Fighting Mass Arbitration: An Empirical Study of the Corporate Response to Mass Arbitration and Its Implications for the Federal Arbitration Act

63 Pages Posted: 25 Jan 2024 Last revised: 16 Mar 2024

See all articles by Richard Frankel

Richard Frankel

Drexel University Thomas R. Kline School of Law

Date Written: January 24, 2024

Abstract

Over the last forty years, corporations have increasingly inserted mandatory arbitration provisions into their consumer and employment contracts. Most prominently, and with the Supreme Court’s blessing, corporations have added class action bans into their arbitration clauses, thereby immunizing themselves from a large swath of consumer and employee claims.

Recently, consumer and employee advocates have responded to a ban on class actions by filing thousands of individual actions, exposing corporations to millions of dollars in filing fees and resulting in large settlements. This practice has become known as “mass arbitration.” Although corporations have cried foul, courts so far have allowed mass arbitrations to occur. Mass arbitration represents the newest battleground between corporations and consumer and employee advocates over mandatory arbitration and access to justice.

No one expects corporations to accept this latest development without a fight. Yet, scholars have not comprehensively examined how corporations have adapted their arbitration provisions to try and squelch mass arbitration. This article provides an empirical study of the arbitration clauses of 82 large consumer-facing companies. It reveals that companies now require claimants to exhaust “pre-arbitration” procedures prior to initiating an arbitration. Many companies have created “batching” protocols, where selected cases are arbitrated in sequential groups while all other cases are stayed, followed by mandatory settlement conferences. Other companies have changed arbitration providers or chosen providers who use different fee models.

The results are important in several ways. First, these new provisions have claim-suppressing effects. Pre-arbitration requirements make it easier for companies to dismiss claims if those requirements are not satisfied. Arbitrating claims in batches rather than all at once delays proceedings and forces claimants to wait longer to seek relief for their injuries. Second, the corporate response to mass arbitration—by adding provisions that inject procedural complexity and aggregate decision-making—transform arbitration to such a degree that it is no longer the type of arbitration covered by the Federal Arbitration Act (FAA). This is significant because it gives state governments broad license to regulate mass arbitration without being preempted by the FAA. States should act to rein in defendants’ attempts to shield themselves from accountability for their misconduct.

Keywords: dispute resolution, civil procedure, arbitration, access to justice, corporations, mass arbitration, mass torts, alternative dispute resolution, user contract, terms of acceptance, terms of use

JEL Classification: K41

Suggested Citation

Frankel, Richard, Fighting Mass Arbitration: An Empirical Study of the Corporate Response to Mass Arbitration and Its Implications for the Federal Arbitration Act (January 24, 2024). Available at SSRN: https://ssrn.com/abstract=4705062 or http://dx.doi.org/10.2139/ssrn.4705062

Richard Frankel (Contact Author)

Drexel University Thomas R. Kline School of Law ( email )

3320 Market Street
Philadelphia, PA 19104
United States

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