Addressing for the first time the validity of an arbitration agreement entered via an e-commerce application, the New York Court of Appeals recently held in Wu v Uber Technologies, Inc. that the email notification and “clickwrap” process Uber used to secure a customer’s acceptance of an update to its terms of use, accomplished by means of a series of clicks on the customer’s smartphone, resulted in the formation of an arbitration agreement, warranting a stay of the customer’s personal injury action and an order compelling arbitration. In its Nov. 25, 2024 decision, the Court further determined that issues raised concerning the scope of the arbitration agreement – whether it applied to a personal injury action pending at the time the update was accepted – must be decided by the arbitrator pursuant to a clause of the agreement delegating the arbitrator exclusive authority to resolve disputes concerning the applicability and enforceability of the agreement.
Facts and Lower Court Proceedings
Plaintiff Emily Wu was a longstanding customer of Uber Technologies, Inc., a ride-share company. In July 2020, after using her smartphone to request a ride using Uber’s software application, plaintiff was injured when, upon exiting the car driven by the Uber-affiliated driver, she was struck by another vehicle. Plaintiff commenced a personal injury action against Uber in Supreme Court in November 2020.
In January 2021, Uber circulated a mass email to millions of its U.S. customers advising that it was updating its terms of use, including making changes to the arbitration agreement, and that customers would soon be prompted to agree to the update to continue using the ride-share service. The email encouraged customers to review the changes and contained hyperlinks that, if clicked, revealed the updated terms of use in their entirety, including a provision that required binding arbitration of any dispute or claim arising out of use of Uber services “at any time,” including “accidents resulting in personal injury . . . whether the . . . claim . . . accrued before or after the date you agreed to the Terms.” Further, the updated arbitration provision included a delegation clause granting the arbitrator the exclusive authority to resolve disputes relating to the interpretation, applicability, enforceability or formation of the agreement.
Plaintiff received and opened this email on January 15, 2021, two months after commencement of her personal injury action. Soon thereafter, when plaintiff next logged into the Uber app to request a ride, she was presented with a pop-up screen with the headline “We’ve updated our terms” and a blue hyperlink to the new terms of use. At the bottom of the screen there was a checkbox – with the message, in bold print: “By checking the box, I have reviewed and agreed to the Terms of Use and acknowledge the Privacy Notice” – and a large black button labeled “Confirm.” The pop-up prevented plaintiff from proceeding further in the app unless and until she addressed the prompt. Plaintiff checked the box and clicked the “Confirm” button, clearing the pop-up window and securing a ride through the Uber app.
Not long thereafter, plaintiff’s attorneys moved for a default judgment in the personal injury action based on Uber’s failure to respond to the summons and complaint. Uber answered the complaint, indicating it had not previously received notice of the action and raising the affirmative defense that plaintiff had agreed to arbitrate her claims. This was followed by a notice of intent to arbitrate, referencing the January 2021 updated terms of use.
Plaintiff moved to stay Uber’s arbitration demand and requested sanctions against Uber, contending the January 2021 arbitration agreement was procedurally and substantively unconscionable insofar as applied to claims already pending in court and that she had never validly agreed to the updated terms. In that regard, plaintiff further asserted that Uber’s communications and solicitation of assent relating to the updated arbitration agreement constituted improper communication with a represented party in violation of the “no-contact” rule of the Rules of Professional Conduct. Uber cross-moved to compel arbitration and stay the litigation, contending the email and in-application processes used to secure plaintiff’s agreement were both proper and effective, and that no disciplinary rules had been violated given, among other things, that Uber was neither aware of the lawsuit nor that plaintiff was represented by counsel when the communications occurred.
Supreme Court denied plaintiff’s motion and granted Uber’s cross motion to compel arbitration and stay the litigation, and the Appellate Division, First Department, unanimously affirmed. Both courts rejected plaintiff’s argument that she had not entered into an arbitration agreement, concluding that plaintiff was, at the least, on inquiry notice of the arbitration agreement in the January 2021 terms of use update and had assented to that agreement by clicking a checkbox and button confirming her consent – conduct a reasonable person would understand to constitute assent.
