On The Case

Mass arbitration ethics: Can one firm protect the interests of tens of thousands of clients?

(Reuters) - I’ve been proselytizing quite a bit of late about mass arbitration as a way of restoring leverage to workers (and, potentially, consumers) forced to accede to mandatory arbitration contracts in which they waive the right to sue or arbitrate as a class. Everyone knows that it doesn’t make economic sense for a plaintiffs’ firm to represent a single worker demanding to arbitrate a $100, or even $1,000, wage-and-hour claim. But if you represent 1,000 or 5,000 or 10,000 workers with very similar claims, the economics change – especially when you also have the leverage of millions of dollars in arbitration fees to encourage employers to negotiate.

Employers facing mass arbitration campaigns have been known to resort to words like “extortion” and “shakedown,” to describe such negotiation requests. But really, they’re complaining about the consequences of the very contracts that they imposed on their workers. As U.S. District Judge William Alsup of San Francisco observed at a hearing last week in a case involving mass arbitration against the delivery service DoorDash, there’s some poetic justice, to use Alsup’s phrase, in watching companies that fought for the right to force their workers to arbitrate squirming to respond when masses of workers do, in fact, demand to vindicate their contractual rights.

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If workers’ interests are being compromised, though, mass arbitration loses its patina of righteousness. DoorDash and other companies facing mass arbitration have raised concerns about whether a single law firm, Keller Lenkner, can ethically and responsibly represent tens of thousands of workers. And though Keller Lenkner has repeatedly assured judges and arbitrators that it can – and there is virtually no credible evidence that the firm has failed to serve the interests of the tends of thousands of employees it represents – it’s worth highlighting why mass arbitration is potentially a tricky business.

The ethical complexities of representing masses of clients are laid out in a declaration that DoorDash’s lawyers at Gibson Dunn & Crutcher filed in connection with that hearing last week before Judge Alsup in San Francisco. The hearing addressed a motion for a temporary restraining order that Keller Lenkner ended up withdrawing, but not before Gibson Dunn executed some hard jabs in a brief opposing the TRO. DoorDash’s lawyers described a “shakedown scheme” in which Keller Lenkner approached the company with a letter vowing to file thousands of arbitration demands – with fees approaching $20 million – unless DoorDash chose to discuss an alternative resolution of workers’ claims.

In Gibson Dunn’s telling, Keller Lenkner has never had the slightest intention of actually arbitrating thousands of individual cases – and, according to DoorDash’s lawyers, has rejected every proposal to establish an orderly process of adjudicating claims individually. In fact, according to DoorDash and its lawyers, Keller Lenkner is so heedless of its clients’ individual claims that some of those clients don’t even show up in the company’s records as DoorDash workers.

As I said, Keller Lenkner has very sound responses to those accusations. Partner Warren Postman told Judge Alsup at last week’s hearing that the firm has partnered with Quinn Emanuel Urquhart & Sullivan and is prepared to litigate every client’s case. Postman also said he had brought along boxes full of declarations and retention agreements to assure the judge of Keller Lenkner’s client relationships. If there are gaps in the record of his clients’ work for DoorDash, he said, it’s probably because DoorDash hasn’t used all criteria to search for those workers’ records.

But the declaration Gibson Dunn submitted from Richard Zitrin, an ethics professor at the University of California, Hastings, did not rely on assertions of improper behavior. (Zitrin even said that although he had seen documents suggesting that some Keller Lenkner clients were not DoorDash workers and that Keller Lenkner was using arbitration fees as leverage to obtain a global settlement, “it is not now my opinion that plaintiffs’ counsel has engaged in unethical conduct.”) But the professor said it is “hugely problematic” and “near impossible” for plaintiffs’ firms to meet their ethical obligations to every client when they represent a massive client base. “Where, as here, plaintiffs’ counsel purports to represent thousands of clients against a particular defendant, red flags go up in my mind about whether such representation meets the ethical requirements all lawyers must abide by,” the professor wrote.

Those ethical concerns are particularly acute, Zitrin said, when clients are weighing individual settlement offers. Zitrin said he has advised firms that to fulfill their ethical duties in mass litigation, they should, among other things, obtain extensive conflict waivers from every client; should, to the extent possible, inform all clients of settlement offers to other clients; should assure that the interests of non-settling clients are protected; and should not coerce clients to settle even if the law firm recommends accepting the deal. “Without such complete protection for clients, it is my opinion that such massive mass actions cannot be done ethically,” Zitrin wrote.

Keller Lenkner’s Travis Lenkner sent me a long email responding to Zitrin’s declaration and, more broadly, to assertions by mass arbitration defendants that his firm cannot ethically vet and represent tens of thousands of workers seeking individual arbitration. Lenkner said that the firm has consulted “numerous experts” to ensure that it is complying with ethical rules and has a team of lawyers and professionals who keep the firm’s clients apprised of developments in their cases. Even Zitrin, the law professor who submitted a declaration on DoorDash’s behalf, admitted that it’s possible to represent a mass client base ethically, Lenkner said, and there is not “a shred of evidence” that his firm has done anything less.

“It takes real chutzpah for these companies and their lawyers to question our ethics, without support, when they are the ones who engineered a system that requires individual arbitration and promised courts that individual arbitration would be accessible and streamlined,” Lenkner’s email said. “Now that firms like ours have done the work necessary to bring a substantial number of claims in individual arbitrations, defendants are showing their true colors. Many defendants thought arbitration agreements would let them avoid accountability for widespread legal violations, they are angry that this isn’t true, and they are lashing out.”

Keller Lenkner’s client relationships will likely be put to the test in its mass arbitration campaigns against DoorDash and the delivery service Postmates. Both companies have reached prospective class action settlements that encompass claims by Keller Lenkner clients. The firm attempted, unsuccessfully, to intervene in the Postmates settlement in state court in San Francisco, but has made clear that it will object to the deal if it receives preliminary approval. It will presumably take the same approach to the more recently disclosed DoorDash prospective settlement. Will the firm advise its clients to opt out? Will it weigh each client’s possible recovery under the settlements before offering that advice?

These settlements could be an example of the ethical minefield Zitrin warned about. Keller Lenkner had better step carefully.