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self-study / Alternative Dispute Resolution

Feb. 20, 2024

New Year, new mass arbitration rules from the AAA

John A. Vogt

Partner, Jones Day


Notre Dame Law School; Notre Dame IN

JoeAl Akobian

Associate, Jones Day

Matthew T. Billeci

Associate, Jones Day

Luanna De Mello

Associate, Jones Day

Michael Kushner

Associate, Jones Day

A "mass arbitration" is initiated when thousands of similar arbitration demands, brought by the same organizing lawyer, are simultaneously unloaded upon a corporation. Because corporations typically front arbitration costs, mass arbitration forces them into a "pick your poison" situation: either agree to a sky-high demand to settle the claims, or pay millions in filing, case management, and arbitrator fees just to have a chance to fight the claims on the merits. When the starting price to defend against a mass arbitration is millions of dollars, even frivolous claims can return major payouts.

I. Mass Arbitration

Mass arbitration poses serious risks for business. Uber, facing over 31,000 arbitration claims and over $91 million in arbitration fees, unsuccessfully moved to enjoin the American Arbitration Association (AAA) from levying further arbitration fees. The Appellate Division of the New York Supreme Court found that the AAA's fees were "directly attributable to" Uber's "business decision" to resolve disputes on an individual basis. Uber Techs., Inc. v. Am. Arb. Ass'n, Inc., No. 15372, 2022 WL 1110550 (N.Y. App. Div. April 14, 2022). Samsung, inundated with over 36,000 biometric privacy claims, was recently rebuffed by the Northern District of Illinois in its attempt to avoid payment of over $4 million in case-initiating arbitration fees. Wallrich v. Samsung Elecs. Am., Inc., No. 22 C 5506, 2023 WL 5935024 (N.D. Ill. Sept. 12, 2023). Samsung's appeal to the Seventh Circuit was expedited, with oral arguments heard on Feb. 15, 2024. The threat of mass arbitration caused Amazon to scrap its arbitration agreement altogether after it received over 75,000 simultaneous arbitration demands, revising its consumer dispute terms and conditions to require consumers to instead pursue their claims in federal court.

To obtain the tens of thousands of individual claims needed to initiate a mass arbitration, plaintiffs' counsel have resorted to organized social media ad campaigns to identify clients and compile their claims. These endeavors have led corporations to challenge whether these clients have been properly vetted. Indeed, Samsung raised concerns about specific individuals who filed arbitration demands, which plaintiffs' counsel was forced to correct. Wallrich, 2023 WL 5935024 at *8. However, once corrected, the court was left to "accept the word of over 30,000 individuals" who may have been recruited under "obscure social media ads" to bring the consumer claims. Id. With the proliferation of mass arbitrations and the fervent search to find consumers to fill a list of names, the ethical issues of solicitation and vetting of mass client lists will be at the forefront of these cases.

II. Corporate Defense Strategies

Corporations have taken various approaches to combat mass arbitration with mixed degrees of success.

a. Refusal to Pay

Samsung recently faced over 36,000 individual arbitration demands alleging violations of the Illinois Biometric Information Privacy Act (BIPA). After the claimants - all represented by the same counsel - paid their initial filing fees to the AAA, Samsung owed the AAA over $4 million in initial filing fees. Samsung, however, notified the AAA that it would not pay its share of fees because of discrepancies in the claimant list, including deceased claimants or claimants who were not Illinois residents. After the AAA administratively closed the individual arbitrations due to Samsung's lack of payment, claimants subsequently filed suit in the United States District Court, Northern District of Illinois for an order to compel Samsung to arbitrate. Samsung advanced multiple arguments in response, including that the district court lacked the authority to overturn the AAA's decision to administratively close the case.