Likewise, both courts concluded that plaintiff’s challenges to enforcement of the agreement, including that it was unconscionable and could not reasonably be applied to a lawsuit pending at the time it was entered, were issues for the arbitrator to decide under the delegation provision in the agreement. Finally, Supreme Court rejected plaintiff’s claim for sanctions based on violation of the no-contact rule due to, among other things, the absence of proof that Uber knew either that litigation was pending or that plaintiff was represented when the January 2021 communications were initiated and the Appellate Division concluded this was a provident exercise of discretion. The Appellate Division granted plaintiff leave to appeal to the Court of Appeals.
Decision of the New York Court of Appeals
The Court of Appeals affirmed, with two judges dissenting, addressing at length the novel issue of under what circumstances a party can be held to have assented to an arbitration agreement via an e-commerce application. The Court reaffirmed New York’s “long and strong public policy favoring arbitration” and, as it was undisputed that any such agreement would be covered by the Federal Arbitration Act, cited federal statutory and decisional law for the proposition that arbitration agreements are enforceable under the same terms as other contracts, emphasizing, as the United States Supreme Court has repeatedly stated, that “arbitration is strictly a matter of consent” (quoting Coinbase, Inc. v Suski, 602 US 143, 148 [2024]). The Court of Appeals also made clear that the question whether the parties agreed to arbitrate “is governed by state contract-law principles, provided that those rules do not expressly or covertly discriminate against agreements to arbitrate.”
The Court therefore relied on its own long-standing precedent “that a binding contract requires an objective manifestation of mutual assent, through either words or conduct, to the essential terms comprising the agreement” (internal quotation marks and citation omitted). Citing its 1870 decision in Blossom v Dodd (43 NY 264), the Court emphasized that “there is no requirement that a party have correctly understood – or even reviewed – the terms presented by the offeror for their manifestation of acceptance to be effective. Instead, courts ask whether the offeree was put on inquiry notice of the contractual terms,” which occurs “when those terms are clearly and conspicuously presented to the offeree as a contract and made available for review.” It is then incumbent on the offeree to read and assess the proposed terms – “a person who accepts a written contract without first undertaking this review generally bears the risk that the agreement may contain provisions they do not like or expect.” The Court concluded that “[t]he[re s no sound reason why [black letter contract formation] principles . . . should not be applied to web-based contracts,” as other “state and federal courts across the country” had concluded. The Court cited with approval decisions that “look[ed] to the design and content of the relevant interface to determine if the contract terms were presented to the offeree in a way that would put her on inquiry notice of such terms” or whether a link was “buried at the bottom of the page or tucked away in obscure corners of the website where users are unlikely to see it.” Noting that “formation of a web-based contract under New York law also requires a clear and objective manifestation of assent,” the Court clarified that, “[a]lthough an internet or smartphone user need not explicitly say ‘I agree’ to the contractual terms, they must engage in conduct that a reasonably prudent user would understand to constitute assent.” And it defined a “reasonably prudent user” as “one who is neither ‘highly savvy’ nor ‘a complete stranger’ to computers or smartphones – that is, someone who has general familiarity with how to navigate a website, use a scroll bar, recognize a hyperlink, and download an application.”
The Court then closely analyzed the circumstances surrounding and the language used in the Uber communications relating to the updated terms of use. Beginning with the email notification advising of the upcoming change in policy, the Court noted that the headline of the email – “Updated Terms of Use” – clearly informed plaintiff that she would soon be asked to review and agree to Uber’s updated terms. Moreover, the brief description of the nature of the changes specifically referenced “changes to the Arbitration Agreement.” And the specific updated terms were accessible through several hyperlinks in the email labeled “Review terms” and “Terms of Use.” Finally, the email advised plaintiff that she could agree to the terms by tapping “Confirm” in a pop-up window that would automatically appear next time she accessed the Uber app on her smartphone. This is what occurred when plaintiff opened the Uber app a few days after receiving the email, when a popup screen stated that Uber had updated its terms and encouraged the user to “read our updated Terms in full,” followed by a hyperlink to the complete Terms of Use in the middle of the screen.
