Because arbitration

If you’ve ever felt that Uber costs more than it should, you can forget about fixing that in court. Under a new ruling by the Second Circuit, no matter how good your claim and regardless of how much money it involves, Uber can beat you every time.

Every. Single. Time.

Price-fixing case

Spencer Meyer lives in Connecticut. He’s used the Uber app on his Samsung smartphone many times. He took Ubers not only in the Nutmeg State but also in New York City.

But something bothered him. In December 2015, he filed a complaint against Uber co-founder Travis Kalanick in the U.S. District Court for the Southern District of New York. He alleged that Kalanick violated federal and state antitrust law by orchestrating a conspiracy among Uber drivers to charge the (higher) fares computed by the Uber algorithm.

Through random assignment, U.S. District Judge Jed Rakoff got the case.

Kalanick moved to dismiss the price-fixing claim. He urged that it was implausible that Uber drivers conspired among themselves and with Uber.

Judge Rakoff denied the motion. He ruled that Meyer plausibly alleged a price-fixing agreement among Kalanick, Uber, and Uber drivers to charge supra-competitive prices. He wrote:

In this case, plaintiff has alleged that drivers agree with Uber to charge certain fares with the clear understanding that all other Uber drivers are agreeing to charge the same fares. See Amended Complaint ¶¶ 70-71. These agreements are organized and facilitated by defendant Kalanick, who as at least an occasional Uber driver, is also a member of the horizontal conspiracy. See id. ¶¶ 76, 84.

Meyer v. Kalanick, No. 15-cv-9796, slip op. at *12 (S.D.N.Y. Mar. 31, 2016).

Motion to compel

Kalanick next asked Judge Rakoff to let Uber in as a defendant. Uber also moved to intervene. It attached to its intervention papers a motion to compel Meyer to arbitrate. The motion to compel cited Uber’s online Terms of Service. The Terms of Service included a section on Dispute Resolution. The section provided:

You acknowledge and agree that you and Company are each waiving the right to a trial by jury or to participate as a plaintiff or class User in any purported class action or representative proceeding. Further, unless both you and Company otherwise agree in writing, the arbitrator may not consolidate more than one personʹs claims, and may not otherwise preside over any form of any class or representative proceeding.

Judge Rakoff allowed Uber into the case and took up its motion to compel arbitration. He wrote:

Since the late eighteenth century, the Constitution of the United States and the constitutions or laws of the several states have guaranteed U.S. citizens the right to a jury trial. This most precious and fundamental right can be waived only if the waiver is knowing and voluntary, with the courts “indulg[ing] every reasonable presumption against waiver.” Aetna Ins. Co. v. Kennedy to Use of Bogash, 301 U.S. 389, 393 (1937); Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 188 (2d Cir. 2007). But in the world of the Internet, ordinary consumers are deemed to have regularly waived this right, and, indeed, to have given up their access to the courts altogether, because they supposedly agreed to lengthy “terms and conditions” that they had no realistic power to negotiate or contest and often were not even aware of.

Meyer v. Kalanick, No. 15-cv-9796, slip op. at *1 (S.D.N.Y. July 29, 2016). Concluding that Meyer did not have enough notice of the arbitration clause, Judge Rakoff denied the motion to compel.

On to the Second Circuit

Kalanick and Uber appealed.

Last week, the Second Circuit vacated Judge Rakoff’s ruling. The panel held that, as a matter of law, Meyer had bound himself to arbitrate any disputes with Uber and Kalanick. Applying California law, the court concluded that “Meyer was on inquiry notice of the arbitration provision by virtue of the hyperlink to the Terms of Service on the Payment Screen and, thus, manifested his assent to the agreement by clicking ‘Register.'” Meyer v. Uber Technologies, Inc., No. 16-1750-cv, slip op. at *21 (2d Cir. Aug. 17, 2017).

Did you get that? Because the screen on Meyer’s Samsung Galaxy S5 showed a hyperlink to the Terms of Service, because he could have clicked on the hyperlink and viewed the online Terms of Service, and because he could have scrolled through the Terms of Service to the Dispute Resolution section and read the arbitration agreement in it, he “was on inquiry notice” and therefore, as a matter of contract law and the federal Arbitration Act, he had therefore waived his right to a jury trial and the right to put himself forward as a representative of a class of Uber users seeking compensation for alleged price-fixing.

What it means

The Second Circuit’s decision in Meyer v. Uber Technologies, Inc. dispenses with any sense that the Arbitration Act entitles consumers to more than a trivial chance to reject a waiver of constitutional and procedural rights. Faithfully applying the letter and logic of two decades of increasingly business-friendly Supreme Court rulings, the panel held that having a hypothetical momentary chance to notice and click on a hyperlink forfeits your right to seek a collective remedy before a jury.

As I’ve noted more than once,* the forfeiture has has startling real-world consequences. A case that I had against AT&T involved an arbitration agreement that covered customers in every state except California. AT&T successfully moved to compel arbitration as to all class members who lives outside of the Golden State. Although the jury found that Ma Bell had overcharged all its U.S. customers a total of $160 million, AT&T paid only 10 percent of that amount (the proportion attributable to California customers). Because the arbitration clause also banned class arbitration, getting an effective remedy for the non-Californians in arbitration was not possible. The Arbitration Act thus saved AT&T $146 million (plus interest) that the jury found it owed! See In re Universal Service Fund Telephone Billing Practices Litig., 619 F.3d 1188 (10th Cir. 2010).

Last chance

But Meyer still has a chance. Kalanick, he urged, had waived his right to compel arbitration by, among other things, moving to dismiss his complaint and pursuing discovery. As the panel noted:

Because Meyerʹs waiver argument is based on defendantsʹ defense of this litigation in the district court, we conclude that is a question for the district court rather than an arbitrator. Accordingly, we remand the case to the district court to consider in the first instance whether defendants have waived their right to arbitrate.

Id. at *32.

For reasons of hubris, then, Kalanick may get his day in court after all. And you may get that refund, thanks to his class action.

But don’t try it yourself. Even Kalanick will probably learn from the experience.