Antitrust Law Daily Wrap Up, ADVERTISING—S.D.N.Y.: Court orders arbitration in Spotify payola suit, dismisses class claims, (May 4, 2026)

By Patricia K. Ruiz, J.D.

Ruling enforces terms of use arbitration provision and stays federal case.

The federal district court in New York City ordered a proposed consumer class action against Spotify to arbitration, concluding that the consumer agreed to a binding arbitration provision through the company’s terms of use and that all asserted claims fall squarely within its scope. The court rejected multiple arguments attacking the enforceability of the arbitration clause, including challenges based on discovery limits, costs, and the availability of injunctive relief. Having compelled individual arbitration, the court dismissed the plaintiff’s class claims with prejudice and stayed the action pending arbitration (Capolongo v. Spotify USA Inc., No. 1:25-cv-09216-JGK (S.D.N.Y. Apr. 30, 2026)).

Background. A consumer brought a putative nationwide class action alleging that Spotify engaged in deceptive practices and false advertising in violation of New York General Business Law §§ 349 and 350 and asserting claims for fraudulent inducement and unjust enrichment. The complaint alleged that Spotify marketed its playlists and recommendations as personalized and “made just for you,” while steering users toward mainstream, major-label artists with which Spotify had undisclosed commercial arrangements, characterized in the pleading as a modern form of payola. Spotify moved to compel arbitration under the Federal Arbitration Act (FAA), pointing to mandatory arbitration provisions and class action waivers contained in multiple iterations of its terms of use.

Mutual assent, reasonable notice. The court first addressed whether a valid agreement to arbitrate existed under New York contract law, applying ordinary principles of mutual assent and reasonable notice. The court found that the plaintiff first assented to Spotify’s terms, including an arbitration provision, when she created her account in 2021 by clicking through a sign-up screen that provided notice that creating an account constituted agreement to the terms. The court further determined that the plaintiff later agreed to updated terms, including the current arbitration agreement, by continuing to use Spotify’s service and paying subscription fees after receiving notice of revised terms by email and in-app messages.

In concluding that the arbitration agreement was enforceable, the court emphasized that Spotify provided reasonably conspicuous notice of the arbitration provision, including prominent references to mandatory arbitration and hyperlinks to the operative terms. The court held that the plaintiff manifested assent by continuing to use the service after receiving notice and by not exercising available opt-out procedures.

Public injunctive relief. The court then rejected several arguments advanced by the plaintiff to invalidate the arbitration agreement. Addressing the contention that the agreement improperly waived the right to seek public injunctive relief, the court held that the so-called effective vindication doctrine applies only to federal statutory rights and was inapplicable because the plaintiff asserted only state-law claims. The court further noted that the arbitration agreement permitted injunctive relief in favor of the individual claimant and that class-wide relief could lawfully be waived.

Inadequate discovery. The court also found unpersuasive the argument that arbitration under the designated provider would allow inadequate discovery. It pointed to the arbitration rules authorizing the arbitrator to order discovery necessary for a full and fair exploration of the issues and concluded that the plaintiff had not shown that the procedures would prevent her from presenting her claims.

Arbitration costs. Similarly, the court rejected the argument that arbitration costs rendered the agreement unenforceable. The court noted that the plaintiff had not demonstrated an inability to pay the filing fee, that the fee was lower than the federal court filing fee, and that the arbitration rules allowed for fee-shifting to the losing party. The court further dismissed the plaintiff’s contention that compelling arbitration would violate Article III, citing settled precedent upholding arbitration as a valid dispute-resolution mechanism.

Scope of agreement. Having determined that a valid and enforceable arbitration agreement existed, the court concluded that all of the plaintiff’s claims fell within its broad scope. The arbitration provision covered any dispute arising from the plaintiff’s relationship with Spotify, including claims based in contract, tort, statute, fraud, or misrepresentation, which encompassed the alleged deceptive practices, false advertising, fraudulent inducement, and unjust enrichment claims.

Dismissal. Because the arbitration agreement required disputes to be resolved on an individual basis and barred class proceedings, the court dismissed the plaintiff’s class claims with prejudice. The court granted Spotify’s request for a stay, holding that the FAA mandates a stay of proceedings once all claims are referred to arbitration and a stay is requested.

The Case is No. 1:25-cv-09216-JGK.

Judge: Koeltl, J.

Attorneys: James B. Zouras (Stephan Zouras, LLP) for Genevieve Capolongo. Meredith Slawe (Meagher & Flom LLP) for Spotify USA Inc.

Companies: Spotify USA Inc.

Cases: Advertising StateUnfairTradePractices NewYorkNews