New Rules for Mass Arbitration Cases with AAA

Mass arbitration is the increasingly common practice of large-volume individual filings against the same company over the same issue at the same time, often brought by the same firm or set of coordinated firms.  A mass arbitration can involve thousands of Demands for Arbitration, with claimants located all across the country, and a cumbersome and expensive endeavor to resolve. The American Arbitration Association (“AAA”) recently adopted new procedures for handling mass arbitrations in the hopes of creating a more efficient and clear process for all parties. But what prompted the change, and how are businesses reacting?

The Landscape

In 2018, the Supreme Court ruled that arbitration agreements requiring individual arbitration and prohibiting class action lawsuits are enforceable under the Federal Arbitration Act, telling lower courts they must enforce arbitration agreements according to their terms – including terms that provide for individualized proceedings. Epic Sys. Corp. v. Lewis, 584 U.S. 497 (2018). This decision proved to be something of a double-edged sword for businesses. While many companies with class action waivers in their arbitration clauses no longer had to fear a class action lawsuit and could settle claims cheaper and quicker using arbitration, ever-creative plaintiffs found a clever solution in the form of mass arbitration filings. This quickly turned into a nightmare for companies as they were forced to pay expensive upfront fees and manage deadlines for potentially thousands of individual proceedings. Many companies were forced to pay out greater settlements than if the case proceeded via class action, and in response, some have even eliminated or changed their arbitration clauses to avoid dealing with this headache.

For instance, in 2020, DoorDash had to pay $12 million in arbitration initiation fees to the AAA for the 5,879 couriers who brought individual arbitration claims for wage theft, with District Judge William Alsup denying DoorDash’s request to stay the proceedings pending approval of a class settlement:

The irony, in this case, is that the workers wish to enforce the very provisions forced on them by seeking, even if by the thousands, individual arbitrations, the remnant of procedural rights left to them. The employer here, DoorDash, faced with having to actually honor its side of the bargain, now blanches at the cost of the filing fees it agreed to pay in the arbitration clause. No doubt, DoorDash never expected that so many would actually seek arbitration. Instead, in irony upon irony, DoorDash now wishes to resort to a class-wide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate. This hypocrisy will not be blessed.

Abernathy v. DoorDash, Inc., 438 F. Supp. 3d 1062, 1067–68 (N.D. Cal. 2020).

In 2021, Intuit faced 40,000 individual arbitrations for claims it lured customers to their website with a promise of free software. The cost to litigate each claim was between $3,200-$4,700, which had to be paid by Intuit and was often greater than the damages each plaintiff sought. The California Second District Court of Appeal affirmed the lower court’s denial of a preliminary injunction to halt the arbitrations and tallied the total cost for Intuit to defend the actions in arbitration to be $128 million.  Intuit Inc. v. 9,933 Individuals, No. B308417, 2021 WL 3204816 (Cal. Ct. App. July 29, 2021).  Then in 2022, Uber lost its appeal challenging the lower court’s order to pay $91.6 million in upfront fees to the AAA to litigate 31,000 cases, with the New York Supreme Court noting that Uber “[made] the business decision to preclude class, collective, or representative claims in its arbitration agreement with its consumers, and AAA's fees are directly attributable to that decision.” Uber Techs., Inc. v. Am. Arb. Ass’n

These arbitrations are not only expensive but also can be leveraged for claims. The claims in consumer mass arbitration cases primarily focus on privacy violations and false advertising, but they have also addressed wage and hour issues and civil rights violations. The growing trend of mass arbitrations as a vehicle to settle disputes has caused companies like Amazon to eliminate their arbitration clauses from their Terms and Conditions altogether.  Ticketmaster now requires the parties to meet and confer and requires the plaintiff to pay the filing fee if they want to move forward with arbitration.

