Arbitration agreements have become a fixture of American contracts, and companies have turned to them as a strategy for reducing class action exposure.  In recent years, plaintiffs have responded by initiating “mass arbitrations” – individual arbitrations filed on behalf of hundreds or thousands of customers or employees, which may immediately threaten companies with millions of dollars in arbitration-initiating fees alone.  Many companies, however, have been slow to react to the risks posed by mass arbitration.  This post discusses some of those risks, the difficulties companies have encountered in trying to address this issue, and potential strategies for mitigating the threat posed by mass arbitration.

The mass arbitration issue did not emerge overnight.  Instead, this threat emerged in response to efforts by corporate defendants to make their arbitration agreements more palatable to courts.  For example, defendants successfully persuaded courts that arbitration agreements should be strictly enforced “according to their terms,” even if the arbitration agreements contained class-action waivers that plaintiffs argued made arbitration uneconomical.  See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011).  Arbitration agreements also increasingly featured delegation clauses, which required arbitrators (and not courts) to resolve “gateway” questions of arbitrability and prevented courts from reaching more substantive arguments.  See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019).  And in response to the legions of unconscionability challenges tested in courts over the years, arbitration agreements evolved to incorporate an array of consumer- and employee-friendly provisions.  Significantly, one such standard provision promises that companies, not consumers or employees, will bear the bulk of at least upfront arbitration fees – a term that has become widely incorporated into the rules of popular arbitration providers.

Mass arbitration claimants have used these developments against companies.  Aided by sophisticated lead-generation services, plaintiffs’ lawyers can identify a substantial number of potential claimants and initiate individual arbitration proceedings on their behalf.  According to these claimants, a company cannot avoid its contractual obligations to participate in arbitration proceedings – even if such proceedings number in the hundreds or thousands.  Because most arbitration agreements include class-action waivers, each demand is filed individually,  triggering its own arbitration fees.  The company then finds itself responsible for costs imposed both by the rules of the arbitration organization it selected and by the consumer- or employee-friendly provisions in its own arbitration agreement, potentially adding up to enormous upfront costs that cannot be postponed or avoided – and that create outsized settlement pressure without regard for the merits of the underlying claims.  In California, for example, a drafting party that fails timely to pay arbitration fees pursuant to an arbitration agreement is subject to various statutory penalties, including liability for the other side’s reasonable attorneys’ fees and costs.  See Cal. Civ. Proc. Code § 1281.97. 

Companies’ efforts to seek relief from courts have been rebuffed, with many judicial comments drawing headlines for describing the companies’ resistance to mass arbitration as ironic, hypocritical, or poetically just given the historical backdrop of defendants enforcing arbitration agreements against plaintiffs.  See, e.g., Abernathy v. DoorDash, Inc., 438 F. Supp. 3d 1062, 1068 (N.D. Cal. 2020) (“[I]n irony upon irony, DoorDash now wishes to resort to a class-wide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate.  This hypocrisy will not be blessed, at least by this order.”).  And when delegation clauses are involved, companies may have to present their arguments against mass arbitration to the arbitrator in the first instance – after, of course, the filing fees are paid.  See, e.g., Adams v. Postmates, Inc., 414 F. Supp. 3d 1246, 1254 (N.D. Cal. 2019) (“[T]he crux of Postmates’ position is that no arbitration fees are due because Petitioners allegedly failed to submit individual arbitration demands in accordance with the Mutual Arbitration Provision. . . .  That determination is within the arbitrator’s exclusive authority.”), aff’d, 823 F. App’x 535 (9th Cir. 2020). 

Despite the risks posed by mass arbitration, many companies have been slow to react.  And courts have generally been unreceptive to efforts to modify arbitration agreements to mitigate the threat of mass arbitration after a company has been targeted.

But before they become targets, companies have several options available that could mitigate the risk of a mass arbitration.  For example, companies could modify their existing arbitration agreements to:

  • add informal dispute-resolution requirements as conditions precedent to arbitration;
  • delegate certain gateway issues to the courts;
  • remove promises to pay arbitration-related filing fees;
  • consider switching arbitration providers or renegotiating rules with existing providers;
  • promise only to reimburse fees at the conclusion of arbitration, conditioned on a finding that the claim was brought in good faith;
  • include fee-shifting provisions; and
  • include procedures specifically geared toward mass arbitration, such as procedures for identifying bellwether cases in the event of mass arbitration filings, batching claims, or sliding fee scales.

Some arbitration organizations, and in particular newer organizations seeking to compete with more established market leaders, have moved to offer procedural solutions similar to those identified in the last bullet above. 

