On The Case

Consumer arbitration is on the rise but numbers are still puny

(Reuters) - The American Arbitration Association resolved 20 percent more consumer cases in the first quarter of 2019 than in the same timeframe last year. The number of resolved cases, according to analysis of AAA’s data by the legal tech startup Radvocate, was down a bit from its peak in the second quarter of 2018, but if you look back to AAA’s numbers from the first quarter of 2016, you can see a clear trend: More consumers are resolving disputes through arbitration claims, just as arbitration advocates assured us they would in years of litigation entrenching corporations’ right to impose mandatory arbitration on customers.

Now look at the raw numbers.

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A mere 895 consumer arbitrations were resolved by AAA in the first quarter of 2019. That’s the third-highest quarterly number since 2016 – exceeded only by the 987 cases resolved in the last quarter of 2018 and the 1,199 cases wrapped up in 2018’s second quarter.

But it’s still a puny total. Millions of Americans sign consumer contracts every year that require them to resolve disputes through individual arbitration. Yet according to Radvocate’s data analysis, there has never been a three-month stretch of time in which more than 1,200 of those millions of consumers reached a resolution of their claims through AAA arbitration. (Radvocate, which is not a law firm, provides an online platform to help individual consumers to bring arbitration claims against corporations.)

We've known empirically since 2015 that class actions are vastly more effective vehicles for delivering relief to aggrieved consumers than arbitration. In a congressionally-mandated study, the Consumer Financial Protection Bureau concluded that in the time period it examined, millions of consumers were class members while just hundreds brought claims in arbitration. The CFPB also found that consumers reaped less than $200,000 in arbitration awards in that timeframe, compared to $1.1 billion in class actions.

The CFPB in 2016 used its study to justify a proposed rule barring financial institutions from imposing mandatory arbitration on consumers. President Trump’s administration killed the proposed rule in 2017.

Arbitration proponents, as you know, contend that consumers and employees can obtain quicker, cheaper results through the private process than in class actions, which, according to detractors, are a boon for lawyers but not necessarily their clients.

The more cynical take on mandatory arbitration clauses, of course, is that they are a way for corporations to shut down consumer claims entirely, since few customers go to the trouble of filing arbitration demands. In a case that got a lot of attention last year, a lawyer for the fitness tracking company FitBit told a federal judge in San Francisco that no rational litigant would pay arbitration fees, which start at $750, to litigate a relatively small-dollar claim.

On the employment fund, as I’ve reported, some enterprising plaintiffs’ firms have attempted to leverage arbitration fees, which are typically borne by corporations at the beginning of the arbitration process, by signing up thousands of employees to file individual arbitration claims for unpaid wages. Uber, Lyft and Chipotle are all facing demands that they pay millions of dollars in fees in mass employee arbitration cases unless they agree to settle their employees’ claims en masse.

I’m not aware of any similarly well-organized effort to amass consumers’ arbitration claims. Radvocate’s data analysis shows that the company that resolved the most arbitration claims in the first quarter of 2019 was AT&T, which, together with its subsidiary DirecTV, completed 111 consumer arbitrations in the timeframe. Citibank resolved 44 cases; Credit One, 40; and Comcast, 36. Only six other companies, according to Radvocate, resolved more than 18 arbitration demands in the first quarter of 2019. Those numbers suggest that consumers and plaintiffs lawyers are not aggregating individual claims to gain leverage against companies.

The U.S. Supreme Court has made it abundantly clear that consumers and employees cannot stop corporations from requiring them to arbitrate disputes one by one. The only way for consumers and employees to regain leverage is actually to file claims. Employees’ lawyers are beginning to understand the potential power of mass arbitration.

So far, based on Radvocate’s analysis of AAA data, consumers and their lawyers haven’t figured out how to capitalize on mass filings. But don’t bet against them. Radvocate’s analysis may look very different three years from now.