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Administering Arbitration Clauses in Online Terms of Service Agreements

Posted in Arbitration, Terms of Use

Morrison & Foerster’s Sherman Kahn Interviews American Arbitration Association Vice President, Sandra Partridge

Many companies are providing for arbitration of disputes in their terms of service agreements governing use of their websites or other online or mobile services. Arbitration clauses in online terms of service agreements should be carefully drafted in order to ensure that they are enforceable, particularly when arbitrations under the agreement may be conducted between the business and a consumer. It is also important to design the presentation of the clause so that the counterparty is aware of the clause and consents to it. We have previously written about these issues in Click-Accept Arbitration: Enforcing Arbitration Provisions in Online Terms of Service.

One of the decisions that must be made when drafting an arbitration clause is which organization will administer the arbitration. One of the organizations frequently chosen to administer arbitrations arising from online terms of service agreements is the American Arbitration Association (AAA). We are pleased to publish here a discussion with Sandra Partridge of the AAA. Ms. Partridge is the Commercial Vice President for the AAA in New York. She shares practical advice in the interview regarding how to provide for arbitrations in connection with your terms of service agreements.

Ms. Partridge, can you tell us about the AAA and its administration of arbitrations arising from online terms of service?

The AAA administers two types of arbitrations arising from online terms of service agreements—business-to-business and business-to-consumer. Business-to-business agreement disputes are heard under the AAA Commercial Arbitration Rules and proceed the same way as any other business-to-business arbitration. The AAA is prepared to handle both large and small business-to-business disputes. The AAA’s Commercial Rules include Expedited Procedures to govern the arbitration where the amount in dispute is under US$75,000. The AAA Expedited Procedures provide parties with a fast, cost-efficient method for resolving less complicated disputes.

Can you explain how the AAA’s approach differs when it is administrating a business to consumer dispute?

Pre-dispute arbitration clauses (i.e., agreements entered into before a dispute arises), such as clauses in online terms of service agreements, that may result in arbitration between the business and a consumer require additional scrutiny. This is because when businesses enter a pre-dispute arbitration agreement with consumers, a greater level of due process protection is required in order to ensure fairness. The AAA, in conjunction with a variety of other organizations, jointly developed a Consumer Due Process Protocol that addresses issues such as locale for arbitration hearings, cost-shifting and allocation, legal representation and access to remedies. Businesses considering adding pre-dispute arbitration clauses to terms of service agreements would find it advisable to become familiar with the Consumer Due Process Protocol. The AAA has also developed supplementary procedures for the conduct of consumer arbitrations. It is helpful to review those procedures before preparing a consumer-directed arbitration provision. In addition, the AAA has dedicated a section of its website to disputes between businesses and consumers that provides a variety of helpful material for the arbitration clause drafter.

What additional steps should the arbitration clause drafter take if the drafter expects that arbitrations under the agreement may include arbitration of disputes between the business and consumers?

As mentioned above, the drafter should refer to the Consumer Due Process Protocol when drafting the arbitration clause. In addition, where a clause may result in arbitration with consumers, the AAA requires that the clause drafter submit the clause to the AAA for review and approval in advance of the administration of any arbitration under the clause.

Why does the AAA require pre-arbitration review of arbitration clauses?

The AAA requires that a consumer-directed pre-dispute arbitration clause be in compliance with the Consumer Due Process Protocol before it can administrate cases brought under that clause. The AAA only administrates cases between businesses and consumers arising from pre-dispute arbitration provisions that are in compliance with the Protocol in order to ensure fairness and a level playing field for both sides. Consumers and businesses can expect a fair process and enforceable awards. Pre-approval also allows the AAA to administrate any cases that are filed pursuant to the clause without delay.

How would the AAA proceed if presented with a consumer arbitration filing based upon an arbitration clause that the AAA had not pre-approved?

When a case is submitted based on a compliant but not previously approved pre-dispute arbitration clause, the AAA’s consumer department will conduct an immediate review, approve the clause, and contact the business to arrange for administration of the case.  However, if a clause is not pre-approved, the business runs the risk that the clause will not be approvable as written, causing the AAA to reject the filing.

Some companies are concerned that the pre-review will take substantial time and effort, and potentially require major changes to clauses that have already been approved by top management. Can you respond to those concerns?

The AAA is able to approve a compliant clause in a matter of days. If a clause is not compliant, the AAA will notify the drafter of the specific reasons why; allowing the drafter to promptly correct those concerns. This can also be done in a matter of days. Top management’s concerns may be assuaged by the realization that a compliant clause contributes to both fairness and enforceability.

How can companies get in touch with the AAA to discuss potential administration of an arbitration program?

Neil Currie, the AAA Vice President who oversees the consumer area, is the best individual to contact for information, answers to questions and ultimate approval of an arbitration program involving consumers. His email is Currien@adr.org and his phone number is 213-362-1900.