The Northern District of Illinois ultimately ordered Samsung to pay its $4 million in individual arbitration fees. Wallrich, 2023 WL 5935024, at *13. The court found that Samsung's refusal to pay the fees constituted a breach of its own arbitration agreement. Id., *10. Simply put, Samsung made a business decision to preclude class arbitrations, and another decision to pay the cost of filing fees. It could not pick and choose which decisions to follow whenever it best suited its business - "Samsung was hoist with its own petard." Id., *13. Samsung promptly appealed the lower court's decision, and the Seventh Circuit granted a stay pending appeal. The Seventh Circuit heard oral argument on appeal on Feb. 15, 2024.

b. Bellwether Arbitration

Corporations have also attempted to defend against mass arbitration by inserting bellwether provisions in their arbitration agreements. Verizon's arbitration agreement contains one such provision, which is triggered when 25 or more customers who are represented by the same counsel raise "similar claims." It directs that ten cases shall first proceed in arbitration until they are resolved, and if the remaining cases are not resolved after the conclusion of the bellwether proceeding, the next ten cases may proceed, and so on. In other words, only ten arbitrations may be arbitrated at once, and the remaining cases cannot be filed until the first ten have been resolved.

But the Northern District of California deemed this provision unconscionable. MacClelland v. Cellco P'ship, 609 F. Supp. 3d 1024 (N.D. Cal. 2022). The court explained that according to the AAA's statistics, the average arbitration takes around seven months to complete. Consequently, it would take approximately 156 years to resolve all the customers' claims under the provision. This delay in a consumer's ability to vindicate his or her claim is "unreasonably favorable" to Verizon. Indeed, the Court found that "[d]elaying the ability of one to vindicate a legal claim by years, possibly 156 years, 'conflict[s] with one of the basic principles of our legal system--justice delayed is justice denied.'" Id. (quoting Dietrich v. Boeing Co., 14 F.4th 1089, 1095 (9th Cir. 2021)) (emphasis in original).

But bellwether provisions are not per se unconscionable. DoorDash's arbitration agreement contains a provision that randomly assigns numbers to mass arbitration claims and requires that claims 1-10 serve as the "initial Test Cases" to proceed to arbitration. The Northern District of California found this provision permissible because the initial Test cases must be resolved within 120 days of the initial pre-hearing conference. McGrath v. DoorDash, Inc., No. 19-CV-05279-EMC, 2020 WL 6526129, at *4, 10 (N.D. Cal. Nov. 5, 2020). There was no concrete evidence that such a provision would result in "significant delay" of resolving the remaining claims, and the terms overall "appear[ed] fair." Id., *10.

c. Process Arbitrators

In perhaps the most successful mass arbitration defense yet, Wells Fargo set an example for companies to (1) require that initial filing requirements are satisfied before mass arbitrations may proceed and (2) request a Process Arbitrator early in arbitration proceedings to determine whether the claimants have satisfied the filing requirements.

After receiving over 3,000 arbitration demands, Wells Fargo brought a motion pursuant to the AAA's Supplementary Rule MC-6, which provides a Process Arbitrator with authority to determine filing requirements in proceedings with multiple case filings (i.e., mass arbitrations). Specifically, Wells Fargo requested that the Process Arbitrator require claimants' counsel "to provide the requisite basic information in the demands it was filing." The Process Arbitrator sided with Wells Fargo and ordered all demands to plead each claimant's account number at issue, facts to establish DCOS enrollment, and facts sufficient to establish that each claimant incurred overdraft fees in connection with the transactions covered by a certain regulation at issue. Claimants' counsel objected to the Process Arbitrator's order and requested that the AAA stay the proceedings. The AAA declined.

Claimants' counsel subsequently filed suit in the Southern District of California, asking the court to enter declaratory judgment declaring that Wells Fargo had breached its arbitration agreement and thus claimants were no longer bound by the agreement. The Southern District denied claimants' motion as moot and instead granted Wells Fargo's motion to compel, finding that the Process Arbitrator's order was a procedural order, not a "final and binding" award on the merits, and is thus not subject to judicial review. Mosley v. Wells Fargo & Co., No. 22-CV-01976-DMS-AGS, 2023 WL 3185790 (S.D. Cal. May 1, 2023).

