Mass arbitrations are on the rise in 2024. Particularly in the online retail space, companies often include an arbitration clause or class action waiver in their terms and conditions that customers must assent to in order to complete a purchase. By binding a consumer to arbitrate any claim on an individual basis, such clauses are intended to reduce a company’s exposure to mass claims and keep claims private between the company and its customers.
As the plaintiff’s class action bar attempts to overcome the practical limitations created by arbitration clauses, a mass arbitration trend has developed over recent years. Notably, there has been an increase in extensive filing campaigns where a large number of individuals collectively bring similar or identical claims against a common defendant through the arbitration process. Although arbitration typically costs less than litigation, the filing and administrative fees of arbitration can impose significant financial burdens on companies when filed on such a large scale. When tens or hundreds of thousands of claimants file individual arbitration claims, companies may face millions of dollars in fees. Further, businesses typically must pay arbitration fees even if they win the case. These financial burdens, coupled with the challenges of conducting due diligence in the face of substantial claimant numbers, can quickly strain a company’s resources.
In 2021, the American Arbitration Association (AAA), the country’s largest consumer arbitration administrator, amended the mass filing rules to streamline the administration of large volume filings involving the same or related parties and party representative(s). The mass filing rules apply when there are 25 or more similar Demands for Arbitration filed against or on behalf of the same or related parties and representation of the parties is consistent or coordinated across the cases.
On January 15, 2024, the AAA released updated mass arbitration rules, which are effective as to all mass arbitration cases filed on or after January 15, 2024. The modified rules provide two key changes that will affect mass arbitrations: (1) automatic mediation and (2) formalized authority of process arbitrators.
First, mediation is an effective technique to resolve mass arbitrations before filing. Previously, parties would usually agree to stay the filing of demands while they attempt to reach a solution. Now, the updated rules provide for the automatic appointment of an AAA mediator in a mass arbitration, with no stay of proceedings and mediation to be held within 120 days.
Second, the modified rules update the categories of disputes that potentially fall within the authority of the process arbitrator, who can be appointed to adjudicate administrative issues. Formalizing the authority of process arbitrators and limiting the opportunities to raise administrative or process issues streamlines the decision-making process and relieves administrative burdens on AAA staffers. The updated rules also provide that the process arbitrator must resolve issues regarding whether subsequently filed cases are part of the same mass arbitration and whether previous rulings are binding on subsequently filed arbitrations. This further facilitates predictability in the administration of mass filings and ensures subsequent batches of claims can be efficiently processed.
As mass arbitration trends continue to rise, businesses should consider revising arbitration agreements to include provisions that limit the potential for mass claims. For example, the addition of a required pre-dispute resolution provision could combat such risks. A comprehensive, proactive strategy can reduce a company’s exposure, while also protecting its business relationships with consumers.
Should you have any questions, please reach out to Bob Alpert, Doug Hance, or Eliza del Carmen.
