In recent years, numerous businesses have successfully enforced broad arbitration clauses, particularly those embedded in terms and conditions of online service agreements. We previously discussed a noteworthy example from a recent New Jersey appeals panel decision.1 The underlying cause of action in that case stemmed from a motor vehicle collision that occurred while plaintiff was a passenger in a ride share vehicle. The court sent the dispute to arbitration, enforcing an arbitration clause that was included in an the rideshare company’s food-delivery agreement that plaintiff’s daughter had agreed to when ordering food. Although an entirely different set of facts, the arbitration clause contained in the food delivery service agreement was deemed applicable to the claims of a passenger in a rideshare vehicle.2 This is just one recent example of how defendant corporations have succeeded in enforcing ostensibly unrelated arbitration clauses to a spectrum of tangential claims. Indeed, arbitration provisions have proven remarkably effective across a wide spectrum of legal matters, including personal injury claims, discrimination suits, and potentially even antitrust cases. Courts have shown a broad willingness to generally enforce arbitration clauses, including those included in “clickwrap” agreements, which require users to agree to terms and conditions before using a website, completing a software installation, or making an online purchase, that subject consumers to arbitration provisions through everyday digital services.
However, these successes can prove to be a double-edged sword. Since they have not been able to avoid such arbitration provisions, many plaintiffs’ attorneys are now trying to use clickwrap agreements to their advantage through “mass arbitration” strategies. This tactic involves plaintiffs’ attorneys gathering numerous similar claims against a business and filing arbitration demands for all cases simultaneously.3 Each filing typically triggers initial fees ranging from hundreds to thousands of dollars, which the corporation is typically required to pay pursuant to the applicable arbitration agreement.4 Indeed, initial filing fees in some mass arbitration claims have ranged from $1,500 to nearly $2,000 per claim, leaving defendants with potential arbitration fees in the tens of millions, even before accounting for any fees needed to actually defend the claims.5 Plaintiffs’ attorneys employing this strategy may leverage these potentially enormous collective fees as settlement pressure, hoping to avoid the arbitration process altogether.6
Some companies with arbitration clauses in their terms of service are now seeking solutions. For example, in 2021 an online retailer completely removed its arbitration provision from its terms of service shortly after facing more than 75,000 arbitration demands. This may be an extreme approach that removes the benefits of arbitration, such as the mitigations of litigation costs and lower exposure to class action lawsuits. However, alternative solutions aimed at avoiding mass arbitration risk – such as attempting to implement bellwether arbitration processes akin to multi-district litigation – face strong judicial scrutiny and legal uncertainty.
The recent case of Heckman v. Live Nation Ent., Inc.7 provides an example of an attempt to head off mass arbitration, which was ultimately struck down by the Ninth Circuit. Anticipating a flood of arbitration claims, the defendants took proactive steps by partnering with a newly formed arbitration provider who offered specialized arbitration for mass arbitration forums. Shortly after, the Defendants amended their online terms and conditions to require arbitration for any dispute arising under the providers’ rules, applying retroactively to all purchases. The mass arbitration rules attempted to batch cases involving common issues of law or fact, after which a single arbitrator was chosen to decide all the cases in the batch based on three bellwether cases. The arbitrator’s decisions in the bellwether cases would them become “precedent” on all the common issues in the batched cases, as well as in any later-filed cases added to the batch. The precedential decisions, however, were also confidential, meaning they were only known to the particular plaintiffs, the defendant company, and the arbitrator.
The Ninth Circuit struck down this mass arbitration protocol. The Court took issue with the provider’s procedures, holding: “although the procedures set forth in [the] Rules for Expedited/Mass Arbitrations are superficially similar to the familiar procedures in conventional class actions, they differ in critical respects. A batched plaintiff whose case is not a bellwether case has no notice of the bellwether cases and no opportunity to be heard in those cases. Further, that plaintiff has no guarantee of adequate representation in those cases and has no right to opt out of the batched cases that will be bound by the results in the bellwether cases.”8 The court concluded that “[t]he provisions of the arbitration agreement and [the provider’s] Rules that make the delegation clause unconscionable also serve to make the entire agreement unconscionable, both procedurally and substantively . . . The Rules and the Terms are so ‘overly harsh or one-sided,’ as to unequivocally represent a ‘systematic effort to impose arbitration . . . as an inferior forum’ designed to work to [the defendant’s] advantage.9”
While the Heckman decision doesn’t close the door on effective mass arbitration protocols, developing workable systems requires thoughtful design and significant refinement. For this reason, quick fixes to the challenges businesses face from mass arbitration are unlikely to emerge. Even carefully crafted solutions will likely face judicial review, leaving their ultimate viability uncertain until courts provide further guidance. Although not every business faces the same level of risk from mass arbitration, it is prudent to consider all potential scenarios when incorporating arbitration clauses into terms of service.
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