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Abuse of the arbitration system by plaintiffs’ lawyers through the filing of mass arbitrations is by now well-documented, including in a paper we authored for the Chamber of Commerce’s Institute for Legal Reform. Companies have responded by revising arbitration agreements to address this abuse, and arbitral forums have adopted new default rules to govern mass arbitrations when the issue is not addressed in the arbitration agreement.

Not surprisingly, plaintiffs’ lawyers—hoping to retain the ability to coerce settlements through mass-arbitration filings—are challenging contract provisions and arbitral forum rules that address the issue.

A panel of the Ninth Circuit recently refused to enforce the arbitration agreement in Ticketmaster’s terms of service, rejecting the company’s attempt to address the problem of mass arbitration by incorporating the rules of a new arbitration provider (New Era). That decision—Heckman v. Live Nation Entertainment, Inc.—is flawed in several respects. But more important for most businesses, the decision is narrow and rests on the unique aspects of the New Era rules adopted in the Ticketmaster agreement. Plaintiffs’ lawyers are already arguing that Heckman sweeps more broadly, but that approach misreads the opinion and, in addition, contravenes Supreme Court precedent interpreting the Federal Arbitration Act (FAA).

A majority of the Heckman panel first concluded that the arbitration agreement’s use of New Era’s rules was unconscionable under California law. Second, the entire panel—both the majority and the concurring judge—held that New Era’s rules transformed mass arbitrations into a type of arbitration so unlike traditional individual arbitration that (in the panel’s view) the FAA no longer applies. And the panel went on to say that without the FAA, which (as the Supreme Court held in AT&T Mobility LLC v. Concepcion) preempts California’s Discover Bank rule against waivers of class arbitration, Ticketmaster’s arbitration agreement was invalid under Discover Bank.

This post first describes the relevant background and the Ninth Circuit decision. We then explain why that decision is limited to New Era’s unique approach to mass arbitration—and that any broader reading of the decision is barred by the Supreme Court’s holdings in Concepcion and subsequent cases.Continue Reading Ninth Circuit holds that arbitration agreement adopting New Era’s mass-arbitration rules is unconscionable—but the decision is narrow and limited to New Era’s unique rules

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.

Continue Reading American Arbitration Association updates its mass arbitration rules and fee schedules

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