Some of these moves, however, have drawn skepticism and scrutiny from the media, courts, and commentators alike for projecting gamesmanship and partiality.  For example, plaintiffs have targeted in discovery a corporation’s communications with newer arbitration providers.  See, e.g., Abernathy, 438 F. Supp. 3d at 1067 (denying request to seal documents concerning “an arbitration organization that holds itself out to the public as impartial” but provided defense attorneys with a draft mass arbitration protocol for discussion).  And one company’s effort to mitigate against the threat of mass arbitration by changing its arbitration administrator resulted in it being targeted by an antitrust complaint.  See Heckman v. Live Nation Entertainment, Inc., No. 22-cv-00047 (C.D. Cal.).

Mass arbitrations appear to be a permanent threat for defendants.  Indeed, some prominent companies have already moved away from arbitration agreements entirely, apparently finding class-action lawsuits to be more palatable than the threat of mass arbitrations.  Companies that continue to rely on arbitration agreements would be well-advised to review their terms and develop strategies for mitigating against the risks of mass arbitrations.

Photo of Andrew Soukup Andrew Soukup

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which…

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which were defeated through dispositive pre-trial motions.
Andrew is co-chair of the firm’s Class Action Litigation practice group.

Andrew has helped his clients achieve successful outcomes at all stages of litigation, including through trial and appeal. He has helped his clients prevail in litigation against putative class representatives, government agencies, and commercial entities. Representative victories include:

  • Delivered wins in multiple nationwide class actions on behalf of large financial companies related to fees, disclosures, and other banking practices, including the successful defense of numerous lenders accused of violating the Paycheck Protection Program’s implementing laws, which contributed to Covington’s recent recognition as a “Class Action Group Of The Year.”
  • Successfully defending several of the nation’s leading financial institutions in a wide variety of litigation and arbitration proceedings involving alleged violations of RICO, FCRA, TILA, TCPA, FCBA, ECOA, EFTA, FACTA, and state consumer protection and unfair and deceptive acts or practices statutes, as well as claims involving breach of contract, fraud, unjust enrichment, and other torts.
  • Successfully defended several of the nation’s leading companies and brands from claims that they deceptively marketed their products, including claims brought under state consumer protection and unfair deceptive acts or practices statutes.
  • Obtained favorable outcomes for numerous clients in commercial disputes raising contract, fraud, and other business tort claims.

Because many of Andrew’s clients are subject to extensive federal regulation and oversight, Andrew has significant experience successfully invoking federal preemption to defeat litigation.

Andrew also advises clients on their arbitration agreements. He has successfully helped numerous clients avoid multi-district class-action litigation by successfully enforcing the institutions’ arbitration agreements.

Clients praise Andrew for his personal attention to their matters, his responsiveness, and his creative strategies. Based on his “big wins in his class action practice,” Law360 named Mr. Soukup a “Class Action Rising Star.

Prior to practicing law, Andrew worked as a journalist.

Photo of Ashley Simonsen Ashley Simonsen

Ashley Simonsen is a litigator whose practice focuses on defending complex class actions in state and federal courts across the country, with substantive experience in the three hotbeds of class action litigation: New York, San Francisco, and Los Angeles.

Ashley represents clients in…

Ashley Simonsen is a litigator whose practice focuses on defending complex class actions in state and federal courts across the country, with substantive experience in the three hotbeds of class action litigation: New York, San Francisco, and Los Angeles.

Ashley represents clients in the technology, consumer brands, financial services, and sports industries through all stages of litigation, including trial, with a strong track record of success on early dispositive motions. Her practice encompasses advertising, antitrust, product defect, and consumer protection matters. Ashley regularly advises companies on arbitration clauses in consumer agreements and related issues, including mass arbitration risks and issues arising under McGill v. Citibank, N.A. And she is one of the nation’s leading experts on “true lender” issues and the related “valid when made” doctrine.

Photo of Kanu Song Kanu Song

Kanu Song is a litigator specializing in complex commercial disputes, including intellectual property litigation, class actions, and claims brought under consumer protection and competition laws, such as California’s Unfair Competition Law (B. & P.C. § 17200).

She works with clients in the technology…

Kanu Song is a litigator specializing in complex commercial disputes, including intellectual property litigation, class actions, and claims brought under consumer protection and competition laws, such as California’s Unfair Competition Law (B. & P.C. § 17200).

She works with clients in the technology, entertainment, consumer brands, food, drug, and cosmetic industries through all stages of litigation, with a strong track record of success on early resolution and dispositive motions.