By Jack Moore

Last year was a busy one for arbitration in the United States. The Supreme Court decided three cases in 2024 pertaining to arbitration, the Ninth Circuit decided another, and in August, a high-profile dispute involving the Walt Disney Company brought the word “arbitration clause” into the popular conversation. The landscape of consumer arbitration continues to evolve, with recent events suggesting how companies ought to approach dispute resolution mechanisms in their consumer contracts. While arbitration remains viable for speedy, confidential, and cost-effective dispute resolution, businesses and legal practitioners should give careful attention to the language of dispute resolution clauses and when to withhold compelling arbitration.

The Updated State of Arbitration

The arbitrability of disputes was a hot topic in the courts this year. The Supreme Court released three opinions pertaining to arbitration this year; all were unanimous. The most recent case, Coinbase Inc. v. Suski, concerned determinations of conflicting contracts. The parties’ first contract delegated determinations of arbitrability to an arbitrator. A subsequent contract included a forum-selection clause instead. The court held that the determination of which contract governed the dispute was a question for the court, not an arbitrator. While an arbitrator could rule on arbitrability under the first contract, the subsequent contract clouded that question, affecting an arbitrator’s ability to determine which contract applied. The outcome in Coinbase stresses the importance of careful attention when drafting dispute resolution clauses, which are all too often rushed in the drafting process.

The court in Heckman v. Live Nation Entertainment emphasized the importance of fairness and clarity in the formation of contracts with arbitration agreements. The court found Ticketmaster’s agreement unconscionable under California law, citing several problematic aspects of the chosen arbitration provider’s rules. The poor construction of the rules, unilateral modification without notice, and the retroactive application of new terms concerned the court. Customers might visit the Ticketmaster site simply to access their tickets when attending a concert or show and unknowingly bind themselves to new terms. The court further noted contradictory terms, with Ticketmaster’s provisions allowing only individual arbitration while the arbitration provider’s rules permitted both individual and mass arbitration. As the court pointedly observed, “Given that Live Nation’s own experienced appellate counsel strained to explain the Rules during oral argument, we are left with no confidence that a reasonable consumer would have any hope of understanding them.”

Arbitration in the Court of Public Opinion

Consumers exhibit low awareness and understanding of arbitration. Many consumers remain unaware they have entered into arbitration agreements and those who know they entered such an agreement do not appreciate how it impacts their right to sue in court and before a jury.

A high-profile Disney dispute raised issues relating to the applicability of arbitration disputes and when companies should exercise them. A wrongful death suit in Florida state court named Disney as a co-defendant after a woman passed away due to an allergic reaction at a restaurant leasing its space from Disney. The woman’s husband, the plaintiff, had entered into arbitration agreements with Disney when signing up for a free trial of Disney+ a year earlier and when purchasing tickets to their theme park. Disney’s move to compel arbitration in the matter unexpectedly caught the attention of the public and news outlets, leading to a social media firestorm. Disney later decided to waive their right to the contractual arbitration, and the case will proceed in court.

This legal episode shows that the nature of a dispute, the general public’s lack of knowledge about arbitration, and a corporation’s commercial priorities should impact a decision to compel arbitration.

Some companies are pivoting toward forum selection clauses instead of arbitration. Companies like X (formerly Twitter) and Steam (a digital distribution service) adopted this shift, seeking to maintain some control over how they resolve disputes with consumers while avoiding the judicial and public scrutiny that arbitration provisions currently face.

Recommendations for More Effective ADR Clauses

Companies and their counsel drafting arbitration provisions should do so with particularity, rather than using boilerplate clauses. Contracts would benefit from including hybrid alternative dispute resolution (ADR) mechanisms and, for certain disputes, including good-faith mediation requirements as a preliminary step before resolving the dispute with an arbitrator. This approach can resolve disputes more efficiently while demonstrating a commitment to cooperation with consumers.

Corporations and their attorneys should also conduct a thoughtful analysis of their arbitration objectives. Arbitration is appropriate if their primary goals are speed, confidentiality, and control over the dispute process. But if reputational concerns and future business prospects are at stake, that will expand the horizon of dispute resolution options. This analysis should guide the structure of the dispute resolution clause and when to compel compliance with those provisions.

Given that challenges to arbitration clauses may rest on state contract law, as it did in Heckman, corporations ought to carefully consider their choice of law provisions. The selection of governing law can significantly impact the enforcement and interpretation of arbitration agreements. Legal counsel should evaluate the friendliness of potential forums for arbitration before guiding this critical decision.

Lastly, consider the advice Justice Gorsuch gives in his concurring opinion in Coinbase. When corporations and their consumers sign subsequent contracts, which may have boilerplate dispute resolution or forum selection clauses included, the primary contract should include language affirming that the parties shall resolve any dispute relating to or arising out of the primary contract and all subsequent contracts through binding arbitration. Without a later amendment vitiating the provision, parties may avoid the problem presented in Coinbase.

“While arbitration remains viable for speedy, confidential, and cost-effective dispute resolution, businesses and legal practitioners should give careful attention to the language of dispute resolution clauses and when to withhold compelling arbitration.”

Jack Moore

Conclusion

Companies must craft their arbitration provisions with great care to ensure clarity, fairness, and alignment with their specific objectives. The future of consumer arbitration likely lies in more flexible, transparent approaches that balance efficiency with fairness.

Legal practitioners advising businesses on dispute resolution strategies should encourage a thorough evaluation of available options. The key is to design mechanisms that serve both business objectives and withstand increasing judicial and public scrutiny of consumer arbitration.