1st Circuit Refuses to Enforce Arbitration Clause

The U.S. Court of Appeals for the First Circuit has reversed a district court’s grant of a motion to compel arbitration on the part of a large ride-sharing company.  The dispute arose after a class action was brought against the ride-sharing company on charges that the company violated a Massachusetts consumer-protection statute by knowingly imposing fictitious or inflated fees.  In response to those charges, the ride-sharing company filed the motion to compel arbitration and stay or dismiss the case, and the district court granted the motion.

The arbitration clause on which the ride-sharing company relied for its motion to compel arbitration was a part of the company’s terms and conditions that was available to consumers during the registration process that was required to be completed before a consumer could participate in the ride-sharing service.  The terms and conditions could be viewed by consumers, by clicking a hyperlink, entitled “Terms & Conditions” during the registration process.  However, consumers were not required to click the “Terms & Conditions” hyperlink in order to continue with the registration process.

In evaluating whether compelled arbitration was appropriate in this case, the First Circuit determined that, when deciding whether parties agreed to arbitrate a matter, courts should generally apply state-law principles as they pertain to contract formation.  Therefore, in determining the enforceability of forum selection clauses in online agreements, the First Circuit cited a Massachusetts Appeals Court decision that set forth a two-step inquiry:  (1) whether the contract terms were reasonably communicated to the plaintiff; and (2) whether the record shows that those terms were accepted, including reviewing the manner of acceptance.

Ultimately, the Court found that the terms were not reasonably communicated to the plaintiff because, according to the Court, consumers were not informed in a conspicuous manner of the existence and location of terms and conditions.  In so finding, the Court relied on the presence of other terms on the same screen as the hyperlink to the terms and conditions that were equally conspicuous, therefore diminishing the hyperlink’s capability to grab consumers’ attention.  Additionally, because the Court found that the terms were not reasonably communicated to consumers it also found that consumers did not provide their unambiguous assent to the terms.  Therefore, the First Circuit found that the ride-sharing company failed to carry its burden to compel arbitration in this case.

More information regarding the First Circuit Court’s ruling can be found here.