US mass arbitrations present new challenges prompting re-examination of class action waivers
Thursday 25 July 2024
Kent Schmidt
Dorsey & Whitney LLP, Palo Alto, California
schmidt.kent@dorsey.com
Trends in collective actions being brought in the US are altering the calculus for many companies strategising about US class action risks. Since 2011, companies have had the option to reduce the risks of at least some types of class action lawsuits by including provisions in various consumer terms and conditions, employment agreements and other contracts stipulating to binding arbitration with an express waiver of the right to bring a class action.[1] Provisions requiring claims to be heard by a single arbitrator are generally enforceable in US courts.[2]
As sometimes happens in the evolution of the law, the conventional wisdom on class action waivers in favour of arbitration is now being questioned. This change has been brought about by several enterprising lawyers representing claimants – consumers, employees and other individuals – who have embraced a new strategy of pursuing claims as mass arbitrations.
A mass arbitration is simply a large number of arbitration claims brought by one law firm or group of law firms alleging the same legal theory based on similar facts which will be adjudicated in separate arbitration proceedings. Rather than challenging the class action waiver terms, these enterprising lawyers are creating the systems and structures to file and prosecute thousands of individual arbitrations simultaneously. Although this began a few years back, the advent of artificial intelligence (AI) to manage large data sets will further increase mass arbitrations in the future. The savviest of these use social media to solicit and sign-up large numbers of claimants and process their claims efficiently.
In response to a mass arbitration, companies often propose to the arbitrators various consolidation and coordination procedures, but with little success. It is often the case that these efforts run headlong into the very class action waivers prepared by the company which typically bar collective administration of claims. Thus, it may be fairly said that the company is simply getting what it negotiated – no collective action of any sort, but rather individualised determinations.[3]
Mass arbitrations present the responding company with a new set of headaches. To begin with, the initial filing fees alone, multiplied by the number of claimants, creates an immediate monetary impact. Efforts to obtain judicial relief regarding the obligation to pay millions in initial filing fees have been largely unsuccessful.[4]
Beyond the filing and administration fees, a company facing mass arbitration must be prepared to scale up its own processing of a high volume of cases, a burden akin to death by a thousand paper cuts. Each individual claim requires the normal process of selecting an arbitrator, processing further paperwork, submitting the initial response, conducting the pre-hearing conference, briefing the legal and factual issues and proceeding to an evidentiary hearing.
The leading arbitral organisations in the US, American Arbitration Association and JAMS, each receive sizeable revenue from mass arbitrations and are responding with modified rules for handling these matters when the number of filings reach a certain threshold. But these rules still require individualised adjudication by separate arbitrators and do not automatically entitle parties to coordination, consolidation or any other efficiencies.
Those advising companies on US class action risks should consider this new trend and the possibility of mass arbitration. For some, it may be advisable to revert to court litigation even if that means exposure to class actions. In addition to avoiding mass arbitrations, courts are more receptive to motions to dismiss and early dismissals. Other companies are well advised to stick with arbitration for such claims, but consider the specifics of the arbitration provisions with a focus on addressing the issues that come with mass arbitration.
Whatever the appropriate course given the particular type of claims at issue, companies should revisit the question of how collective claims in the US will be adjudicated including the possibility of mass arbitrations.
[1] AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (holding that Federal Arbitration Act favoring arbitration preempts state laws that prohibiting parties from agreeing to waive class action claims in favor of a single-claim arbitration).
[2] The limitation on this rule is that the class action waiver’s substance as well the manner in which those terms are presented must be fair and reasonable. Where the class action waiver appears on a website, this analysis entails consideration of whether those terms have been assented to by the user through some affirmative conduct such as checking a box to accept the terms and whether these terms are sufficiently conspicuous.
[3] These were the sentiments expressed by the Court in Abernath v. Doordash, 438 F. Supp. 3d 1062, 1067-68 (N.D. Cal. 2020).
[4] Uber Techs., Inc. Uber USA, LLC v. Am. Arbitration Ass'n, Inc., No. 655549/2021, 2021 N.Y. Misc. LEXIS 50331 (Sup. Ct. Oct. 15, 2021) (denying Uber’s motion for preliminary injunction relating to obligation to pay millions in arbitration fees to the American Arbitration Association).