U.S. District Judge Jed Rakoff. Photo Credit: Rick Kopstein/ALM

New York-based federal judge Jed Rakoff has sent a major antitrust price-fixing lawsuit against Uber Technologies Inc. into arbitration, albeit reluctantly, and dismissed the case from court.

But not before first devoting pages of his opinion in Meyer v. Kalanick, 15-cv-9796, to fiercely criticizing the U.S. Court of Appeals for the Second Circuit, and the federal judiciary as a whole, for repeatedly upholding U.S. companies' use of mandatory arbitration clauses that consumers assent to via internet-based customer agreements that appear on screens. Rakoff said such terms of service agreements “totally coerce” the consumer into waiving his or her constitutional right to a jury trial.

In two and a half pages of dictum that open the opinion, Rakoff, a senior judge in the U.S. District Court for the Southern District of New York, spares no niceties. He makes clear that he thinks the federal judiciary has gotten an important constitutional issue wrong for years, and that the law must change.

“Thus, while [federal] appellate courts still pay lip service to the 'precious right' of trial by jury,” he wrote, “and sometimes add that it is a right that cannot readily be waived, in actuality federal district courts are now obliged [because of appellate court rulings] to enforce what everyone recognizes is a totally coerced waiver of both the right to a jury and the right of access to the courts—provided only that the consumer is notified in some passing way that in purchasing the product or service she is thereby 'agreeing' to the accompanying voluminous set of 'terms and conditions.'

“This being the law,” he continued, “this judge must enforce it—even if it is based on nothing but factual and legal fictions.”

Rakoff then dismisses the case, brought in 2015 by consumer Spencer Meyer. But he does so without prejudice so that Meyer can pursue his claims against Uber and former chief executive officer Travis Kalanick in arbitration. Meyer's antitrust lawsuit, which Kalanick has spent more than two years fighting and pushing toward arbitration, asserts that Kalanick and Uber drivers entered into a conspiracy to fix Uber's prices at those set by the company's algorithm. The purportedly illegal arrangement, according to the suit, guarantees that the drivers will not be competing with one another on price.

Or as summarized by Rakoff in his March 5 opinion: “Meyer's basic claim is that Kalanick arranged for Uber drivers to use Uber's pricing algorithm to determine the amounts to charge to Uber riders, thereby restricting competition among drivers who would otherwise compete on price to the benefit of riders such as Meyer.”

Meyer also attempted to bring the lawsuit as a class action. But the arbitration agreement that now binds the suit disallows such class actions.

In issuing his recent opinion, Rakoff was following the orders of a Second Circuit three-judge panel that last August overruled Rakoff's earlier decision in the lawsuit. In July 2016, Rakoff, in another fiery opinion, had rejected Kalanick and Uber's attempt to force the suit into arbitration. He ruled that the ride-hailing company's online user agreement did not give the customer enough notice that disputes would be heard in arbitration for it to be binding.

“The Uber registration screen [on Meyer's smartphone] … did not adequately call users' attention to the existence of Terms of Service,” Rakoff wrote in July 2016. He added, “It is hard to escape the inference that the creators of Uber's registration screen hoped that the eye would be drawn seamlessly to the credit card information and register buttons instead of being distracted by the formalities in the [Terms of Service] language below.”

“At bottom,” he continued, “what is at stake is the 'integrity and credibility' of electronic bargaining. When contractual terms as significant as the relinquishment of one's right to a jury trial or even of the right to sue in court are accessible only via a small and distant hyperlink titled 'Terms of Service & Privacy Policy.'”

But Second Circuit Judges Reena Raggi, Denny Chin and Susan Carney, in reversing Rakoff last year, countered that the fact that “the Terms of Service were available only by hyperlink does not preclude a determination of reasonable notice.”

“As long as the hyperlinked text was itself reasonably conspicuous—and we conclude that it was—a reasonably prudent smartphone user would have constructive notice of the terms,” the judges wrote, adding, “While it may be the case that many users will not bother reading the additional terms, that is the choice the user makes; the user is still on inquiry notice.”

In sending the lawsuit into arbitration and dismissing it from court, Rakoff was following the Second Circuit's remand order—while he also ruled on some attendant issues in the March 5 decision. Moreover, he was following broader federal judiciary precedent.

His opening amounted to both a shot back at the Second Circuit's overrule of him and at years of rulings by federal judges who have supported terms of service arbitration agreements that Rakoff believes are rarely read by consumers, and even more rarely understood by them. In his view, they are clearly illegal “contracts of adhesion.”

“Consumers are now required, if they wish to purchase virtually any product or service via the internet, to waive their constitutional right to trial by jury—indeed, even their right to access to a court of law—and instead, submit to binding arbitration before a company-hired arbitrator,” Rakoff wrote in the opening's dictum.

“One might have thought that such waivers were unenforceable on their face,” he continued.

Then he wrote that the right to trial by jury “reflects the deep-seated view of the American people that the community is the best judge of justice.”

“But this, it appears, is not the view of the judiciary,” he concluded.

Lawyers for Uber at Gibson, Dunn & Crutcher in Los Angeles and San Francisco declined to comment on Rakoff's decision or on the case more broadly. Instead they referred questions to Uber. Matthew Wing, a company spokesman, said in a statement, “We are pleased with the [March 5] decision,” and otherwise he declined to comment.

Kalanick, who is currently a member of Uber's board, is represented by Peter Skinner, a Boies Schiller Flexner partner. Skinner did not return a call seeking comment. Nor did Matthew Cantor, a partner at Constantine Cannon, who represents Meyer.

Rakoff's March 5 opinion is not his first public takedown of the current state of the law on arbitration clauses in customer agreements. In 2016, for instance, he wrote an article for The New York Review of Books, titled “Why You Won't Get Your Day in Court,” in which he listed a host of reasons why ordinary citizens in today's legal system rarely end up with their day in court.

In explaining the reasons, he detailed why internet-based customer agreement waivers are, in his view, a chief culprit. He then laid out why he believed arbitration was not a suitable alternative to the courtroom.

“The private arbitrator not only is typically chosen and paid for by the employer or the seller, but also is free to proceed with little or no regard for the ordinary rules of evidence and to decide the dispute without giving any reasons for the decision,” he wrote. “The arbitrator is limited, however, in the relief she can afford employees or consumers even if she should find in their favor. So, for example, the company-imposed agreements that mandate arbitration typically also prohibit an award of punitive damages or the convening of a class action that would include others who have the same or similar complaints.

“The latter is particularly significant, since the class action is one of the few devices that the American legal system has developed to offset the high cost of legal services.”