Mass Arbitrations: The New Landscape of Dispute Resolution and Its Challenges

What are mass arbitrations, and why in recent years have there been so many of them? The U.S. Supreme Court has made clear in a series of well-known, sometimes maligned decisions that class action and class arbitration waivers are absolutely enforceable and that state attempts to preclude class or collective action waivers in arbitration agreements are preempted by the Federal Arbitration Act. Not surprisingly, most arbitration agreements in the consumer and employment spaces (among others) specifically exclude class, collective and representative actions. Companies often also add language precluding consolidation of claims. This has resulted in the filing of mass arbitrations, hundreds or even thousands of similar individual claims filed by common counsel against the same respondent.

Why can or might this be a problem? The filing of mass claims can result in an administrative burden and onerous fees, as well as delay and potential unfairness to the parties, all of which may impair the integrity of the arbitration process. Realistically, a few hundred arbitrators would not be able to work through 50,000 individual arbitrations—or half or even a third of that number—in a reasonable amount of time. So how could claimants’ or respondent’s counsel?

From the perspective of the claimants’ bar, however, with the class arbitration vehicle having been taken away by the Supreme Court and the parties’ contracts, claimants have found great leverage in multiple individual filings: In most consumer and employment cases, it is the company’s obligation to fund the arbitrations, and, accordingly, the threat or the filing of thousands of claims creates a significant financial burden on the company. The company is faced with either having to pay fees in the hundreds of thousands or millions of dollars, settle out of that burden, forgo either or both its right to arbitration and/or the class waiver, or go to court to seek some sort of alternative relief. In California, the stakes are even higher, as sanctions under recently enacted sections 1281.97 and 1281.99 of the California Code of Civil Procedure may well follow a failure to fund the arbitrations at the outset.

Over the past few years, certain arbitration providers have propounded mass arbitration rules. JAMS has not rushed to do this because of the arbitration first principle that the contract governs the conduct of the arbitration. JAMS President, Kim Taylor explained this in a March 2023 blog post:

[W]e have a fundamental responsibility and commitment to neutrality and high ethical and professional standards. Our role as the administrator of the parties’ arbitration proceedings prohibits us from modifying or changing the arbitration agreement absent express agreement of the parties. If the parties’ agreement prohibits class actions and consolidations, we must treat each case individually. Each matter is commenced and managed separately because that is what the pre-dispute contract requires. Every arbitration receives its own process and its own arbitrator, and the resources needed to manage these individual arbitrations are similar to or greater than any individual arbitration.

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To reiterate, JAMS’ core value is neutrality. We take each individual arbitration as it is filed, according to the terms of the contract. We take that position to maintain our neutrality and because we do not believe we have the power, as the administering body, to change the parties’ agreement unilaterally.

Consistent with this, JAMS will apply its new Mass Arbitration Procedures and Guidelines only if they are specifically referenced in the parties’ arbitration agreement or agreed to after a dispute arises. It is true that in consumer and employment settings, pre-dispute arbitration agreements are typically presented on a take it or leave it basis. Still, JAMS will only administer cases under these procedures if the parties have agreed to them, thus honoring, not overriding, the parties’ contract. Companies that fail to change the terms of the pre-dispute agreements to incorporate the mass arbitration procedures, do not get the benefit of them.

How do the procedures address some of the issues identified above? A key element of the procedures is the designation by JAMS of a process administrator. This neutral does not serve as an arbitrator in the cases but as a designee of JAMS trained to carry out many functions that would otherwise be done by JAMS and its National Arbitration Committee. At the outset of the filing, fees are also limited to an initial filing fee, fees of the process administrator, and case management fees. While the threat of large fees can serve as a bargaining chip, from an administrative cost perspective, the functions carried out by the process administrator and the subsequent appointment of arbitrators makes it unnecessary to charge a filing fee for each individual demand filed.

But wait, having contracted out of class arbitration is it not fair that companies should get exactly what they bargained for, thousands of individually filed lawsuits? I understand why there is cynicism here, but I do not think so. In the courts the opposite of a class action need not be thousands of individually filed claims. There is consolidation, as well as the MDL procedure. To be sure, I recognize that class and separate mass filings provide leverage in negotiations. But I also recognize that the filing of scores of individual claims leads to waste and delay that is inconsistent with arbitration, and I believe there is also leverage in the potential liability arising from consolidated proceedings.

What does the process administrator do? Typically, JAMS, through its administrative side, makes determinations as to whether a case has been properly commenced (Rule 5) and whether consolidation is appropriate (Rule 6(e)), among other preliminary administrative matters. The new procedures provide a framework for the process administrator to make such determinations, as well as to work with the parties to develop an efficient process for the resolution of claims. The cases, likely consolidated or grouped in certain respects and/or for certain purposes, will then be heard by separately-appointed arbitrators.

Finally, mass arbitration under the procedures is not class arbitration, and these procedures are not class action procedures by another name. The process administrator’s role is perhaps best understood as a process of step-by-step problem-solving, not a process whereby complex legal issues such as the requirements under Rule 23 of the Federal Rules of Civil Procedure (FRCP), or the arbitration analogue, have been met. (It is, of course, well understood that class certification and consolidation serve different purposes and are based on different standards.) In any case—and although it is probably best not to rely on analogies to court procedures in the far less formal arbitration space, the better analogy is to FRCP Rule 42(b): The process administrator has broad discretion, after hearing the from the parties, to fashion a plan for the cases that will promote efficiency, while avoiding prejudice.