Enforceability of Online Contracts under Massachusetts Law: Kauders v. Uber Technologies, Inc.

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by Kevin J. Conroy 

Case Focus

Earlier this year, in Kauders v. Uber Technologies, Inc., 486 Mass. 557 (2021), the Supreme Judicial Court provided further clarity on an issue likely to impact every resident of the Commonwealth and the businesses they interact with online – namely, the enforceability of agreements created through website and mobile apps, including the terms and conditions that purport to govern the use of those businesses’ online platforms.

The Test for Enforceability

In Kauders, the SJC evaluated the interface by which Uber had attempted to secure its users’ assent to its terms and conditions, including a mandatory arbitration clause. Recognizing that “[t]he touchscreens of Internet contract law must reflect the touchstones of regular contract law,” the SJC held that to create an enforceable online contract under Massachusetts law, there must be both reasonable notice of the terms and a reasonable manifestation of assent to those terms.” Id. at 572. Kauders’ two-part test is consistent with the approach taken by appellate courts from around the country as well as in a 2013 decision from the Massachusetts Appeals Court. Id. (citing Ajemian v. Yahoo!, Inc., 83 Mass. App. Ct. 565, 574-75 (2013) and Conroy & Shope, Look Before You Click: The Enforceability of Website and Smartphone App Terms and Conditions, 63 Boston Bar J. 23, 23 (Spring 2019)). See also Emmanuel v. Handy Technologies, Inc., No. 20-1378 (1st Cir. Mar. 22, 2021) (applying Kauders to find that plaintiff had formed an arbitration agreement with the defendant).

Uber had asserted that Kauders must pursue his claim in arbitration because he accepted Uber’s terms of use. According to Uber, Kauders had accepted those terms by proceeding to register an account after viewing a screen in Uber’s app with the language “By creating an Uber account, you agree to the Terms & Conditions and Privacy Policy” with embedded hyperlinks to the actual text of the terms. The SJC concluded that Uber failed to satisfy both the reasonable notice and reasonable manifestation of assent prongs of the contract analysis. By identifying several deficiencies in Uber’s interface, the opinion provides guidance on design choices that can contribute to enforceable online contracts in future cases.

Reasonable Notice of Terms

With respect to reasonable notice, the SJC clarified that actual notice will generally be found if the user has been presented and viewed the terms, or if the user is required to interact with the terms somehow before proceeding to use the app or website. Thus, interfaces that require the user to scroll through the entire text of the terms before being allowed to progress should satisfy the reasonable notice prong of the test under Kauders. Absent actual notice, the SJC indicated that clarity and simplicity of the presentation of the terms should be the focus. If the terms are not presented directly on the screen, the full text should at least be available (if not required to be accessed) by following a clear link with minimal intermediate steps.

The SJC explained that, ultimately, reasonable notice involves a determination of whether “the offeror [has] reasonably notif[ied] the user that there are terms to which the user will be bound and [has] given the user the opportunity to review those terms.” Id. at 573. The Court noted that Uber’s notice, in contrast, was not reasonable as the terms could be reached only by following two successive links which the user was not required to access to complete the registration process. The SJC also identified several other features of Uber’s interface that detracted from the clarity of the notice of the terms. For example, the nature of the transaction – registering for an account to enable future ride services – might not suggest to a reasonable user that the user is entering into a contractual relationship governed by the extensive indemnification and waiver provisions included in Uber’s terms. The SJC also observed that the language informing the user of the contractual consequences of proceeding with the registration was displayed less prominently than other elements.  That language appeared at the bottom of the screen, whereas the elements the user was required to interact with to proceed (e.g., entering payment information) drew the user’s attention away to the top of the screen.

Reasonable Manifestation of Assent

With respect to reasonable manifestation of assent, the SJC declared a clear preference for “clickwrap” interfaces in which the user is required to indicate express and affirmative assent to the terms by checking a box or clicking a button that reads “I agree” or its equivalent. The Court likened the affirmative act of clicking such a box or button of assent to “the solemnity of physically signing a written contract” and suggested that this would help alert the user to the contractual significance of their action. Where the interface does not require the user to expressly agree – as in the Uber interface at issue in Kauders – assent may still be inferred from the actions the user takes. However, the SJC cautioned that in such cases the courts would need to engage in careful consideration of the totality of the circumstances, and “it will be difficult for the offeror to carry its burden to show that the user assented to the terms.” Id. at 575.

The Court admonished that Uber’s interface obscured the connection between the user’s action and assent to Uber’s terms because the app only required the user to click a button labelled “DONE” (rather than “I agree” or “Create Account”) on the screen that provided notice of Uber’s terms. Id. at 577. To underscore that “uncertainty and confusion in this regard could have simply been avoided by requiring the terms and conditions to be reviewed and a user to agree,” the SJC compared Uber’s rider registration interface (at issue in the case) with its separate, driver registration interface. The latter required prospective drivers to confirm at least twice that they had reviewed and accepted the terms of the agreement by clicking a button expressly stating “YES, I AGREE.” In contrast, the SJC observed that the Uber rider interface at issue “enables, if not encourages, users to ignore the terms and condition.” Id. at 577.

The Substance of the Terms

The SJC also expressed skepticism about various aspects of Uber’s terms, including a provision that purported to permit the company to make unilateral changes to the terms without notice (placing “the burden on the user to frequently check to see if any changes have been made”). The Court likewise expressed doubt about a provision that “totally extinguishe[d] any possible remedy” against the company. While the Court did not reach the question of the enforceability of such terms given its determination that no contract had been made, it included the severe consequence of the terms in its analysis of whether reasonable notice was provided.

