Mass Arbitration Meltdown: How In-House Counsel Can Avoid Headaches Across All Jurisdictions

In-house counsel are paying close attention to recent developments in a proposed class action lawsuit in Pennsylvania state court, in which a plaintiff is attempting to prevent ESPN from enforcing a binding arbitration agreement in a data privacy dispute. ESPN filed a motion to compel arbitration in November, arguing that the plaintiff approved the user terms of agreement that require any disputes be handled out of court, but plaintiff’s counsel is contesting and seeking a jury trial for the proposed class action.

This is the latest case of plaintiffs seeking to test the courts’ resolve to enforce arbitration clauses. Last May, the Supreme Court “breathed new life into an important ground to resist an arbitration requirement,” according to The National Consumer Law Center, and observers perceive a new opening for plaintiffs advocating for the unenforceability of mandatory arbitration.

But even when major corporate defendants have prevailed with compelling consumer and employee arbitration, the strategy may be showing signs of backfiring at times, as creative plaintiffs’ counsel have now begun using the tactic of mass arbitration lawsuits to flood the company with nearly identical claims that must be managed. This trend has the potential of turning a shrewd contractual clause that was designed to reduce litigation risk into a burdensome, expensive and onerous corporate legal strategy.

“Mass arbitrations are becoming the new class actions, and a multi-million dollar legal headache for many companies,” wrote Ken Hagen, president of FedArb, in Today’s General Counsel. “Plaintiffs’ lawyers have used these filing fees as a weapon to turn the advantages of private litigation against the companies seeking to use it.”

Arbitration clauses are under attack, from the plaintiffs who are seeking to have them set aside in state courts, to the plaintiffs who are seeking to double down on them by turning them into a launchpad for mass filings. In-house counsel need to be on high alert for these dual threats.

The Lexis+® Practical Guidance platform has created a broad range of information resources to better equip in-house counsel with protecting their organizations from emerging challenges to arbitration clauses that may be contained in their standard agreements with customers and employees.

For example, Lexis+ Practical Guidance published Arbitration Clauses: Common Problems, a checklist that identifies common issues and potential problems to consider when drafting a general arbitration clause for a commercial contract. The checklist itemizes specific issues for in-house counsel to consider as they implement a corporate legal strategy regarding the use of mandatory arbitration clauses. Other valuable information resources include:

• The Lexis+ Practical Guidance team has also assembled an Arbitration Clauses Resource Kit that provides valuable insights for how to negotiate and draft arbitration clauses, including guidance for disputes before a particular arbitral organization (e.g., AAA, JAMS, etc.) and for ad hoc arbitration conducted by the parties themselves. The kit includes detailed practice notes, templates and checklists.
• The Lexis+ Practical Guidance team has created series of Practice Videos that provide quick insights into arbitration, mediation and other forms of Alternative Dispute Resolution. These videos feature experts in the field who distill important legal guidance into essential learnings that can be used to help shape arbitration clauses and enforcement strategies, including considerations when choosing between mediation, arbitration or litigation to resolve a dispute.

All of these Lexis+® Practical Guidance resources are accessible from Lexis+. Lexis+ General Counsel Suite is an all-in-one information resource designed for the modern GC that provides in-house counsel with a vast collection of legal resources, breaking business and legal news, and practical guidance content.

Click here for a free 7-day trial of the Lexis+ GC Suite platform that includes the Lexis+ State Law Comparison Tool so in-house counsel can generate reports with applicable state laws, such as those pertaining to arbitration, making it easier and faster to identify potential legal challenges. This tool can be helpful when plaintiffs want to keep a case in state court because the state laws may be advantageous for them.