The U.S. Supreme Court, in recent years, has provided companies with a powerful tool to avoid class action lawsuits: arbitration. In a series of decisions, the Supreme Court has held that class action waivers in otherwise valid arbitration agreements are themselves enforceable. See Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2312 (2013); AT&T Mobility v. Concepcion, 563 U.S. 333, 352(2011). Accordingly, many companies have woven arbitration clauses with class action waivers into their websites' terms of use, warranties, and other consumer agreements with the hope that such arbitration clauses would void any efforts by consumers to file class action lawsuits.

On the surface, enforcing an arbitration clause appears to be fairly straightforward: A company would need to show that the parties have agreed to arbitration and the dispute at issue falls within the scope of the agreement. See, e.g., Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir. 2009); Combined Energies v. CCI, 514 F.3d 168, 171 (1st Cir. 2008); Cap Gemini Ernst & Young, U.S. v. Nackel, 346 F.3d 360, 365 (2d Cir. 2003).

If only it were so easy. (Indeed, the enforceability of an arbitration provision in the terms and conditions provided to consumers by Uber Technologies is currently pending before the Second Circuit in Meyer v. Kalanick, No. 16-2750.) Because the terms of consumer arbitration agreements are generally not negotiable and the agreements themselves are not formed through the typical means of offer and acceptance, courts take great care in analyzing whether an arbitration provision should be enforced against a consumer. Among other things, a court will examine whether: the consumer was on notice of the arbitration provision, the consumer agreed to its terms, and the terms are fair to the consumer. As discussed below, some of these and other issues are easily addressed, while others can be thornier. Regardless, a company should be mindful of these issues when seeking to enforce the arbitration provision it offers to consumers with its products.

Preliminary Issues

Before addressing the arbitration provision itself, the company will need to consider a few preliminary issues. First, the company may need discovery regarding the facts and circumstances surrounding the formation of the agreement to arbitrate. Second, in a diversity action, the company should carefully consider which state's laws will apply to the question of contract formation because variations in state law could affect the outcome.