union for Reform Judaism as defendants.  It alleges that the organizations failed to take precautions such as providing the students with insecticides or insect netting and that the organizations provided the students with bug-infested bedding.

The LA Times also reports on a new trend on the hot, new social media: suing your co-founder.  The report suggests that combining handshake deals undertaken in college dormitories, coupled with youthful hasted makes for a dangerous mix.  We are all familiar with the strife among the founders of Facebook, but it turns out that Snapchat, Tinder, Maker Studios and Beats Electronics have all also experienced co-founder difficulties sounding in allegations of breaches of founders' agreements.

May 11, 2015 in In the News, Sports, Travel, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, April 27, 2015

Fixing Your Car Yourself Maybe a Violation of Contractual Rights in the Future

If it were up to General Motors, it may soon be illegal for you to tinker with your own car.  That’s because the Digital Millennium Copyright Act (“DMCA”), an Act that started as anti-piracy legislation about a decade ago, now also protects coding and software in a range of products more broadly.  Your car is one such product if it, as many cars do nowadays, it has an onboard computer.  Vehicle makers promotes two arguments in their favor: first, that it could be dangerous and even malicious to alter a car’s software programming.  Second, per the tractor maker John Deere, that “letting people modify car computer systems will result in them pirating music through the on-board entertainment system.”  “Will”?!  As the Yahoo article mentioning this story smartly pointed out, “[t]hat’s right— pirating music. Through a tractor.” 

Isn’t that an example of a company getting a little too excited over its own products?  Or am I just an incurable city girl (although one that occasionally likes country music)?  Judging from the lyrics to a recent Kenny Chesney hit (“She Thinks My Tractor’s Sexy"), I see that opinions differ in this respect.  To each her own.

Hat tip to Professor Daniel D. Barnhizer of the AALS listserve for sharing this story.

April 27, 2015 in Contract Profs, Current Affairs, Legislation, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, February 16, 2015

Your Smart TV May Be Engaged in Intelligence Work

Back in 2013, we mused about the seeming disconnect between public outrage at NSA data mining and the lack of comparable outrage with respect to private data mining.  Nancy Kim and I have been writing in this area, and a recent report in the ABA Journal provides additional fodder for our scholarship.  

One of the things that makes television's "smart" these days is that they have the ability to respond to voice commands.  If you have this feature on, the television transmits your information to a third party, according to Samsung.  If you turn the voice recognition feature off, your television still gathers the data but it does not transmit it.  

Smart_TV
Photo by LG

Over at Salon, Michael Price gives us reasons why we should be afraid of our smart tvs.  Having reviewed his television's 46-page privacy policy, Price concludes that it has the capability to collect a staggering amount of data.  One could turn off the television's "smart" features, but that can affect your television's ability to do some of the things you bought it for.  Just as we cannot choose which channels the cable providers send us, we can only choose from packages, we apparently cannot choose to have a television with some "smart" features unless we are willing to invite Big Brother into our living rooms.

February 16, 2015 in About this Blog, Commentary, Television, Web/Tech | Permalink | Comments (1) | TrackBack (0)

Sunday, January 25, 2015

Podcast Now Available for AALS Annual Meeting 2015 - Mind the Gap!

Earlier this month, the Contracts sections hosted a program on Contracts, Technology and Legal Gaps.  We had an excellent line-up of expert panelists:  Eric Goldman (Santa Clara), Woodrow Hartzog (Samford), Corynne McSherry (Electronic Frontier Foundation), Jane Winn (U. of Washington) and Deborah Zalesne (CUNY).  For those of you who were unable to attend, the podcast for the program is now available here.

January 25, 2015 in Conferences, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 31, 2014

Flying the Less Friendly Skies

Last month, United Airlines and Orbitz filed a by-now famous lawsuit against the 22-year-old computer specialist who created the website Skiplagged.com.  This website helps consumers find the cheapest round-trip airfare possible by buying tickets to a destination to which the traveler does not actually intend to travel, but instead getting off at a layover point which is the truly intended destination and discarding the last portion of the ticket.  Roundtrip tickets to certain popular destinations are often much cheaper than to other destinations sought by fewer passengers even though the more popular destinations are further away from one’s point of origin. 

To not cause the airline and other passengers undue trouble and delays, this practice, of course, requires not checking in luggage which, it seems, fewer and fewer travelers do anyway (next time you fly, notice the rush to get on board first with suitcases often much bigger than officially allowed and airline personnel deliberately ignoring this for reasons of “competition”).

The cause of action for this lawsuit?  “Unfair competition,” and breach of contract because of “strictly prohibited travel,” and tortuous interference with contract.

Unfair competition?  I admit that I have not yet read the rather long complaint, but I look forward to doing so very soon.  At first blush, however, how can “unfair” can it really be to assist consumers in finding airfare that they want at the best prices available?  United Airlines recognizes that there is a discrepancy between its prices to very popular destinations and others on the way, but claims [cite] that if many people “take advantage” of that price differential, it could “hurt the airlines.”  Come again?  Does it really matter that a customer – with no checked-in luggage – pays whatever price the airline itself has set but simply decides not to use up the entire item purchased?  Doesn’t that simply let the airline save gas and potentially give the empty seat to potential stand-by customers?  Does it matter to a newspaper that I choose to not read the sports pages? Must I eat the heal of my bread even though I don't like it?  What if I really don't like my bread and would rather eat a donut instead, as I thought might be the case?

