Uber sues AAA to block $100 million fees in ‘politically-motivated’ arbitration

6 minute read

A screen displays the company logo for Uber Technologies Inc. on the day of it's IPO at the New York Stock Exchange (NYSE) in New York, U.S., May 10, 2019. REUTERS/Brendan McDermid

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(Reuters) - In 2018, Uber Technologies Inc was one of the first companies targeted in a mass arbitration campaign. In 2019, Uber was one of the first companies to capitulate, agreeing to pay more than $146 million to settle wage-and-hour claims by more than 60,000 drivers.

Now Uber wants to be the first company to force the American Arbitration Association Inc to back down from a fee demand that, according to the company, gives unwarranted leverage to the other side.

On Monday, Uber’s lawyers at Kaplan Hecker & Fink filed a declaratory judgment complaint and a motion for a preliminary injunction against AAA in New York State Supreme Court in Manhattan, seeking to bar the nonprofit from charging Uber nearly $100 million in administrative and arbitrator fees in about 31,000 cases alleging that Uber’s 2020 policy of waiving delivery fees for Black-owned restaurants was discriminatory.

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Unlike other companies that have protested AAA fees – unsuccessfully – in the face of mass arbitration demands, Uber has already paid the requisite fees, about $5 million, to initiate the cases. Uber has also paid about $670,000 to administrate the first batch of about 480 cases that will be heard by AAA arbitrators. Uber’s senior litigation director, Randall Haimovici, told me in an interview that the company is downright eager to defend its delivery-fee waiver for Black-owned restaurants, which Uber adopted in June 2020 in the wake of George Floyd’s death.

But the company said it’s unreasonable and a breach of AAA’s contractual commitment to a fair, cost-effective process for AAA to refuse to discount subsequent administrative and arbitrator fees for tens of thousands of cookie-cutter cases. By insisting on full-freight fees that will total nearly $100 million, Uber contends, AAA is effectively granting a huge advantage to the claimants’ lawyers from Consovoy McCarthy, a firm with a long history of challenging affirmative action policies.

“The AAA, a nonprofit arbitration service provider, casts this astronomical sum as purported administrative fees and costs,” Uber’s complaint said. “In fact, it is a ransom orchestrated by politically-motivated lawyers, who are manipulating the arbitral process to prop up baseless claims of ‘reverse discrimination.’"

An AAA spokesman did not immediately respond to a request for comment on Uber's filings, nor did Consovoy name partners William Consovoy and Thomas McCarthy.

AAA did reduce Uber’s initial fees after Consovoy McCarthy began filing demands by the thousands in the latter half of 2020. AAA adopted a new, reduced-fee schedule for “multiple consumer case filings,” or mass arbitration of consumer claims, last year. Because AAA determined that the Consovoy-filed demands against Uber met its mass arbitration criteria, it charged Uber an arbitration initiation fee of only about $140 per claim, not the $500 that the company would have had to pay for an individual consumer demand for arbitration.

That fee reduction, Uber argued in Monday’s filings, showed that the AAA is willing to exercise its discretion over mass arbitration fees. AAA has also recognized that the Consovoy filings are a mass campaign, the Uber filings suggested, in early proposals to streamline the cases via a bellwether process to resolve legal and factual issues that cut across all of the arbitration. But when Consovoy McCarthy insisted that cases be litigated individually, the complaint said, AAA acquiesced, informing Uber that without Consovoy’s consent to change the process, the usual arbitration rules would apply.

Under those rules, AAA told Uber, the company is on the hook for advance payments of fees to administer each case and to pay individual arbitrators – even though, according to Uber, there is no way that the cases will actually be litigated individually. (Consovoy McCarthy lists 13 lawyers on its website, a small crew for 31,000 cases. And AAA, according to Uber, has only 750 neutral arbitrators in all of California.) Uber’s filings said that AAA also informed the company that if Uber paid the fees “under protest” to preserve a challenge to the amount, AAA would close the arbitrations and potentially send the cases to court.

Uber said that it had no choice but to seek an injunction when it received an invoice last week for $10.8 million. As you know, California passed a law in 2019 to penalize companies for refusing to pay requisite arbitration fees in mass arbitration cases. Uber said that law exposes the company to harsh sanctions, including a possible default on the merits, if it doesn’t submit the money to AAA. But if it pays up, Uber said in its preliminary injunction motion, AAA will undoubtedly assert that Uber has waived its right to challenge the fee and will claim arbitral immunity.

“We felt like we were backed into a corner,” said Haimovici. “It’s not as if we won’t pay. We just want it to be fair and reasonable.” Haimovici said that as a show of its good faith, Uber intends to put $10.8 million – the fees in the disputed September invoice from AAA – in escrow.

Judges, as you'll surely recall, have been distinctly resistant to fee protests by companies targeted in mass arbitrations. Repeatedly, courts have reminded companies that balked at fees to arbitrate thousands of claims that they unilaterally imposed arbitration on their workers and consumers, so they’re stuck with the consequences of their own mandatory arbitration provisions.

Uber’s Haimovici said this case is different because the company has already paid the initiation fees and is willing to pay the cost of arbitrating, as long as that cost reflects what Uber says is the reality of how the cases will be handled.

“The AAA,” he said, “refuses to use the discretion they have to change how they’re doing things.”

Opinions expressed here are those of the author. Reuters News, under the Trust Principles, is committed to integrity, independence and freedom from bias.

Read more:

Uber tells its side of the story in mass arbitration fight with 12,500 drivers

Calif. judge upholds state law penalizing companies for stalling on arbitration fees

‘This hypocrisy will not be blessed’: Judge orders DoorDash to arbitrate 5,000 couriers’ claims

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.