U.S. Chamber blames judges, arbitrators and lawyers for mass arbitration 'abuses'

The United States Chamber of Commerce building is seen in Washington, D.C., U.S.
The United States Chamber of Commerce building is seen in Washington, D.C. REUTERS/Andrew Kelly

(Reuters) - In more than a decade of litigation to entrench corporations’ power to impose arbitration on consumers and employees, the U.S. Chamber of Commerce has steadfastly championed arbitration as a fair and efficient alternative to class actions.

But when thousands of workers and consumers actually file demands against a company to have their nearly identical claims arbitrated?

That’s not fair or efficient. It's "blackmail," the Chamber’s Institute for Legal Reform said in an extremely provocative new report.

The 80-page paper, entitled "Mass Arbitration Shakedown: Coercing Unjustified Settlements," argued that mass arbitration, in which plaintiffs' lawyers file hundreds or even thousands of nearly identical demands against a defendant, is the “21st century equivalent of the abusive class actions that characterized the last part of the 20th century.”

The business model, according to the report, has nothing to do with the validity of claimants’ demands. Instead, the Chamber asserted, plaintiffs' firms rely on the leverage of hefty arbitration fees – which can quickly escalate to tens of millions of dollars when thousands of people file demands — to force corporations into settlements that are “wholly unrelated to the claims’ merits.”

The report, written by Mayer Brown lawyers Andrew Pincus, Archis Parasharami, Kevin Ranlett and Carmen Longoria-Green, asserted that plaintiffs' firms may be skirting an array of ethical rules in their mass arbitration campaigns. Among other potential pitfalls, the Chamber cited conflicts of interest among clients who diverge on accepting settlement offers; restrictions on client solicitation; and prohibitions on representing out-of-state clients.

The report calls on state bar associations to investigate the business model of mass arbitration firms, rather than allowing “serious questions about whether the rules of professional responsibility are being honored” to “fester.”

I’ve got a response below from leading mass arbitration firm Keller Postman, but I’ll point out here that professor Maria Glover of Georgetown University Law Center, who authored a definitive 2022 study of mass arbitration, said she is not aware of any case in which a court or arbitrator has concluded that a plaintiffs' firm committed systemic ethical breaches by conducting a mass arbitration campaign. Glover said she found the Chamber’s “serious and sweeping” ethics claims to be “somewhat unsupported.”

The report liberally spreads blame for the purported scourge of mass arbitration. Federal judges, the report said, have so far refused to recognize or confront abuses by plaintiffs' lawyers engaged in these campaigns. (To the contrary: As I’ve reported, judges have instead noted the “hypocrisy” of corporations attempting to evade mass arbitration after imposing arbitration on workers and consumers.)

And arbitration providers JAMS and the American Arbitration Association, the Chamber said, have failed to quell mass arbitration through changes in their procedural rules

JAMS president Kimberly Taylor said in an email statement as a neutral administrator, JAMS is prohibited from changing the terms of arbitration agreements without express consent from both sides. JAMS encourages both sides in mass arbitrations to collaborate on procedural strategies but is otherwise bound by pre-existing contract terms. “JAMS will not reduce fees for either side to avoid even an appearance of impartiality or bias,” she said. An AAA spokesperson did not respond to my query.

The real victims of these mass arbitration abuses, according to the Chamber report, are consumers and employees. If companies follow the lead of Amazon.com Inc and abandon mandatory arbitration because of the threat of mass claims, the report said, consumers and workers will no longer be able to benefit from the efficiencies of arbitration to resolve small disputes.

“This is a growing problem,” said Matt Webb of the Chamber’s Institute for Legal Reform. “It’s unfortunate. If you have a fair system, we think arbitration works very well for both sides.”

The report urged arbitration providers and federal courts to endorse a bellwether, or “batch arbitration” process that would allow companies to test the merits of claimants’ demands before they are required to fork over millions of dollars in fees.

A batch system, Webb said, would restore fairness by refocusing cases on actual claims. “At the end of the day,” Webb said, “it’s in the interests of arbitration providers to resolve this.”

The report specifically named two plaintiffs' firms engaged in mass arbitration. One is Labaton Sucharow, which is embroiled in a dispute in Chicago federal court with Samsung Electronics America Inc over Labaton’s filing of more than 50,000 demands to arbitrate consumers’ biometric privacy claims. The Chamber criticized Labaton’s use of social media and other advertising to “recruit” mass arbitration clients. The report also cited Labaton's alleged failure to vet clients.

Labaton general counsel Michael Canty did not respond to my query on the Chamber report. The firm said in a January 2023 brief in the Chicago litigation that it followed all AAA rules, including the payment of $2.5 million in fees to launch its clients’ cases.

The other firm named in the report is Keller Postman. Name partner Warren Postman – who worked for the U.S Chamber before joining the mass arbitration firm – called the Chamber's position “cynical and hypocritical” in an email statement.

When the Chamber wanted the U.S. Supreme Court to bless class action waivers, Postman said, it assured the justices in an amicus brief that forced arbitration would not restrict access to justice because plaintiffs' firms could use technology to pursue thousands of claims.

But now that Keller Postman is doing just that, Postman said, “The Chamber has made its real position clear: Plaintiffs should not just be barred from bringing their claims in a class; they should be barred from bringing their claims in any substantial number at all.”

Mayer Brown's Pincus said there's no discrepancy between the Chamber's argument in the old amicus brief and in the new report. "No one is saying lawyers can't represent multiple claimants," he said. "We are saying that claims should be processed in a way that produces fair, merits-based results, not coerced settlements."

Georgetown professor Glover was less passionate than Postman, but also noted the irony of the Chamber’s advocacy for “batch” handling of mass arbitration demands.

“They got here by eschewing a device that achieved efficiencies,” Glover said, referring to class actions. “Now they’re saying the solution is to return to something that mimics the device they rejected.”

Read more:

Verizon appeal will be early test of corporate strategy to combat mass arbitration

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

Judge Breyer rejects $40 million Intuit class settlement amid arbitration onslaught

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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.