Friday, September 18, 2015
Nancy Kim is, as you probably know, one of the nation’s, if not the world’s, leading experts on internet contracting. She is a contributor to this blog as well. Among other issues, Professor Kim rightfully questions whether consumers are put on sufficient notice of various contractual terms and conditions when they purchase goods or services via the Internet.
The Second Circuit has just held that emails sufficiently direct a purchaser’s attention to a service provider’s terms and conditions including a forum selection clause when a hyperlink is provided along with language “advising” the purchaser to click on the hyperlink. (The case is Starkey v. G Adventures, Inc., 796 F.3d 193 (Second Cir. 2015). Said the court, “This method serves the same function as the method of cross-referencing language in a printed copy promotional brochure and sufficed to direct [the purchaser’s] attention to the Booking Terms and Conditions. Both methods may be used to reasonably communicate a forum selection clause.”
The background is this: A customer purchased a ticket for a vacation tour of the Galápagos Islands operated by a tour operator. Shortly thereafter, the tour operator sent the customer three emails: a booking information email, a confirmation invoice, and a service voucher. The booking information email contained the statement, “TERMS AND CONDITIONS: ... All Gap Adventures passengers must read, understand and agree to the following terms and conditions.” This statement was followed by a hyperlink with an underlined URL. The confirmation invoice and service voucher each also contained hyperlinks, which were preceded immediately by the following text: “Confirmation of your reservation means that you have already read, agreed to and understood the terms and conditions, however, you can access them through the below link if you need to refer to them for any reason.” The hyperlinks in all three emails linked to a document entitled “…. Booking Terms and Conditions.” The second paragraph of that document stated that “[b]y booking a trip, you agree to be bound by these Terms and Conditions.... These Terms and Conditions affect your rights and designate the ... forum for the resolution of any and all disputes.” The customer did not dispute that she received the relevant emails. Instead, she alleged, as often happens, that she never read the Booking Terms and Conditions because she never clicked on the hyperlinks.
The customer alleged that she was sexually assaulted on the tour by one of the tour operator’s employees. Instead of being able to pursue her negligence claim in a New York court, she must now pursue her claim in Ontario, Canada. The court also held that it was not unreasonable and unjust to enforce the forum selection clause, stating that such clauses will only be set aside if (1) its incorporation was the result of fraud or overreaching; (2) the law to be applied in the selected forum is fundamentally unfair; (3) enforcement contravenes a strong public policy of the forum in which suit is brought; or (4) trial in the selected forum will be so difficult and inconvenient that the plaintiff effectively will be deprived of his day in court. The plaintiff failed to meet any of those requirements.
This case shows how some courts still ignore the fact that, as Professor Kim has pointed out and as the case obviously shows, even though the attention of purchasers (online or otherwise) is directed towards certain crucial contractual clauses, they in fact do not read these. Such is reality in a society such as ours with numerous and often lengthy and complicated legal notices and disclaimers. Are purchasers then truly given sufficient notice in such modern cases? But from a contrary viewpoint, what else can sellers and service providers possibly do to make purchasers aware of key terms? For more on this, read Professor Kim’s scholarship or book.
Monday, September 14, 2015
Catching up on my podcast listening, I just heard last week's episode of Reply All, a show about the Internet. The focus of this episode is a prank telephone call that seemed to come from Comcast. The prankster represented herself as a Comcast representative and threatened the Comcast customer that Comcast would fine him or disconnect his service if he did not remove some hostile tweets he had posted expressing dissatisfaction with that service. The prank worked; he removed a hostile tweet, but when the prankster upped the ante and tried to get him to remove more tweets, he hung up.
1. Adults make prank calls, and they are very sophisticated. They can fool your caller i.d., and as a result they can fool you. This is just sad and obnoxious, but the bigger concern is that the same techniques can be used to steal your identity. Probably best at this point in our relationship with technology to never answer your phone.
2. The prank worked because, as we have reported about repeatedly, companies now do try to prevent customers from posting negative reviews on social media, and it is completely credible that a large media company like Comcast would empower itself to discipline customers in this way. For the record, as Reply All showed, Comcast does not do so.
But they could.
But they don't.
But they could, or at least they could try to do so and thus chill people into keeping mum about how much they hate Comcast or TimeWarner or AT&T or Verizon or Sprint or T-Mobile or . . . .
Sunday, September 6, 2015
The recent massive hack into married-but-dating website Ashley Madison’s files may not only have breached the customer’s reasonable contractual expectations, but is now also said to lead to serious counter-intelligence concerns.
Both China and Russia are collecting personal and sensitive information about people who may be involved in American national security operations. What better leverage to have against operatives than information about their most secret, erotic desires. The temptation to resist such information being shared with even more people may persuade some operatives to render otherwise secret information about United States national security issues. Recall that quite a few affair seekers used their official government addresses to arrange their attempted or successful trysts. In combination with another recent OPM hack, countries that are seen as adversaries have apparently also been able to obtain information about who has sought security clearances and can use this information for counter-intelligence purposes.
That seems to provide a good public policy argument for why courts should find against Ashley Madison if it came to a contractual lawsuit regarding the breach of “100% secrecy” and “full deletes” promised, but not delivered, by Ashley Madison.
Friday, September 4, 2015
Yesterday, we blogged here about important considerations regarding whether an employee will be seen as an employee or a contractor.
In O'Connor v. Uber Technologies, U.S. District Judge Edward Chen just ruled that Uber's drivers may pursue their arguments that they were employees in the form of a class-action suit. One of the reasons was that Uber admitted that they treated a large amount of its drivers "the same."
Of course, millions of dollars may be at stake in this context. Profit margins are much higher for companies such as Uber, Lyft, Airbnb and other so-called "on demand" or "sharing economy" companies. That is because the companies do not have to pay contractors for health insurance benefits, work-related expenses, certain taxes, and the like. But seen from the driver/employee's point of view, getting such benefits if they are truly employees is equally important in a country such as the United States where great disparities exist between the wealthy (such as the owners of these start-up companies) and the not-so-wealthy, everyday workers.
Plaintiffs are represented by renowned employee-side attorney Shannon "Sledgehammer" Liss-Riordan who represented and won a major suit by skycaps against American Airlines some years ago, so sparks undoubtedly will fly in the substantive hearings on this issue.
Tuesday, September 1, 2015
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.
Monday, August 24, 2015
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.
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.
Friday, August 21, 2015
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.
Sunday, August 2, 2015
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.
Monday, July 27, 2015
As 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.
Monday, July 20, 2015
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.
Tuesday, June 23, 2015
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.
Thursday, June 18, 2015
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.
In 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
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.
Monday, June 8, 2015
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.
Thursday, June 4, 2015
In an 83-page memorandum and order of the case, available here, Judge 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.
After a truly impressive survey of the caselaw and the scholarly literature, Judge Weinstein emerges with some general principles:
A hearing on class standing is scheduled for July. Stay tuned.
Monday, June 1, 2015
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.
Thursday, May 28, 2015
Tuesday, May 26, 2015
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.
Monday, May 11, 2015
According 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.
Monday, April 27, 2015
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.