After coming onto the scene and significantly disrupting the transportation sector around a decade ago, Uber became the center of several controversies. ((See Calum Muirhead, A ‘short’ history of Uber’s controversies, Proactive Investors (Aug. 27, 2018, 9:00 AM), https://www.proactiveinvestors.co.uk/companies/news/203400/a-short-history-of-ubers-controversies-203400.html.)) One of the central issues was their treatment of their drivers and alleged wage and hour violations. ((Id.)) Uber presumably thought they had a silver bullet in the form of mandatory arbitration provisions that they inserted in their agreements with drivers. The relevant provisions barred collective arbitration proceedings and the right to litigate in court, ensuring that each driver would need to bring an individual arbitration claim. ((Alison Frankel, Forced into arbitration, 12,500 drivers claim Uber won’t pay fees to launch cases, Reuters (Dec. 6, 2018, 2:58 PM), https://www.reuters.com/article/legal-us-otc-uber/forced-into-arbitration-12500-drivers-claim-uber-wont-pay-fees-to-launch-cases-idUSKBN1O52C6.)) As with most individual arbitration provisions, this would be problematic for the plaintiff drivers as it would generally be costly to retain an attorney for an individual case due to the likelihood of a relatively-paltry award or settlement. Uber engaged in a lengthy legal process which made its way up to the 9th U.S. Circuit Court of Appeals to ensure that the arbitration clauses were enforced against the driver. ((Id.; See O’Connor v. Uber Technologies, Inc., 904 F.3d 1087 (9th Cir. 2018).)) To Uber’s chagrin, the tables were turned against the company as they faced thousands of individual arbitration claims arising in the space of a few months. This process involved several key turns which highlighted the potential for use of future mass arbitration campaigns to gain leverage against companies that place these provisions in contracts. The prospect of these campaigns may cause some unease for companies when it comes to including these terms in their agreements.
In recent years, mandatory arbitration clauses have come under greater scrutiny. ((See Mandatory Arbitration Clauses Are Discriminatory and Unfair, Public Citizen, https://twitter.com/intent/tweet?url=https%3A%2F%2Fwww.citizen.org%2Farticle%2Fmandatory-arbitration-clauses-are-discriminatory-and-unfair%2F&text=Mandatory+Arbitration+Clauses+Are+Discriminatory+and+Unfair.)) Many observers view these clauses as a way to prevent potential litigants from joining together to form a class and bring an action. ((Id.)) Often the disputes in question are of very little monetary value and therefore would only be worth litigating if aggregated into a class action. ((See Id.)) This can essentially be seen as a bad faith contracting provision instituted to companies to insulate themselves from liability. ((Frankel, Forced into arbitration, 12,500 drivers claim Uber won’t pay fees to launch cases, supra note 3.)) In 2008, an attorney for Fitbit revealed that no rational customer would use the mandatory arbitration clause as it required a $750 filing fee for a claim that is only about $162. ((Alison Frankel, Fitbit lawyers reveal ‘ugly truth’ about arbitration, judge threatens contempt, Reuters (June 1, 2018, 3:21 PM), https://www.reuters.com/article/legal-us-otc-fitbit/fitbit-lawyers-reveal-ugly-truth-about-arbitration-judge-threatens-contempt-idUSKCN1IX5QM.))
There has been a novel strategy used to weaponize these clauses against the companies which have used them in their agreements. Several law firms have taken up the idea of representing clients in these minor arbitrations. ((See Outcome of Arbitration Strategies to Avoid Class Action Claims, The Lynch Law Group (Feb. 25, 2019), https://lynchlaw-group.com/outcome-of-arbitration-strategies-to-avoid-class-action-claims/.)) One firm, Keller Lenker, used lead generation tactics from funding mass tort dockets to find thousands of drivers in states with favorable laws for their claims. ((Alison Frankel, Uber tells its side of the story in mass arbitration fight with 12,500 drivers, Reuters (Jan. 16, 2019, 2:45 PM), https://www.reuters.com/article/legal-us-otc-uber/uber-tells-its-side-of-the-story-in-mass-arbitration-fight-with-12500-drivers-idUSKCN1PA2PD.)) After a few months, they had around 12,500 drivers bring individual claims. ((Id.))
The results of the mass arbitration claim almost certainly increased the potential costs beyond what Uber would have expected when it decided to include the mandatory arbitration provision in the agreements. Simply paying the initial filing fees, as the arbitration provisions provided, would have required Uber to pay $18 million. ((Id.)) Some estimates projected that the total cost of Uber resolving all of the arbitrations would be $600 million. ((Joel Rosenblatt, Uber gambled on driver arbitration and might have come up the loser, Los Angeles Times (May, 8, 2019, 10:22 AM), https://www.latimes.com/business/la-fi-uber-ipo-arbitration-miscalculation-20190508-story.html.))
One of the key points of contention between the parties was the issue of filing fees. As mentioned above, Uber had previously fought for the need for each individual case to arbitrated separately. However, when the mass arbitration campaign was initiated Uber suggested that JAMS, the arbitration institution charged with handling the disputes, should resolve certain issues which cut across all of the cases in a consolidated proceeding. ((Frankel, Uber tells its side of the story in mass arbitration fight with 12,500 drivers supra note 11.))
