Arbitration Clauses in User Agreements

Today it’s extremely common for arbitration clauses to be part of the terms and conditions of online user agreements. When users click “I agree” while signing up for a service or App, they often unwittingly consent to an arbitration clause embedded in the terms and conditions. This results in consumers forfeiting their right to resolve disputes in a court of law.

Proponents of such online terms argue that arbitration is faster and less costly than litigation. Conversely, opponents contend that most consumers have no idea they are relinquishing their right to sue the company when they agree to the terms. Further, consumer groups claim companies prefer arbitration to avoid negative publicity and the accountability that comes with public lawsuits.

Two recent state appellate cases have catapulted this debate to the forefront of arbitration jurisprudence. In August after attempting to force a wrongful death action to proceed under a user agreement arbitration clause, the Walt Disney Co. opted to use the Florida court system instead. A few months later, a New Jersey appeals court ruled that passengers in an Uber car crash must arbitrate rather than resolve their case in a courtroom.

What Are Arbitration Clauses?

Arbitration is a legal process in which a neutral arbitrator determines the outcome of a dispute instead of a judge or jury. The parties typically agree to arbitration in an arbitration clause in a contract’s terms and conditions. Arbitration is less formal than court proceedings and is generally private, with limited grounds for appeals.

Today, consumers frequently enter online contracts that contain arbitration clauses. These online user agreements fall into several categories:

• Clickwrap Agreements. Consumers click a button to agree to a contract. The agreement terms, including arbitration clauses, may appear on the same webpage as the button or be accessible via a link.
  • Clickwrap agreements are generally enforceable due to the affirmative assent of clicking the button.
• Browserwrap Agreements. Here, consumers accept contract terms by merely browsing a website. Courts have ruled that organizations must clearly put consumers on notice for a browsewrap agreement to be enforceable.
• Scrollwrap Agreements. These contracts require consumers to scroll to the bottom of an agreement and click a button to indicate their assent. These agreements are usually enforceable because the consumer manifestly assents when they scroll and click.
• Signin Wrap Agreements. With this type of agreement, organizations inform consumers that by creating an account, signing in, or using the website, they are agreeing to the terms and conditions, which are available via a link. Courts determine enforceability, by courts evaluating whether the webpage layout gives consumers sufficient notice.

Case Study: Disney+ and the Wrongful Death Lawsuit

After eating at a Disney World pub while on vacation, New York physician Kanokporn Tangsuan died from an allergic reaction to dairy and nuts in the restaurant food. Her husband Jeffery PIccolo filed a wrongful death action against the restaurant and Walt Disney Parks and Resort US in February 2024, claiming that after several discussions about her food allergies the waiter and chef had guaranteed the food the doctor ordered would be allergen-free.

The complaint also alleged:

• Disney had a duty to deliver allergen-free food as designated in the pub’s menu and breached that duty
• Disney failed to educate and train the restaurant staff on delivering allergen-free food
• Dr. Tangsuan died as a direct and proximate cause of Disney’s negligence

Disney Tries to Force Arbitration, then Drops It

After Piccolo filed the lawsuit, Disney initially argued that it bore no liability because it merely served as a landlord to the pub and had no control over the restaurant’s operations.

A month later the entertainment and resort giant claimed the complaint was subject to arbitration, asserting that Piccolo had agreed to arbitrate any disputes with the company when he previously signed up for a Disney+ subscription and bought theme park tickets on Disney’s website.

In August 2024 Disney reversed its position, announcing it had decided to waive its right to arbitration and allow a court to decide the wrongful death lawsuit. A Disney executive said the situation warranted a sensitive approach for the grieving family.

Disney’s dropping of the arbitration demand implies the company did not think the Florida court would agree that the Disney+ arbitration agreement applied in the wrongful death case. It is possible that Disney felt it would be challenging to demonstrate that consumers got proper notice of giving up their rights or how consumer consent manifested in their clickwrap agreements. Lawyers may also have feared the judge would not see a nexus between a streaming service agreement and a restaurant meal containing food allergens.

Disney was undoubtedly also concerned about bad publicity surrounding its attempt to force a grieving family to arbitrate. There was significant media coverage and outcry about Disney’s insistence that a clickwrap arbitration agreement meant the popular NY doctor’s husband could not have his day in court. agreement. Consumers would likely view this as abusive and cold-hearted.

Case Study: Uber User Agreement Lawsuit

A New Jersey couple, John and Georgia McGinty, suffered serious injuries that required surgeries, recovery, and time away from work when their Uber driver ran a red light and T-boned another car in March 2022. The McGintys subsequently filed a lawsuit against Uber and the driver.

Uber moved to compel arbitration, citing the arbitration clause in the Uber user agreement. Uber asserted that Georgia agreed to arbitrate any disputes with Uber over services when she opened an Uber account in 2015.Uber also claimed that McGinty's minor daughter activated the “Checkbox Consent” while getting updates on a January 2022 UberEats food delivery which refreshed the App.

John and Georgia argued that they did not see the purported “clickbox” while their daughter ordered food. They assumed their daughter clicked it while using Georgia’s phone with permission to place the order.

The lower court found that the arbitration agreement in the Uber user agreement was unenforceable. The shortcomings of the agreement included:

• Failure to unambiguously inform Mrs. McGinty that she was waiving her rights to a judicial forum.
• The arbitration agreement lacked specificity on “what the resolution would look like or what the alternative to such resolution might be.”

However, a Superior Court Appellate Division panel later ruled that the arbitration agreement that Georgia or her minor daughter agreed to while using the cell phone was valid and enforceable. The appeals court reversed the lower court’s denial of the motion to move the dispute to arbitration.

The appeals court's key findings and comments included:

• The arbitration terms unambiguously evidenced plaintiffs’ waiver of a right to pursue any claims against Uber in a court of law
• New Jersey courts have established that when users are required to physically manifest assent to terms, they are put on inquiry notice of those terms.
• The New Jersey Supreme Court has emphasized that arbitration terms must be construed according to their plain language – explicit waiver of a jury trial or statutory claims is not needed.
• The NJ high court has held numerous times that under the New Jersey Arbitration Act arbitration agreements are on an equal footing with other contracts.

The McGinty’s said they will appeal this ruling.

If this case withstands appeal, the New Jersey court’s enforcement of a clickwrap arbitration agreement will be music to the ears of defense lawyers representing companies with user agreements containing arbitration clauses.

Implications of the Disney and Uber Cases

With up to 99% of surveyed consumers accepting terms and conditions without realizing they are giving up their right to sue in a court of law, an increasing number of individuals may find themselves forced into arbitration. As more people are deprived of their day in court legislators are bound to face pressure to act to protect consumers’ rights.

The Consumer Financial Protection Bureau (CFPB) may also be urged to create rules that safeguard consumers from being blindsided by obscured arbitration agreements. Consumer groups may also lobby the CFPB to limit or even eliminate clickwrap arbitration agreements. An alternative solution could be to let consumers choose between arbitration or going to court after a dispute arises.

Lastly, courts across the country will continue to refine what it means to clearly and unambiguously notify consumers about arbitration terms in online user agreements. Sharpening the definitions of how consumers manifest consent in clickwrap and other online agreements will also remain a significant issue for the courts to address in the wake of the Disney and Uber cases.