When Amazon told customers in July 2021 that it would no longer require arbitration for legal complaints, it marked a sea change in the way companies had been using this alternative dispute resolution tactic to avoid class action and other types of lawsuits. At the time of its policy reversal, Amazon was facing around 75,000 arbitration claims, according to some estimates.
This flood of arbitration has led to a sharp rise in mass arbitration claims, as participants noted across several panels at the fifth annual Western Alliance Bank Class Action Law Forum, held in collaboration with University of San Diego School of Law. Experts on both the plaintiff and defense sides, a federal judge and an experienced professor and arbitrator shared their insights into trends in mass arbitration matters. Their observations included what the implications of this increase in cases have been for consumers and companies alike, what plaintiffs’ and defense counsel look for when deciding whether to pursue mass arbitrations and how this noticeable climb can prove the adage “be careful what you wish for.”
When Chickens Come Home to Roost
According to the recent 2023 Carlton Fields Class Action Survey, slightly less than 4% of surveyed companies have faced mass arbitrations, defined as occurring “when a company faces a series of hundreds or even thousands of nearly identical, single claimant arbitrations.”
Yet despite the relatively small number of businesses that have experienced mass arbitrations, experts agreed that they are on the rise, as more plaintiffs’ attorneys pursue them on behalf of their clients. And in many ways, this increase is proof of the law of unintended consequences, several panelists agreed. Rather than presenting a faster, cheaper alternative to lawsuits, mass arbitrations can quickly become expensive and burdensome for all parties involved.
District Judge William H. Orrick of the U.S. District for the Northern District of California drew a chuckle from audience members by noting, “I am delighted to hear that the chickens are coming home to roost.” Years ago a matter went to arbitration because both sides actually wanted it to be resolved through arbitration. He said that he hopes what the plaintiffs’ bar is doing with respect to mass actions in arbitration hopefully will force people to come back to a more reasonable way of dealing with these types of matters. “That would include not having important public issues be kept private, having a judicial review of decisions and allow people who actually really want things to be private, to stay private,” Judge Orrick said. It will also force the courts not to assume that people understood when they were signing some document that they were actually agreeing to give up rights.
The magnitude of difficulty and expenses for everyone involved also increases as the number of claimants increases. Several participants noted the high cost of mass arbitrations, as some larger agencies may charge hefty fees, even for similar mass arbitration cases. One participant pointed to a situation where a company received an $11 million bill from an arbitration agency for administrative fees alone.
Yet when considering alternatives, it’s important to note that some of the smaller agencies, which may have more flexibility around fees, can struggle with handling the sheer volume of paperwork involved with mass arbitrations.
Considerations in Mass Arbitration Cases
When deciding whether to pursue a mass arbitration approach or how to respond to such a case, there are several factors to consider, according to lawyers on both sides.
Brandon Wise, Partner with Peiffer Wolf Carr Kane Conway & Wise, looks at arbitration agreements individually to see if there are batching requirements, pre-dispute notices and other factors. “I also think it’s very important who the administrator or the arbitration provider is, and it has become more and more important as mass arbitration has grown,” he said.
And then, of course, there are the merits of the case. “In my mind, what makes a good mass arbitration, just like a class case, is common proof. If it would be a good class case if there wasn't an arbitration agreement, it would be a good mass arb.”
And defense attorneys use many of the same criteria when faced with a mass arbitration matter, said a fellow panelist: What's the claim? What are the merits and what is the proof required for the claim? Is there, or could there be, actual liability here? Are claimants viable? Were they actually customers?
The issue of bellwether considerations in arbitrations is a factor several panelists mentioned. Another concern presented was the time it can take to pursue mass arbitrations. Where once arbitration was considered a faster alternative than the courts, that may no longer be true. That may put a statute of limitations at risk or drag cases out for extended periods of time for claimants.
As all these issues continue to bubble to the surface, mass arbitrations will continue to grow, panelists agreed. And with them will bring more challenges around efficiencies and costs and the best way to ensure justice for those who have claims.