What the Mass Arbitration Trend Means for Your Business and Online Agreements

From Lexology, Zach Lewis and Caren Decter discuss the changes in mass arbitration procedure and fees schedules to reduce the ability of plantiffs’ attorneys to weaponize mass arbitrtions. Zach and Caren write:

Courts are paying significant attention to the enforceability of online terms of service, including the mandatory arbitration agreements that are often part of them. For years, companies included these mandatory arbitration provisions with class action waivers to reduce their exposure to mass, collective actions. Recently, however, plaintiffs’ counsel have devised a strategy to weaponize these arbitration provisions against companies by filing (or threatening to file) thousands of individual arbitrations at once, and then leveraging the potential millions of dollars in arbitration fees to extract large settlements from businesses.

Prior to 2024, the two leading arbitration providers—JAMS and the American Arbitration Association (“AAA”)—charged businesses several hundred dollars in initial filing fees per claimant. Thus, if a plaintiff’s firm amassed 5,000 claimants, the business would be invoiced for more than $1 million in initial filings fees (regardless of ultimate liability on the claims). Under the California Arbitration Act, failure to pay these arbitration fees could result in severe sanctions.

In light of this fee risk, many companies have revised their arbitration provisions to help protect against the risk of mass arbitration—including by selecting other arbitration providers such as NAM and ADR Services that have more favorable mass arbitration fee schedules.

In response, JAMS and AAA recently introduced revised mass arbitration procedures and fee schedules that are more favorable for businesses. The most significant change is that JAMS and AAA now charge businesses a flat, initial filing fee of $7,500 and $8,125, respectively. The new flat fee approach hinders plaintiffs’ counsel’s ability to leverage these initial filing fees.

However, JAMS and AAA still charge hefty case administration fees that can easily add up to six or even seven figures. In light of this, many companies are also still considering other arbitration providers. They are also revising their arbitration provisions to include “batching” or “bellwether” provisions to further mitigate against this fee risk. Under a typical “batching” provision, up to 100 claims may be treated as a single claim for fee purposes. A “bellwether” provision typically involves selecting a small number of representative cases from a larger pool of similar claims to be decided first; the outcomes are then used to guide the resolution of the remaining cases.

Read the full story at What the Mass Arbitration Trend Means for Your Business and Online Agreements – Lexology

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