Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Price fixing class action against Uber CEO may proceed, (May 10, 2016)

By Greg Hammond, J.D.

The CEO and co-founder of Uber Technologies, Inc.—the producer of a smartphone app that matches riders with drivers—was not entitled to reconsideration of a court’s decision finding that the consumer-plaintiff did not waive the right to proceed via class action. In denying reconsideration in the price fixing conspiracy suit, the federal district court in New York City concluded that the user agreement does not contain an independent class action waiver and that, even assuming that such a waiver existed, it would be unenforceable under California law (Meyer v. Kalanick, May 9, 2016, Rakoff, J.).

The consumer claimed that Uber CEO and co-founder Travis Kalanick violated the Sherman Act and New York Donnelly Act by conspiring with Uber drivers to use a pricing algorithm to set the prices charged to Uber riders, thereby restricting price competition among drivers to the detriment of riders. Kalanick moved for reconsideration of the district court’s order denying his motion to dismiss.

At issue, according to the court, was: (1) Whether the user agreement contains a class action waiver that is effective in the absence of a motion to compel arbitration; (2) If the user agreement does contain an independent class action waiver, is the waiver enforceable, or is it unconscionable under California law? and (3) If the user agreement contains an independent and enforceable class action waiver, can Kalanick, as a non-signatory to the user agreement, enforce the waiver against the consumer?

Class action waiver. The agreement does not contain a class action waiver that is effective in the absence of a motion to compel arbitration, the court first concluded. Rather, the language of the dispute resolution paragraph of the user agreement was most plausibly read as an explanation of the rights that the parties were giving up in agreeing to arbitrate disputes, not as an independently effective waiver of the right to pursue a class action outside the arbitration context, the court found. Because no motion to compel arbitration had been made, the court determined that the consumer had not, by agreeing to the dispute resolution paragraph in the user agreement, waived any right to proceed via a class action lawsuit outside the arbitration context.

Enforceability. Even assuming that the waiver existed, it would not be enforceable under California law, which governed the user agreement, the court next concluded. In particular, the court found that it was readily apparent that the user agreement was a contract of adhesion; that the consumer’s dispute predictably involved small amounts of damages; and that the consumer alleged that Kalanick carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money. Consequently, the court found that the consumer adequately argued in favor of unconscionability.

Finding that no independent class action waiver existed and that, even if it did exist, it would not be enforceable, the court had no occasion to reach the third issue—whether Kalanick, as a non-signatory, could enforce the user agreement.

The case is No. 15 Civ. 9796.

Attorneys: Brian Marc Feldman (Harter, Secrest & Emery, LLP) for Spencer Meyer. Peter M. Skinner (Boies, Schiller & Flexner LLP) for Travis Kalanick.

Cases: Antitrust NewYorkNews