Recently the U.S. Supreme Court ruled in the case of American Express v Italian Colors Restaurant that when there is an arbitration clause in a contract, plaintiffs cannot file a class action law suit. Plaintiffs must go through arbitration individually as they agreed in their contract.
Further, there have been multiple decisions by lower courts to the same effect – Arbitration clauses trump class action suits. Many of these types of cases have been attempts to file a class action law suit against a Company’s Internet web site.
As a result of these court decisions, I have recently noticed many of the web sites I am registered at are sending me an email asking me to agree to their new Terms of Service (TOS). Now, I, myself, am no different than the rest of the world, I tend to click the “I Agree” button without reading the lengthy TOS. However, with this rash of emails, I understood immediately what was happening – the web sites had changed their TOS to require arbitration in what will be a successful attempt to preclude any class action law suits against the web site owner. As an example, both Amazon and eBay have put arbitration clauses into their TOS.
I suspect that over the coming year we will see many more web sites (and other written non-internet contracts for that matter) that contain an arbitration clause in their TOS. This is just good business practice for the big retailers – Class action law suits are incredibly expensive and arbitration is rarely chosen by the Plaintiff. Plaintiffs do not like arbitration because they need to begin the process by paying a big filing fee. The last time I did an arbitration the filing fee was $8,000.00. When you have a small problem you don’t want to spend $8,000.00 to file arbitration, even when the arbitrator will probably make the defendant split the filing fee with the plaintiff.
Please note: many courts have said that for the arbitration clause to be effective in a web site TOS the web site visitor must have clicked his agreement to the TOS and not just have been subject to the TOS under the standard “by using this site you agree to our terms” language. The courts’ reasoning is that giving up their right to use the court system is a right so fundamental that it should not be revoked without the web site user having actually agreed to it. (Of course, that means you read the TOS and understood what you read, and thought that right was so big you did not want to use the site – All of which rarely happens in the real world.)
If you have an e-commerce site, don’t just run out and add an arbitration clause. You should consider whether you will be a plaintiff or a defendant in potential law suits. If you think you will a defendant, then yes, add an arbitration clause. The filing fee alone will head off most litigation. However, if you are going to be the plaintiff (e.g. you often need to hire a collection lawyer to pursue your money) you don’t want to be going to arbitration because you don’t want that huge filing fee. You should discuss these issues with your attorney to come to the right decision for your e-commerce site.