In recent years, parties entering into class settlements—largely at the urging of courts—have sought to boost the rate at which class members participate in those settlements by reducing gating requirements for submitting claims. In an increasing number of cases, claims are flooding in. But all too often, a meaningful percentage of those claims are fraudulent. And the tools used to submit these improper claims are being used to subvert other parts of the legal system.

Continue Reading The implications of skyrocketing fraudulent claims in class action settlements

The Seventh Circuit’s recent decision in Wallrich v. Samsung Electronics America, Inc. is significant news in the world of mass arbitration. In recent years, businesses have faced an increasing risk of being targeted by abusive mass arbitration campaigns that seek to leverage the arbitration fees the business must pay, win or lose, to coerce a settlement of even meritless claims. In Wallrich, Samsung was facing a mass arbitration that it contended was based on meritless claims; among other things, Samsung said, some of the claimants were not really Samsung customers at all.

Continue Reading Seventh Circuit reverses order forcing Samsung to pay arbitration fees for mass arbitration

The AAA recently announced a new set of rules of mass arbitrations, as well as new fee schedules for consumer and worker arbitrations. We and some of our colleagues wrote a Legal Update about the changes, how they impact businesses, and whether the updates might help with widespread abuses in mass arbitrations.

The Supreme Court’s recent decision in Mallory v. Norfolk Southern Railway Co. creates substantial uncertainty over whether companies that register to do business in certain states can be subject to personal jurisdiction for claims unrelated to the forum—because those states require consent to general jurisdiction as a condition of registration. Mallory involved a Pennsylvania law treating registration to do business “as a foreign corporation” as a “sufficient basis” for “general personal jurisdiction” over that corporation.

In a splintered set of opinions, the Supreme Court rejected a challenge to the law under the Due Process Clause. Five Justices agreed that—in this case—assertion of jurisdiction based on the Pennsylvania law was not unconstitutional as a matter of due process. But one of those five Justices (Justice Alito) indicated that the due process issue might be resolved differently under other facts. And Justice Alito strongly suggested in his concurrence that the dormant Commerce Clause might prohibit a state from requiring consent to general personal jurisdiction as a condition of doing business. The four dissenting Justices would have held that jurisdiction based on the law violates the Due Process Clause.

The Pennsylvania courts are likely to consider (at minimum) the dormant Commerce Clause challenge on remand. In the meantime, the fractured nature of the Court’s opinions—combined with the reality that, despite the result, five Justices have questioned the constitutionality of Pennsylvania’s requirement—ensures further litigation over so-called “consent-by-registration” jurisdictional statutes.

Continue Reading Supreme Court rejects Due Process Clause challenge to Pennsylvania statute requiring out-of-state corporations to consent to jurisdiction as a condition of registering to do business

Today the Supreme Court held that when a party files an immediate appeal of a federal district court order denying arbitration, the district court must stay its proceedings relating to the merits (including discovery) during the appeal. The decision in Coinbase, Inc. v. Bielski will have a significant impact in federal courts in California and New York in particular, where the prior regime had given district courts wide discretion over whether to grant full or partial stays pending appeal or to deny stays altogether.

As we anticipated from attending the oral arguments, the Justices were closely divided on the issue. In an opinion for the Court written by Justice Kavanaugh, the Court held, by a vote of 5-4, that “the district court must stay its proceedings” pending the outcome of the appeal.

Continue Reading Supreme Court holds that district courts must stay proceedings pending appeals of orders denying arbitration

The D.C. Circuit recently deepened a circuit split over whether district courts may certify a “fail-safe” class. In In re White, 64 F.4th 302 (D.C. Cir. 2023),the D.C. Circuit agreed that fail-safe classes are generally improper, but rejected the views of other circuits that categorically forbid such classes . Instead of what it described as an “extra-textual” limitation on class certification, the D.C. Circuit held that the existing requirements of Rule 23 (and a district court’s discretion to alter proposed class definitions) should be used to prevent certification of fail-safe classes.

Continue Reading D.C. Circuit rejects freestanding rule against “fail-safe” classes

State consumer-protection statutes frequently authorize claims for class-wide injunctive relief; notably, California courts have fashioned a similar remedy allowing for injunctions on behalf of the “general public.” Plaintiffs bringing class actions alleging that a company’s advertising is deceptive or misleading frequently tack on to their damages claims a request to enjoin the disputed marketing—sometimes to halt allegedly false advertising and sometimes to require the company to disclose some allegedly concealed fact about its product or service. These types of injunction claims are especially common in cases against food and beverage companies. But it is difficult to square these injunction claims with Article III standing requirements, and companies defending against class actions in federal court should be aware of the potential for seeking dismissal of requests for injunctive relief on standing grounds.

Continue Reading The importance of scrutinizing standing to seek injunctive relief in defending or settling false-advertising suits

A common feature in class action settlements is an incentive (or service) award for each named plaintiff—an extra payment above and beyond what they would receive as ordinary class members that is in theory designed to compensate them for the work of being a named plaintiff. A circuit split has developed over whether incentive awards are permissible in federal class action lawsuits.  But the Supreme Court’s guidance on whether these awards are improper will have to await another day, because the Court recently denied the petitions for review in Johnson v. Dickenson, No. 22-389, and Dickenson v. Johnson, No. 22-517.

Continue Reading Supreme Court declines to hear challenge to validity of incentive awards

This morning we attended the Supreme Court’s oral arguments in Coinbase, Inc. v. Bielski. The issue presented in Coinbase is a procedural one, but of tremendous practical importance to defendants that seek to enforce arbitration agreements: does an appeal from an order denying a motion to compel arbitration automatically stay further proceedings in the district court during the appeal? 

Continue Reading Supreme Court hears oral argument in cases involving stays pending appeals of orders denying motions to compel arbitration

The plaintiffs’ bar has been trying to kill arbitration for more than a decade. But the courts have repeatedly rejected efforts to invalidate arbitration agreements. These lawyers have therefore switched to a different tactic: mass filing of arbitration demands.

When a single law firm or group of firms files 20,000 or 50,000 or 100,000 demands, does it really intend to resolve those claims on the merits? Or is the goal to use the costs of instituting an arbitration—which are disproportionately borne by companies when consumers or employees initiate arbitration—to coerce a settlement without regard to the merits of the underlying claim? If, for example, a company would immediately have to pay more than $10 million in fees upon the filing of 5,000 arbitration demands, just to be able to contest the merits, and thousands more for each claim that actually goes to arbitration—then paying a hefty settlement can seem like the only realistic option.

The U.S. Chamber of Commerce Institute of Legal Reform just issued a 75-page in-depth analysis of the mass arbitration phenomenon—Mass Arbitration Shakedown: Coercing Unjustified Settlements—that we authored. It documents the rise of mass arbitrations, the abusive consequences of these filings, and the ethical problems they present. We also suggest solutions that preserve the key benefit of arbitration—speedy, less-costly merit-based decisions—while also ensuring access to fair resolution of claims for injured consumers and employees.

Below the fold is a summary of the white paper.

Continue Reading US Chamber of Commerce Institute of Legal Reform releases report on mass arbitration, its abuses, and how to prevent them