The Rules

In July 2024, the AAA introduced its Mass Arbitration Supplemental Rules to make the process more efficient and predictable for all parties engaging in mass arbitration cases. Highlights include a new definition of mass arbitration, the inclusion of a Process Arbitrator, fee transparency, preference for virtual hearings, and affirmation requirements. The revised rules are “crafted to save time, reduce costs and foster constructive dialogue right from the start.”

Definition: The AAA Mass Arbitration Supplemental Rules define a mass arbitration as (i) 25 or more Consumer or Employer/Workplace similar Demands for Arbitration filed against or on behalf of the same or related parties, or (ii) 100 or more non-consumer/non-employment/workplace similar demands filed against or on behalf of the same party or related parties, and (iii) where representation of all parties is consistent or coordinated across the cases. This definition notably provides a low threshold for parties seeking to benefit from the new rules, especially considering that some companies have historically faced thousands of coordinated Demands for Arbitration. The new definition also allows businesses to bring business-to-business disputes or construction matters as long as the 100-case threshold is satisfied.

Fee Transparency: The Consumer Mass Arbitration and Mediation Fee Schedule outlines the cost of arbitrating these types of disputes. For consumer-based claims, a non-refundable initiation fee of $3,125 must be paid by the individuals upon the filing of the mass arbitration. Once paid, the business pays $8,125. Other Administrative fees include a per-case fee that ranges from $125 (for the first 500 cases) to $75 (for 3,000+ cases) for the individual and $325 (for the first 500 cases) to $100 (for 3,000+ cases) for businesses, Arbitrator Appointment Fee ($600), Abeyance Fee ($2,500 every six months), the Settlement Approval Process Fee ($3,250 to approve settlements plus $2,500 every six months the case remains open and $300/hour compensation for a neutral), and the Final Fee ($600).  The only cost not available in the Fee Schedule is the Arbitrator and Mediator Compensation. This expense is covered entirely by the business.  While the individual per-case fee can quickly add up, the price tag is likely lower than arbitrating without these rules in place.   

Process Arbitrator: A new addition to the rules is the option to appoint a Process Arbitrator to handle all non-merit disputes, which can save parties time and money early in the arbitration process. The Process Arbitrator has the authority to determine conditions precedent, payment disputes, which Demands for Arbitration will be included, whether subsequently filed cases are a part of the mass arbitration, whether Merits Arbitrators will proceed by documents alone, and in Consumer cases, whether cases should be closed and proceed in small claims Court. The election of a Process Arbitrator, should parties choose to have one, may make the addition of new cases easier to manage, as they will be folded into the system already created by the Process Arbitrator.

Preference for Virtual Hearings: Virtual hearings are now the preferred method over in-person hearings, easing the burden of travel for businesses. When in-person meetings are required, the AAA will make a determination of the locale based on a variety of convenience factors. This change reflects the continual preference to conduct meetings virtually and eliminates the expensive cost of flying counsel to multiple jurisdictions to attend hearings on essentially the same matters.

Attestation Requirements: Filings now require an affirmation that information provided for each individual case is true and correct to the best of the representative’s knowledge. This requirement now provides some deterrent for parties seeking to use arbitration for improper purposes and avoid frivolous claims.  

The Hopeful Result

These new rules will dramatically change how businesses deal with mass arbitrations by creating a more affordable process to settle disputes and potentially putting power back into the hands of businesses that have been at the mercy of dealing with thousands of individual arbitrations. The reduction in the cost of defending these cases is a win for businesses. Additionally, the appointment of a Process Arbitrator to iron out the procedural issues prior to decisions on the merits will hopefully help parties find their way to a resolution more quickly.

Mandatory arbitration clauses have been a two-edged sword for many businesses because of mass arbitrations.  For plaintiffs without activist firms, resolving disputes through arbitration can save time and money for both parties. For others, the new rules offer welcome relief for businesses facing thousands of lawsuits simultaneously. It is important for businesses to think strategically about the arbitration clauses in their terms and conditions, especially considering the rising number of consumer cases involving data privacy rights.  Or else, in the words of District Judge Charles Breyer, you face being “hoisted by [your] own petard.”