On The Case

The problem with outsourcing justice to mass arbitration services

(Reuters) - I spent the morning reading newly-unsealed emails in which top officials from the International Institute for Conflict Prevention and Resolution discussed CPR’s development of a new protocol to handle masses of demands by employees of companies that require workers to individually arbitrate their claims.

The emails were ordered unsealed by U.S. District Judge William Alsup of San Francisco in a case by thousands of DoorDash workers who sought to compel the delivery company to arbitrate their wage-and-hour claims. To be clear: The DoorDash workers’ arbitration demands were not filed at CPR, but at the American Arbitration Association. CPR was only dragged into the case because DoorDash decided - after it was socked with AAA’s bill for millions in fees to launch, to change its workers’ contracts to specify CPR, rather than AAA - as its arbitration service.

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Judge Alsup allowed the workers’ lawyers at Keller Lenkner to conduct limited discovery to find out the extent to which DoorDash and its lawyers at Gibson Dunn & Crutcher had influenced CPR’s new protocol. In his Feb. 10 opinion compelling DoorDash to accede to demands by 5,100 workers to arbitrate their cases at AAA, Judge Alsup also said the public deserves to see the CPR emails, since the material “would be useful to the public in evaluating the true extent to which (CPR) is impartial.”

So is CPR impartial? As I’ll explain, the record from the DoorDash case is open to interpretation, though I trust CPR’s assertions that it ultimately promulgated a mass arbitration system that it believes to be fair to workers and employers. I also believe, however, that the very design of the arbitration system leaves room for doubt.

The new CPR emails, as an accompanying declaration from Keller Lenkner’s Aaron Zigler explains, certainly show that the idea for a mass arbitration protocol was hatched at CPR after Gibson Dunn reached out to the arbitration service in May 2019, after Keller Lenkner informed DoorDash that it was on the cusp of filing thousands of demands at AAA and exposing the company to millions of dollars in AAA fees. And as CPR drafted and reworked mass arbitration rules, the emails show, it consulted with Gibson Dunn and with an in-house DoorDash lawyer on a half-dozen occasions.

The emails show that CPR, a nonprofit best known for arbitrating disputes between companies, was intrigued by the prospect of developing new business from employers facing mass arbitration. Vice-president Helena Erickson, who spoke with a Gibson Dunn partner about DoorDash’s reluctance to pay AAA’s fees, said in a May 17 email to another CPR official that she told Gibson Dunn CPR “would be willing to discuss discounted filing fees for a large book of business.” Several months later, after Keller Lenkner had filed thousands of demands at AAA and DoorDash had renewed its inquiry to CPR, CPR president Allen Waxman informed two board members that he was talking to Gibson Dunn about “the overall challenge” of mass arbitration, which “could be an important source of funding going forward.”

Keller Lenkner has suggested that CPR adopted its protocol expressly to attract business from DoorDash and other gig economy companies concerned about mass arbitration. (Several such companies are, like DoorDash, represented by Gibson Dunn.) The CPR emails show that the arbitration service sought advice from its board members, including the claims resolution guru Ken Feinberg. But CPR did not reach out to Keller Lenkner or its co-counsel at Quinn Emanuel Urquhart & Sullivan, even though the arbitration service knew the firms represented thousands of workers demanding arbitration. Keller Lenkner believes the lopsided input was no coincidence.

I don’t think CPR acted as an instrument of Gibson Dunn and DoorDash. After I looked at the newly-released emails, I went back and read deposition testimony from CPR president Waxman, who was questioned by Keller Lenkner’s Zigler in the DoorDash case. I also read a Feb. 25 blog post from CPR disputing any suggestion that its mass arbitration protocol was dictated by Gibson Dunn. Waxman’s testimony, in particular, convinced me that he and his colleague Erickson were chiefly responsible for developing CPR’s mass arbitration framework. And though CPR shared drafts of the protocol with Gibson Dunn and included a DoorDash lawyer in conference calls to discuss the proposed rules, Waxman testified that the arbitration service refused to change proposed rules that Gibson Dunn didn’t like.

The protocol, for instance, allows workers to go to court if they can’t reach a global settlement with their employer after bellwether arbitrations and mediation. When Gibson Dunn objected, Waxman said, CPR “made clear (that) we were developing this protocol for more than this particular matter. This was broader.” CPR also rebuffed a suggestion to include a threshold settlement participation rate in the rules, explaining that it was a matter to be decided in mediation. Waxman testified, in fact, that he could not recall making any changes in the protocol to accommodate Gibson Dunn or DoorDash.

In a statement responding to my query about the newly-unsealed emails, CPR said it did not draft its mass arbitration protocol to woo employers, even though they’re the ones that decide whether CPR will handle the business of resolving their workers’ disputes. “CPR developed the protocol in response to the challenges posed in bringing timely and comprehensive resolution to mass claims,” the statement said. “It borrowed techniques that have proven successful in the resolution of other mass claims and applied them to the employment space. CPR was aware that, in order to be successful, it was imperative that the features of the protocol be balanced and designed to facilitate global resolution. We believe that the features of the protocol itself make this clear.”

CPR said that it is, of course, “concerned with finding funding for our activities and mission.” But it said that the fees proposed in its mass arbitration protocol – an initiation fee plus an upfront fee of $3,000 apiece for 10 or more bellwether arbitrations – are very different from the fee structures of other arbitration services. A company facing mass arbitration under the CPR protocol might face hundreds of thousands of dollars in fees, but the same employer could be on the hook for millions under JAMS and AAA rules.

CPR also said that although it didn’t consult Keller Lenkner or other firms that represent workers in mass arbitration cases, it did talk to “labor and employment counsel with experience representing both management and employees on an individual and class basis,” in addition to prominent arbitrators, mediators and mass torts specialists.

But here’s the thing. Even if you accept everything CPR says about developing a fair system that balances the interests of workers and employers, CPR is running a business. It’s a non-profit business, to be sure, but the arbitration service is competing with AAA (also a non-profit) and JAMS (a for-profit company) and other dispute resolution services.

Employers decide who gets that business – not workers. And employers pay the lion’s share of the fees to resolve disputes in arbitration. That’s a fundamental difference between arbitration and litigation in court. Judges are not paid by either side. Their jobs don’t depend on a defendant’s perception of their performance. And they must comply with a strict code of ethics to assure not just that they’re impartial in fact but that they cannot even appear to be impartial.

But the U.S. Supreme Court has blessed the outsourcing and privatization of justice to arbitration firms. I’m sure that every arbitrator working for CPR or AAA or JAMS truly believes that she is a neutral decision-maker. And they may well be! But the infrastructure of arbitration leaves room for the little guys – workers and consumers – to wonder whether the folks who pay arbitrators’ bills have an edge.