In response to a wave of Supreme Court decisions affirming the enforceability of class action waivers in arbitration agreements, plaintiffs’ firms began using the arbitration agreement’s language (and/or the arbitration provider’s rules) requiring that the entity pay virtually all the fees and costs associated with arbitration against the entities that drafted them through a process now referred to as “mass arbitration.”
In general, when engaging in a mass arbitration campaign, rather than file individual arbitration demands upon enlisting a client, a plaintiffs’ firm builds a base of thousands of clients through advertising and solicitations on social media and other websites. Once the firm has the mass client base, it reaches out to the entity it has chosen to attack and threatens to simultaneously file individual arbitration demands against the company on behalf of each of its clients—often at a cost of several thousand dollars per claimant—with the stated intent of aggregately settling all claims prior to filing the demands or arbitrating each individual arbitration. If the entity declines to negotiate an early settlement with the firm, the firm moves forward with filing the demands and waits for the arbitration provider at issue to begin moving forward with the individual arbitrations, including invoicing the entity for fees associated with the individual arbitrations.
Due to the nature of mass arbitration campaigns and their attempt to create settlement leverage based on the fees associated with arbitration—and not the merits of their clients’ underlying claims—they have become a vehicle for abuse. First, because plaintiffs’ firms are driven by the desire to gather as many clients as possible, there have been instances where mass arbitration claimants were found to have no cognizable claim against the targeted entity, including examples of individuals claiming to have received services in states in which the targeted entity did not provide services. This has led to accusations that firms initiating mass arbitration campaigns have refused to meet their ethical duty to perform diligence into their clients’ claims. Second, the looming obligation of arbitration fees (which become due before any individual arbitrator has been assigned, much less before any merits questions have been decided), has led entities facing mass arbitration campaigns to enter “blackmail” settlements based solely on the avoidance of arbitration fees. See Glover, Mass Arbitration, 74 Stan. L. Rev. 1283, 1345, 1349, 1380 (2022) (stating that “[t]he mass-arbitration model operates on its ability to impose significant in terrorem settlement pressure” through the imposition of “astounding” fees that “can spell financial catastrophe for a potential defendant”).
Unsurprisingly, mass arbitration campaigns have received enormous pushback from entities targeted by the strategy. The pushback has led to extensive litigation between the entities and the mass arbitration claimants (and against the arbitration providers themselves), entities editing their arbitration agreements to include provisions specifically addressing mass arbitration, and newly formed rules created by arbitral providers (or newly formed arbitration providers) created with the intent to handle mass arbitration.
This blog will continue to track developments in mass arbitration and will provide updates and insight to retailers who may be threatened with mass arbitration campaigns.