Uber loses appeal to block $92 million in mass arbitration fees

(Reuters) - A New York state appeals court sent an unmistakable message last week to companies that have imposed mandatory arbitration and class action waivers on their customers: You are stuck with the consequences of that strategy, even if it winds up costing you tens of millions of dollars in upfront arbitration fees.

The Appellate Division, First Department refused to bail out Uber Technologies Inc, which was seeking a preliminary injunction to block the American Arbitration Association from charging nearly $92 million in case management and other fees to administer about 31,000 arbitration demands by Uber Eats customers. Those customers, as I’ve previously reported, allege that Uber’s temporary policy in 2020 of waiving some delivery fees for Black-owned restaurants was racially discriminatory.

The First Department's April 14 decision marks the first time an appellate court has ruled on a direct challenge to AAA fees by a mass arbitration defendant. (At least one other company targeted in a mass arbitration campaign, Family Dollar, Inc, sued AAA over arbitration fees, but that case settled before any ruling on the merits of the company’s challenge.)

Uber’s loss, in other words, is a setback for all businesses facing an avalanche of consumer arbitration demands: Suing AAA over its fees appears to be no more effective a defense to mass arbitration than refusing to pay initial fees and forcing claimants to go to court to compel arbitration.

Uber’s lawyers at Kaplan Hecker & Fink contended in their New York appellate brief that AAA is obligated, by contract and by California’s unfair competition law, to charge fees that reflect its actual costs to handle cases. The 31,000 arbitration demands by Uber Eats customers, the company said, are cookie-cutter claims assembled by a single law firm, Consovoy McCarthy, which orchestrated the mass arbitration campaign to prove a political point. AAA’s actual costs to arbitrate each claim, according to Uber, will be far less than the standard upfront $1,400 case management fee and $1,500 arbitrator fee. (Uber already paid a discounted arbitration initiation fee of $4.3 million for all of the cases.)

“Put simply, $91 million is a categorically unreasonable fee demand in connection with the administration of 31,560 materially identical arbitrations that raise the same basic facts, the same legal theories and seek the same statutory damages,” Uber argued.

New York State Supreme Court Justice Robert Reed of Manhattan denied Uber’s motion for a preliminary injunction last October, after a two-day evidentiary hearing that featured testimony from three Uber lawyers; a retired New York trial judge acting as an expert witness for Uber; and an AAA vice-president who is overseeing the arbitration demands against Uber. Uber told the New York appeals court that Reed’s ruling was “untethered to the record, ungrounded in the law and riddled with clear errors.”

The appeals court disagreed, concluding that Uber failed to prove it was likely to succeed on the merits of its claims. Despite Uber’s protestations, the First Department said, AAA is not required to charge fees pegged to its actual costs. Its consumer arbitration rules, the appeals court said, clearly state that AAA will charge its specified administrative fees unless, in its sole discretion, the arbitration forum decides otherwise. Nor could Uber show that AAA’s enforcement of its fees was a violation of California’s unfair competition law, the court said, because the fees are not “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.”

In short, the state appeals court aligned with other judges who have been distinctly unsympathetic to companies facing enormous arbitration fees from mass arbitration demands.

“While Uber is trying to avoid paying the arbitration fees associated with 31,000 nearly identical cases, it made the business decision to preclude class, collective or representative claims in its arbitration agreement with its consumers,” the New York court said. “AAA’s fees are directly attributable to that decision.”

The appeals court also noted that Uber has brought counterclaims against Consovoy McCarthy's clients in an initial tranche of cases, seeking to recoup fees the company has paid to AAA. Those counterclaims, the New York court said, undermined Uber’s argument that it would be irreparably harmed by paying remaining fees demanded by AAA.

An Uber spokesman did not respond to my request for comment. AAA counsel Theodore Hecht of Schnader Harrison Segal & Lewis declined to comment. Consovoy McCarthy, which was not a party to the New York case but is litigating a related petition to compel Uber to arbitrate its clients’ claims, did not respond to requests for comment. Consovoy said in an April 14 letter to the judge in that case, U.S. District Judge Richard Seeborg of San Francisco, that Uber has previously pledged to pay AAA’s fees if it lost the AAA fee appeal in New York.

AAA’s brief to the First Department emphasized that Uber is reaping exactly what it sowed when it required consumers to bring individual AAA arbitration demands to resolve their disputes. “Uber deliberately chose this course,” AAA’s brief said. “Uber has zealously upheld its own right to compel individual arbitration as long as it perceives the process to be in its interest. That Uber now wishes to avoid the consequences of its agreement in these proceedings is unfortunate, but it is no excuse for Uber to demand a bespoke process more to its liking.”

The appellate ruling addressed only Uber’s motion for a preliminary injunction. The company is also seeking a declaratory judgment that AAA breached its agreement with Uber by charging unreasonable fees. AAA’s motion to dismiss the entire suit is pending before Reed, the Manhattan trial judge.

Arbitration fees have provided powerful leverage for consumers and workers since mass arbitration began to gain momentum a few years ago. Uber knows that all too well, after agreeing to pay more than $146 million in 2019 to settle arbitration demands by more than 60,000 drivers. It tried something new by suing AAA. So far, it’s gotten the same old results.

Read more:

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

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