The rise of mass arbitrations, which some commentators are celebrating, is not necessarily a cause for celebration. As a result of this trend, it appears that the primary beneficiaries are plaintiffs’ attorneys who reap substantial fees from settlements. Often, these settlement amounts are wholly unrelated to the merits of the underlying claims.
This poses a particular problem for parties with legitimate claims, as well as the consumers and workers who bear the cost of these unjustified settlements, and the accompanying attorney fees.
So how does the mass arbitration strategy work? It starts when plaintiffs’ attorneys enroll thousands of clients, often through an online process with minimal screening. Then, they threaten to file all these arbitrations at the same time. This can force the targeted company to immediately pay massive, upfront arbitration fees, even if the attorneys have neither the intent nor the resources to arbitrate each claim. The ultimate goal is to pressure companies into settling.
As covered in a report published by US Chamber of Commerce Institute for Legal Reform, mass arbitration coercion is effective. Understandably, many would rather pay to settle a case than face the far greater costs of arbitration filing fees, not to mention lawyer fees, additional arbitration fees, and the potential for awarded payouts by the arbitrators.
The key winners in this situation are the plaintiffs’ lawyers and those who fund their efforts. They gain substantial profits from coerced settlements, regardless of the merits of the original claims or whether any claimants are legitimate customers of the targeted business.
The issue of plaintiffs’ lawyers exploiting the system is not a new one. Similar tactics were used with class actions in the last part of the 20th century. In those cases, the threat of huge costs was leveraged to extract a settlement unrelated to the claims’ merits.
This situation has led to the development of countermeasures. Businesses facing abusive mass arbitrations have started using approaches similar to those used in multi-district litigation. These include procedures like bellwether and batch proceedings. Indubitably, these methods respond to abusive efforts to coerce settlements rather than making it harder for consumers to bring claims.
Despite all this, arbitration can still deliver fair results. A number of studies have shown that consumers and workers can achieve similar or better outcomes with arbitration compared to litigation. The streamlined procedures of arbitration enable prompt resolution of disputes based on their merits.
Ultimately, what’s important is that the merits of the claims, and not the threat of massive arbitration fees, dictate the outcomes. And perhaps, as legal professionals, we can work towards ensuring exactly that.