Originally published in the New York Dispute Resolution Lawyer Newsletter, Fall 2012, Vol. 5, No. 2 on October 29, 2012

Companies that provide services to consumers have often sought to reduce the risk of class action lawsuits by requiring that their customers agree to arbitrate any disputes. Such arbitration agreements may require customers to arbitrate on an individual basis only, with customers being obligated to waive any rights they might otherwise have to pursue claims through class actions. In recent years, many such arbitration provisions, particularly those that included class action waivers, had been held unenforceable under state law contract doctrine. In April 2011, however, the U.S. Supreme Court held in AT&T Mobility v. Concepcion that the Federal Arbitration Act preempts most state law challenges to class action waivers, including challenges on grounds of unconscionability. How broadly lower courts will interpret the Concepcion decision remains to be seen. For example, on February 1, 2012, the Second Circuit held in In re American Express Merchants’ Litigation that the AT&T decision did not preclude invalidation of an arbitration waiver where the practical effect of enforcement would impede a plaintiff’s ability to vindicate his or her federal statutory rights.

Nonetheless, in the wake of Concepcion, many companies that provide online products or services to consumers are exploring whether to include an arbitration clause and class action waiver in their online Terms of Service. Moreover, it is increasingly common for business-to-business agreements to be documented based on agreements contained in online Terms of Service. Enforceability of online arbitration agreements is thus likely to be an increasingly important issue both in the commercial and consumer contexts.