The issue of breach of contract is arguably a closer one.  If airlines “strictly prohibit” the practice of only using part of a ticket, it may be promissory fraud to buy a ticket if one intends at the time of purchase to only use part of it.  This could also relate to the purchase of a round-trip ticket only to use it one-way as that too is often cheaper than a one-way ticket, as Justice Scalia found out himself recently.

The Skiplagged.com creator argues that he is only taking advantage of “inefficiencies” in airline travel that travelers have known about for a long time.  To me, it seems that airline contracting should work both ways as other types of contracting: airlines take advantage of their bargaining positions as well as their sophisticated knowledge of current and future air travel supply and demand structures.  They should do so!  I applaud them for that.  Jet travel has certainly made my personal and professional life much better than without relatively cheap air travel.  But every first year contracts law student also knows (or should know!) that contracting is not and should not be a one-way street.  Consumers too are getting more and more sophisticated when it comes to airline travel and other types of online contracting.  Websites enable us to inform ourselves about what we wish to spend our money on.  As long as consumers do not break the laws or violate established contracting principles, that does not strike me as “unfair competition,” that is simply informed consumerism in a modern capitalist society from which airlines and others have already benefited greatly.

Airlines, wake up: how about working with your customers instead of trying to fight them and modern purchasing trends?  How’s this for a thought: start offering one-way tickets for about half of a round-trip ticket just like other transportation vendors (trains, buses, subways) do.  Don’t you think that could set you apart from your competition and thus even earn you more customers?  If you can fly for a certain amount of money to a certain city, let people pay that only and then simply sell a second ticket for the remaining leg to the more popular end destination where the same plane is headed anyway.  Let people off the bus if they want to!  Let some one else on instead.  It doesn’t seem that hard to figure out how to work with current purchasing trends and your customers instead of resisting the inevitable.

For another grotesquely inappropriate lawsuit by United Airlines against its own customer, see Jeremy’s blog here.

I will blog more on this issue over the days to come.  For now, I’m glad I don’t have to head to an airport.  Happy New Year!

December 31, 2014 in Commentary, Contract Profs, Current Affairs, E-commerce, Famous Cases, Travel, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, December 22, 2014

Gift or Curse?

After years of conducting research on the genes of various animals, George Doe (a pseudonym), an accomplished biologist with a PhD in cellular and molecular biology, decides to have his own genes examined for fun and to discover whether he may be genetically predisposed to cancer.  He buys a test kit online from one the many companies that provide such services these days.  He is so excited about the process that he also buys a kit for his mother and father as gifts.  They all have their genes tested.  George finds out that he is not predisposed to cancer.  But that’s not it.  He also finds out that another male who has had his own genes tested and is thus registered with the same company is “50% related” to George.  This can only mean one of three things: this other male is George’s grandfather, uncle or … half brother.  After intense and testy family discussions, George’s father apparently admits that he had fathered this other male before marrying George's mother.  George’s parents are now divorced and the entire family torn apart with no one talking to each other.

A very sad affair.  Of course, nothing appears to be contractually wrong with this case: at the bottom of one’s profile with www.23andme.com, the company that provided the tests in this case, George and his family had checked a small box indicating for them to do so “if you want to see close family members in this search program.”  The company is said to have close to one million people in its database.  With modern science, close family members can easily be identified out of such data if opting into being notified. 

Here, the company does not appear to have done anything wrong legally.  Quite the  opposite: if anything, the above shows that the buyers in these situations may not be sufficiently mentally prepared for the information they may discover through DNA testing.  Arguably, they should be.  After all, the old adage “watch out what you ask for, you may get it” still rings true.

But isn’t this situation akin to the various other situations we have blogged a lot about here this past year where customers buy various items online and click – or not – on various buttons, thus signaling at least alleged acceptance of, for example, terms of service requiring arbitration instead of lawsuits in case of disputes?  As I have argued, many people probably just clicks such buttons without fully realizing what the legal or, in cases such as the above, factual results may be.  Should online vendors be required either legally to make such check boxes or other online indicia of acceptance a lot more obvious?  Or should they at least be required to do so for reasons of business ethics? 

I think so.  Most working people are exceptionally busy these days.  Frankly, not many of us take the time to scrutinize the various implications - legal or otherwise – of the purchases we make online, especially because the agreements we accept in cyberspace are presented so very differently online, yet are so deceptively similar in legal nature that we probably feel pretty comfortable with simply clicking “I accept” as the vast majority of such transactions present no or only minor problems for us? And aren’t the vendors the party with the very best knowledge of some, if not most, of the problems that arise in these contexts?  How hard would it really be for them to make sure that they use all the “bells and whistles” to truly put people on notice of what typical problems encountered may be, exactly to avoid legal problems down the road?  One would think so, although, of course, customers also carry some of the burden of educating ourselves about what we buy and what that may mean.  This is perhaps especially so when such delicate issues as the above are involved.

For George Doe, the above unfortunately turned out to be much more of a curse that kept on giving instead of a gift that kept on giving.

On behalf of your blogging team here at ContractsProfs Blog: Happy Holidays!

December 22, 2014 in Commentary, Current Affairs, E-commerce, Miscellaneous, Science, Web/Tech | Permalink | TrackBack (0)