Recent Second Circuit Opinion Invalidates Class Action Waiver Provision in a Commercial Contract

In an effort to avoid class action litigation, many businesses include a waiver of class action claims in their contracts, limiting dispute resolution to arbitration of claims on an individual rather than class action or collective basis. This is consistent with Section 2 of the Federal Arbitration Act ("FAA"), which provides that an arbitration agreement "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Although the waiver of class action claims may be freely negotiated, the allegedly injured party still may seek to evade that waiver by asserting a contract defense to its enforcement, such as that the waiver is unconscionable or procured by fraud or duress. Courts will evaluate the proposed waiver on a case-by-case basis depending on the claims asserted and whether relief can be achieved in an economically feasible way through arbitration of individual claims.