III. AAA Mass Arbitration Supplementary Rules

As mass arbitration became a growing trend that more companies have been forced to staunchly defend against, it is unsurprising that there have been several developments over the past year. Most recently, the AAA recently chimed in by issuing its new Mass Arbitration Supplementary Rules ("2024 Mass Arbitration Rules"). The 2024 Mass Arbitration Rules, effective as of Jan. 15, 2024, aim to "reduce friction and enhance process efficiency" by setting forth a host of noteworthy changes.

The 2024 Mass Arbitration Rules provide a revised fee schedule, most notably marked by flat rate "Initiation fees," and lower "Per case fees," that decrease costs for companies. Previously, a company would have to pay a per case filing fee -ranging from $100 to $325 - at the outset of a mass arbitration. Now, a company need only pay a flat rate fee of $8,125, regardless of the number of claims. In a 5,000-claimant mass arbitration under the old fee schedule, a company would have to pay $612,500 in non-refundable filing fees before a Process Arbitrator could even be appointed. Should the arbitrations survive review by the Process Arbitrator and proceed to the merits, a business must pay a per case fee that starts at $325 per case and decreases with the number of cases at issue. In a 5,000-claimant mass arbitration under the old fee schedule, a company would pay $7,000,000 in case filing fees while the claimants paid nothing. Under the revised fee schedule, the company would pay $875,000 and the claimants would pay $400,000 (absent an agreement by the company to front the bill for claimants). Prior to the 2024 Mass Arbitration Rules, businesses were required to pay a minimum case management fee of $1,400 per case if the arbitration proceeded on the merits. Accordingly, the 2024 Mass Arbitration Rules greatly reduced the financial burden imposed on corporations to defend mass arbitrations.

The 2024 Mass Arbitration Rules also confer greater authority to Process Arbitrators, who are tasked with deciding administrative disputes before the dispute can proceed on the merits. For instance, a Process Arbitrator can consider whether claimants have met the "filing requirements" of the AAA or satisfied "any applicable conditions precedent" relevant to their disputes. A Process Arbitrator can also determine whether these issues are fact-specific and whether they need to be resolved on an individual basis. Further, under the 2024 Mass Arbitration Rules, Merits Arbitrators are now generally bound by Process Arbitrator decisions absent an abuse of discretion.

New attestation requirements may cause organizing plaintiffs' counsel to think twice before adding meritless claims (on behalf of meritless claimants) to increase the weight of a potential mass arbitration. Claims, answers, counterclaims, and amended demands must now "include an affirmation that the information provided for each individual case is true and correct to the best of the representative's knowledge." The 2024 Mass Arbitration Rules present options for companies facing mass arbitration risk and include attestation requirements that may limit the filing of meritless mass arbitrations in the first place.

Companies should consider revising their arbitration agreements to take advantage of these changes. As found in Mosley, plaintiffs' counsel may have difficulty providing facts specific to each claimant. Companies should therefore include individualized notice or mandatory resolution conference requirements in their arbitration agreements. If subject to a mass arbitration attack, the company should force the claimants to comply with the conditions precedent and immediately seek the appointment of a Process Arbitrator if the claimants commence arbitration without satisfying the conditions precedent. Because Process Arbitrators are specifically authorized to evaluate whether the claimants complied with the conditions precedent, unvetted claims could be subject to early dismissal. These mechanisms could also offer an additional benefit in assisting consumers - with legitimate grievances - in more efficiently resolving their issues, which would strike an important balance in protecting against mass arbitrations while ensuring that revised arbitration agreements are not ruled unconscionable.

As demonstrated above, the mass arbitration landscape is constantly changing. New tactics are being deployed on both sides of the fight, new precedential decisions are being made, and new sets of rules - like the 2024 Mass Arbitration Rules emphasized here - are being written. Companies should stay informed of these changes and update their arbitration agreements to be as effective as possible in defending against mass arbitrations.


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