We previously wrote about the rising trend of mass arbitration and how companies and arbitration providers have responded to it thus far, including by adopting new rules and contract terms specifically geared towards coordinated proceedings. It may be tempting to impose strict controls on how mass arbitrations can proceed. But in considering their options, companies and arbitration providers should take note of recent litigation challenging mass arbitration procedures and yielding additional clues about what strategies may or may not survive judicial scrutiny.
For example, while phased schedules that include bellwether proceedings or batched claims may be a common way to handle mass arbitrations, some restrictions in user agreements, particularly those lacking in mutuality, may increase the risk that a court will find the provision substantively unconscionable. Provisions that impose relatively low caps on the number of claims that can be filed at once may be vulnerable to unconscionability challenges insofar as they arguably threaten to create excessive delays and prejudice other claimants. Provisions preserving a company’s right to raise statute-of-limitations defenses may compound this risk, as claimants in later tranches could find their claims time-barred as a result of a phased proceeding.
In contrast, rules that do not require phased schedules (even if they otherwise encourage or facilitate global resolution), guarantee expeditious resolution of batched claims, provide for alternative dispute resolution between tranches, provide mechanisms for opting out of a phased proceeding, or otherwise ensure that claimants will not find their claims barred through no fault of their own (e.g., via a tolling provision) all may help to alleviate unconscionability concerns with mass arbitration procedures.
One recent court decision highlights this risk. In MacClelland v. Cellco Partnership, 2022 WL 2390997 (N.D. Cal. July 1, 2022), a California federal court refused to enforce an arbitration agreement that contained several provisions it deemed unconscionable. These included provisions that required consumers to bring notice of a dispute within a time period shorter than the statute of limitations, provisions that required waiver of punitive damages and claims for public injunctive relief, and mass arbitration provisions that regulated the number of arbitrations that could be pending at any one time. The court refused to sever the offending provisions from the agreement, finding that taking such an approach would incentivize companies to adopt unenforceable provisions. Companies and arbitration providers should continue to monitor the developing legal landscape surrounding mass arbitration and its associated rules and procedures. As case law in this area continues to evolve, so too will best practices and strategies for mitigating the risks associated with mass arbitration.