Conclusion

Kauders confirms that Massachusetts courts will closely scrutinize the manner in which websites and apps communicate, and attempt to secure users’ agreement to, the terms and conditions that purport to govern their use, particularly if there is any indication that the existence or import of the terms are minimized or obscured. Anything less than an interface that is designed simply and clearly to require (1) that the terms be viewed actively by the user (through direct display on the screen or a direct hyperlink to the full terms) and (2) that there be express and unambiguous assent (through check-the-box style interfaces or “I Agree” buttons) is likely to invite avoidable court challenges.

Kevin J. Conroy is a litigation attorney at Nystrom, Beckman & Paris in Boston.  Kevin’s practice focuses on complex disputes including contract claims, insurance coverage claims, and other business disputes.


A Signed Text Message Can Result in a Binding Real Estate Contract

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by Peter F. Carr, II

Practice Tips

The commonplace reliance upon and acceptance of text messaging in commercial dealings has forced courts to examine the legal implications of texting within the seminal rule that a contract concerning real estate shall not be enforced “[u]nless the promise, contract or agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged therewith or by some person thereunto by him lawfully authorized.” G.L. c. 259, § 1, Fourth. At the trial court level, courts have embraced the concept of “contract by text message” for real estate so long as additional key elements are established. One, the text message must either contain or incorporate by express reference all material terms of an agreement concerning land. Two, the text message must conclude with the signature of the “party to be charged” or its authorized agent. A formal signature or even a complete first and last name is not required. However, the sequencing is critical. The cases to date largely have turned on whether the name of the sender appears at the end of the text message to signify the authentication of its preceding substance. The text message is sufficiently signed and binding provided that it concludes with a “mark” to indicate that the sender adopts the message.

Recent cases from the Land Court bear out these core concepts. In a commercial real estate dispute that hinged on text message exchanges between the parties’ brokers, a judge denied a special motion to dismiss a lis pendens that was issued in favor of the plaintiff buyer seeking to enforce a sales contract. St. John’s Holdings LLC v. Two Electronics, LLC, 24 LCR 190, 16 MISC 000090 (RBF), 2016 WL 1460477 (Mass. Land Ct. April 14, 2016), aff’d, 92 Mass. App. Ct. 1114 (2017). Although the defendant seller ultimately prevailed at trial, the Court steadfastly held that the text message of the seller’s broker satisfied the signed writing requirement of the Statute of Frauds. The text message incorporated by reference the final letter of intent for the purchase and sale of the property following ongoing negotiations between the parties. The contract was deemed signed and accepted by the seller when the seller’s broker concluded the text message with the inclusion of his first name. The Court held, “In the context of these exchanges between the parties, the court infers that the text message sent by [Tim, the seller’s broker] was intended to be authenticated by his deliberate choice to type his name at the conclusion of his text message.”  In another case, the Court similarly found compliance with the Statute of Frauds because, “[t] he broker’s writing her first name ‘Laurie’ at the end of the text message constitutes a signature for the purpose of the Statute of Frauds.” However, the Court ruled that the text message did not contain or incorporate sufficient material terms to form a contract. Fiore v. Lindsey, No. 17 MISC 000533 (RBF), 2017 WL 5969332 (Mass. Land Ct. Nov. 29, 2017). In contrast and underscoring the critical nature of the sequencing, text exchanges between brokers did not satisfy the Statute of Frauds where none of the operative texts concluded with the names of the brokers, even though those names appeared in the bodies of the messages. Donius v. Milligan, 24 LCR 440, 443, No. 16 MISC 00277 (HPS), 2016 WL 3926577 (Mass. Land Court July 25, 2016). The Court denied relief because the “text messages here are not signed by either the proposed buyer or seller, nor are they signed by the agents.” In addition, the Court ruled that the substance of the text messages evidenced mere negotiations.

Although no appellate court has yet addressed squarely text messages in the context of the Statute of Frauds, the prior appellate decisions affirming the binding nature of informal email exchanges coupled with the expanding usage of electronic communications arguably signal that reviewing courts are likely to embrace the theories established at the trial court level. Accordingly, to avoid being bound to an agreement involving land that may never have been intended, parties should insist upon more formal means of communicating with clear documentation, at least as negotiations proceed. A party involved in a transaction may be wise to limit or eliminate all text messaging with a counterparty during the course of negotiations, or to include written disclaimers to memorialize that text messages will not be accepted as part of a deal. At a minimum, parties must avoid a course of conduct which creates the presumption that a text message is sufficient to express offer and acceptance. Otherwise, as the judge observed in St. John’s Holdings, “a text message, all too familiar to most teenagers and their parents, can constitute a writing sufficient under the Statute of Frauds to create an enforceable contract for the sale of land.”

Peter F. Carr, II is a member of the litigation department of Eckert Seamans Cherin & Mellott, LLC, a regional law firm, practicing out of the Boston Office since joining the firm in 1995 after completing a clerkship with the Massachusetts Appeals Court assigned to former Chief Justice Joseph Warner. Peter’s daily practice covers a wide variety of business counselling and commercial litigation matters to include substantial trial experience. Peter served as trial and appellate counsel in the Land Court case of St. John’s Holdings referenced above.