We have written before about the well-documented rise of abusive mass arbitrations, which seeks to weaponize arbitration clauses to try to extract a settlement from the targeted business, regardless of the merits of the underlying claims. The goal of these mass-arbitration filers is to inflict such high upfront costs on the targeted business—which pays most of the fees of consumer and workplace arbitrations—that it’s simply too expensive to contest the merits of any claim. With alarming frequency, mass arbitration campaigns are reported to include claims that are obviously frivolous (such as claims filed in the names of people who are fictitious, deceased, or never purchased the product or service at issue).
Given the obvious unfairness of the practice, both arbitration providers and companies have been responding. For example, arbitration providers such as the AAA and JAMS have been adopting new mass arbitration rules and fee schedules to try to ameliorate some of the worst abuses. And companies have been revising their arbitration agreements to adopt new safeguards and new methods to ensure the efficient and fair resolution of mass claims.
One widely adopted method by companies is modeled on the multidistrict litigation process used by federal courts to address mass torts claims. Under the MDL process, courts sometimes conduct trials of a few bellwether cases to facilitate the orderly informed settlement of the remaining cases. Many companies have adopted a similar bellwether process for mass arbitrations.
The Ninth Circuit is currently considering a legal challenge to an arbitration clause that uses staged bellwether proceedings for mass arbitrations in Pandolfi v. AviaGames, Inc. In that putative class action, the plaintiffs are resisting enforcement of the arbitration clause in the company’s terms by arguing that the use of bellwether proceedings in arbitration is unconscionable under California law. After the district court accepted that argument, the company appealed the denial of its arbitration motion.
Along with our colleagues Andy Pincus and Jennifer Weinberg, we have filed an amicus brief on behalf of the Chamber of Commerce of the United States. As we explain in the brief, the district court’s unconscionability analysis failed to recognize the benefits of bellwether clauses in preventing abusive mass arbitrations and the fact that bellwether clauses are modeled after procedures commonly used in courts. In addition, we argue, the Federal Arbitration Act preempts the district court’s holding that bellwether clauses are unconscionable under California law because that reading of California law impermissibly disfavors arbitration.
We’ll be watching Pandolfi closely to see how the Ninth Circuit rules, so stay tuned for more developments.