Mass Arbitration Abuse Boosts Attorneys’ Fees, Not Fair Results

Some commentators are celebrating the rise of mass arbitrations, but there’s little cause for celebration. The sole beneficiaries of most mass arbitrations are the plaintiffs’ lawyers who reap huge fees from settlements. Often the settlement amounts are wholly unrelated to the merits of the underlying claims.

Who’s hurt? Parties with legitimate claims and the consumers and workers who foot the bill for these unjustified settlements and the accompanying attorneys’ fees.

Here’s how the mass arbitration gambit works:

• Plaintiffs’ lawyers enroll thousands of clients, typically through an online process with minimal screening, to prosecute the same or similar claims.
• Plaintiffs’ lawyers then threaten to file all the arbitrations at the same time, which can trigger the target company’s immediate obligation to pay tens or hundreds of millions of dollars in upfront arbitration fees—even though the lawyers have neither the intent nor the resources to arbitrate each claim.

The goal is to put enormous pressure on companies to settle. Because the settlement pressure increases with the number of filed or threatened claims, there’s powerful incentive for plaintiffs’ lawyers to focus on the quantity of claims without regard to their quality.

Our profession demands better: Lawyers shouldn’t blindly act on unverified information typed into online forms by strangers who are recruited to be arbitration claimants. Mass arbitrations harm everyone: not just businesses, consumers, and workers—but also the integrity of our civil justice system.

As we explain in a US Chamber of Commerce Institute for Legal Reform report, mass arbitration coercion is working. Who wouldn’t feel constrained to pay $10 million to settle a case when the alternative is to pay more than that in arbitration filing fees.

And that’s before paying lawyers to handle the arbitrations, paying additional arbitration fees, and paying amounts awarded by the arbitrators. The merits of the claim go by the wayside.

The only winners are plaintiffs’ lawyers—and those who fund their efforts—who are enriched by forcing hefty settlements regardless how weak the underlying claims might be or whether the claimants are even legitimate customers of the target business.

The fact that some plaintiffs’ lawyers try to abuse the system isn’t new. A half-century ago, Judge Henry Friendly famously recognized that class actions could, and did, lead to blackmail settlements. The mass arbitration gambit is an updated version of the class action abuses that characterized the last part of the 20th century: claims that leverage the threat of huge costs to extract a settlement unrelated to the claims’ merits.

A Georgetown Law School professor interviewed plaintiffs’ lawyers who popularized the mass-arbitration strategy, and candidly acknowledged that the mass arbitration model operates through “significant in terrorem settlement pressure” that can be even greater than a class action, even when the mass arbitration asserts “more dubious claims.”

In the past, Congress responded to class action abuses by enacting the Private Securities Litigation Reform Act and the Class Action Fairness Act.

Because arbitration is a matter of contract, businesses have responded to abusive mass arbitrations by developing fair and reasonable countermeasures—modeled on approaches used by courts in multi-district litigation.

For example, the use of bellwether and batch proceedings, allowing 25 or 50 arbitrations to proceed at a time, to obtain merits outcomes that can lead to informed settlement of the remaining claims.

When plaintiffs’ lawyers assert that these procedures make it harder for consumers to bring claims en masse, they’re just complaining about common-sense steps to respond to abusive efforts to coerce settlements. It’s surprising because many of the same lawyers advocate for bellwether trials in multidistrict litigations—precisely because they frequently lead to settlements of the remaining lawsuits.

In reality, arbitration delivers results for claimants. Consumers, workers, and businesses all benefit from arbitration’s streamlined procedures, which enable prompt resolution of consumer and worker disputes on the merits.

Numerous empirical studies, including one sponsored by the US Chamber of Commerce Institute for Legal Reform, show consumers and workers do as well or better in arbitration compared to litigation—they prevail on their claims more quickly and more often, and they recover as much or more when they prevail.

Businesses also frequently make consumers or workers with legitimate concerns more than whole before the dispute even reaches a formal arbitration.

The reduced expense and complexity of arbitration allow consumers and workers to seek redress for claims they could not practically bring in court.

There’s nothing inherently wrong with one lawyer or one firm representing multiple claimants asserting the same or similar claims. But those claims should be addressed in a way that ensures that the merits, not the threat of massive arbitration fees, drive the results.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Andrew J. Pincus is partner at Mayer Brown and has won numerous US Supreme Court and appellate court victories involving arbitration agreements and class actions.

Archis A. Parasharami is partner at Mayer Brown and co-leads the firm’s class action practice, defending businesses in class actions and mass arbitrations.

Daniel Jones is partner at Mayer Brown with experience litigating the enforceability of arbitration agreements.

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