Ultimately, JAMS issued a statement that its procedures would require a full payment of the fees. ((Alison Frankel, JAMS to Uber: Our rules and your contracts demand individual arbitrations, Reuters (Jan. 25, 2016, 4:24 PM), https://www.reuters.com/article/legal-us-otc-jams/jams-to-uber-our-rules-and-your-contracts-demand-individual-arbitrations-idUSKCN1PJ2I0.)) JAMS’s general counsel stated that “While it is not our preference to force the parties to litigate these issues seriatim, our policies and procedures, absent party agreement otherwise, require that we collect a filing fee in each case to be pursued. . . . Further, the parties’ arbitration agreement appears to clearly prohibit collective determination of any issue absent party agreement . . . Therefore, absent party agreement otherwise, JAMS must proceed in the normal course, following receipt of filing fees by commencing and appointing an arbitrator to each case.” ((Id.))
To add some drama to the situation there were also issues for the drivers’ counsel. The plaintiff’s firm, Keller Lenker, who is credited with orchestrating the mass arbitration campaign, faced several issues in connection with representing the drivers. Keller Lenker partner Warren Postman had worked at the U.S. Chamber of Commerce and worked with Uber attorneys. ((Frankel, Uber tells its side of the story in mass arbitration fight with 12,500 drivers supra note 11.)) In a separate class action brought by limo companies alleging that Uber engaged in unfair business practices by classifying drivers as independent contractors, a District Court judge granted Uber’s motion disqualifying Keller Lenker on the grounds that Postman was privy to confidential Uber strategy and documents. ((Id.)) In the mass arbitration case, Uber also sought to have the firm disqualified from representing the drivers in the individual arbitrations. ((Id.)) Further, Uber contended that Keller Lenker attorneys couldn’t represent the drivers in California arbitrations because those lawyers were not admitted in the state and should not be allowed pro hac vice admissions. ((Id.))
In addition to the above, there appeared to be significant delaying tactics used by Keller Lenker. Despite facilitating the filing of these thousands of arbitration claims, they declined an arbitrator’s proposed date for oral argument regarding whether they should be disqualified in the first arbitration. ((Id.)) Uber also claimed that the firm was slow to complete initial screening of arbitrators. ((Id.))
Uber eventually settled most of their arbitration claims for $146mm. ((Andrew Wallender, Uber Settles ‘Majority’ of Arbitrations for at least $146M (1), Bloomberg Law (May 9, 2019, 12:56), https://news.bloomberglaw.com/daily-labor-report/uber-sees-wage-suits-dropped-including-12-501-arbitration-claims.)) This brings to attention a key point about the mass arbitration strategy. Rather than the individual arbitrations being used to force Uber to meaningfully engage in these thousands of arbitration proceedings for paltry fees, it can be an extremely useful piece of legal strategy to gain leverage for an out of court resolution. ((Frankel, Uber tells its side of the story in mass arbitration fight with 12,500 drivers supra note 11.)) By using these clauses against the companies, it provides significant leverage to consumers who otherwise would have essentially none, making it possible for the consumers to more easily obtain a settlement. This is especially shown by the massive volume of the initial claims for arbitration against Uber, since it was questionable whether the plaintiff firm could even handle the small amount of the cases for which Uber had paid the filing fees. ((Id.))
Uber is not the only company that faced these problems. In the past few years, mass arbitration campaigns have also been waged against Lyft, Buffalo Wild Wings, and Chipotle. Buffalo Wild Wings only faced around 400 individual arbitration claims ((Wallender, supra note 24.)), but opted to settle the claims for around $21 million. ((Notice of Buffalo Wild Wings Settlement and Opportunity to Join, Buffalo Wild Wings Tip Credit Settlement, https://bwwtipcreditsettlement.com/Portals/0/Document%20Files/6552_Macko%20v%20Blazin%20Wings_WEB%20Notice_v3.pdf)) Lyft and Chipotle are still embroiled in their mass arbitration campaigns. It doesn’t take much imagination to see the possibilities for other mass arbitration campaigns to be raised. These types of provisions are commonplace in agreements that consumers and employers use every day. ((See Katherine V.W. Stone & Alexander J.S. Colvin, The Arbitration Epidemic, Economic Policy Institute (Dec. 7, 2015), https://www.epi.org/publication/the-arbitration-epidemic/)) There was public outrage in the wake of the Wells Fargo fraudulent account scandal when it was discovered that customers of the bank would be forced to arbitrate their claims rather than have their day in court. There is no reason to believe that a mass arbitration campaign would not have been a viable strategy there, although ultimately it was made unnecessary due to the Consumer Financial Protection Bureau’s final rule making it harder for financial institutions to use arbitration clauses in consumer contracts. ((See The average consumer in arbitration with Wells Fargo is ordered to pay the bank nearly $11,000, Economic Policy Institute (Oct. 3, 2017), https://www.epi.org/press/the-average-consumer-in-arbitration-with-wells-fargo-is-ordered-to-pay-the-bank-nearly-11000/))
With an ever-expanding number of mass arbitration campaigns, there is an increasing opportunity for plaintiff’s firms to find the proper moments for bringing these campaigns and identifying the most efficient strategies. This would create information regarding the ideal arbitration forums relating to procedural rules, to the ideal number of claims to be brought in order to maximize leverage while minimizing cost, and refined arguments regarding opposition to consolidation of arbitration proceedings. Given the hefty award that was awarded to Uber drivers despite the hitches in representation, there should be optimism that opportunities exist for even better execution of this strategy.
The Uber settlement made clear that taking on similar cases can be extremely lucrative for plaintiff firms. One can expect more mass arbitration campaigns in the future. Undoubtedly there will be attempts by companies to shore up their contracts with changing the wording of the provisions, but the companies must be weary of finding the right line so that the clauses don’t appear to be outrightly made in bad faith or unconscionable for the consumers. Further, the optics of using these types of arbitration clauses can create bad publicity for companies, ultimately impacting business performance which can cost executives. Companies may even consider that they would rather bear the brunt of a full class action than risk having to deal with mass arbitration campaigns for all of the costs they may accompany.