The court concluded that “[a] reasonably prudent user would have understood from the color, underlining, and placement of that text . . . that clicking on the words ‘Terms of Use’ would permit them to review those terms in their entirety.” Moreover, “Uber provided plaintiff with an unambiguous means of accepting the terms by including a checkbox, “Confirm” button, and bolded text expressly stating ‘By checking the box, I have reviewed and agree to the Terms of Use.‘” Thus, the Court reasoned that Uber’s “clickwrap” process, under which customers were required to affirmatively click a button to communicate acceptance of terms of use, “put plaintiff on inquiry notice of the January 2021 terms -- including the prominently placed arbitration agreement -- and she manifested her assent to those terms by both clicking on the box and pressing the ‘confirm’ button.” Thus, an agreement to arbitrate was formed.
Rather than attacking the use of a clickwrap process generally, plaintiff had contended that no valid agreement was created because the updated terms were unconscionable and unenforceable to the extent they purported to require arbitration of a claim already pending in court and that the communications were insufficient to draw her attention to this aspect of the updated terms, which she characterized as “actively misleading” and “buried” in the agreement. But having determined that “Uber’s clickwrap process satisfied the contract-formation requirements of offer and acceptance” and absent any specific challenge to the delegation clause itself, the Court determined that plaintiff’s arguments presented issues for the arbitrator to decide as they went to the question “whether the arbitration agreement is legally binding, as opposed to whether it was in fact agreed to.” Finally, as to the asserted ethical violation under the no-contact rule, the Court concluded there was record support for the finding that Uber lacked actual knowledge of the litigation at the time it solicited assent to the updated terms of use, rendering the rule inapplicable.
Judge Jenny Rivera dissented in an opinion joined by Chief Judge Rowan D. Wilson, reasoning that plaintiff’s argument that the agreement could not be enforced to require arbitration of her pending claim went to the issue of contract formation and therefore was a threshold issue the Court must decide. Reaching that issue, the dissent would have held that the update did not put a reasonable person on notice that acceptance of the revised terms of use would force them to arbitrate previously filed, currently pending claims and, as such, there was no meeting of the minds. Alluding to an “apparent, if not actual, violation of” the no-contact rule, the dissent concluded “Uber should not be able to force plaintiff out of her chosen forum on the specious ground that a reasonable person in her position, having retained counsel, filed a claim, and engaged in motion practice, suddenly decided that arbitration was the better course.”
Key Takeaways
As a general principle, the Court of Appeals held that a binding arbitration agreement can be formed by a customer’s interface with a “clickwrap” process via an e-commerce application. However, the devil may be in the details. In reaching the conclusion that plaintiff had “inquiry notice” and therefore assented to the updated terms of use, the Court undertook a painstaking and rigorous review of both the substance and the circumstances surrounding Uber’s email and in-application communications with customers, detailing each step of the specific “clickwrap” process at issue here. That this process was deemed adequate to confer “inquiry notice” does not mean that other clickwrap processes will suffice, or that other in-application approaches (such as “browsewrap,” “sign-in-wrap,” or “scrollwrap” procedures) could support an order compelling arbitration.
Further, the decision signals that courts applying New York law may look beyond the interface where assent was obtained (the in-app clickwrap process) by considering the broader set of circumstances leading up to that discrete communication. Here, the Court devoted several pages of its decision to addressing an email sent to the customer days before the in-app interaction, where she clicked a button expressing her assent to the change in terms of use. It appears that the Court viewed the notification in that email as significant in determining whether adequate notice of the amendments to the terms of use, specifically notice that the update included changes to the arbitration clause, had been communicated to the customer. E-commerce companies reviewing their procedures in the wake of this decision – and counsel that represent them -- would be well-advised to take a comprehensive view of the communications and notifications given customers, rather than focusing myopically on a single interaction or “click” during an in-app interaction.
