Background
Over the past decade, corporations have sought to avoid litigation by aggressively imposing arbitration clauses on consumers that remove their ability to seek redress in state or federal court. These “agreements,” which are often part of non-negotiable form contracts (e.g., website terms of service or cell phone contracts or employment agreements), typically include a class action/arbitration waiver that bars consumers from not only participating in class action litigation but from aggregating their claims before an arbitrator in a class arbitration.[1] Consumers vigorously opposed the use of forced arbitration clauses from the outset on unconscionability[2] and other grounds.[3] These cases helped to clarify the enforceability of forced arbitration clauses by developing a series of requirements. For example, recognizing that the costs associated with pursuing arbitration could discourage individual plaintiffs from filing claims,[4] courts across the country began requiring that arbitration clauses provide for the bulk of fees and costs to be paid by the defendant.[5] Language to this effect was quickly incorporated into the consumer rules established by arbitration forums (like AAA and JAMS), which both adopted higher fees for corporate defendants than individual plaintiffs.[6]
Plaintiffs have recently begun to leverage this to their advantage. In an emerging trend of “mass arbitration,” groups of similarly situated plaintiffs that could have been part of a class action initiate arbitration against the same defendant, simultaneously triggering the defendants’ obligation to pay fees and costs in each of their cases. This article examines how plaintiffs in two recent cases Adams v. Postmates, Inc., 414 F. Supp. 3d 1246 (N.D. Cal. 2019) (“Postmates”) and Abernathy v. DoorDash, Inc., No. C 19-07545 WHA, 2020 WL 619785 (N.D. Cal. Feb. 10, 2020) (“DoorDash”) have used mass arbitration to capitalize on forced arbitration clauses imposed on thousands of plaintiffs.
Postmates
In Postmates, a group of more than 5,000 food delivery couriers alleged that they were being improperly misclassified as independent contractors instead of employees. See Postmates, 414 F. Supp. 3d at 1248. These couriers notified Postmates that they intended to individually initiate arbitration under the terms of the “Mutual Arbitration Provision” contained in the Postmates “Fleet Agreement” for its violation of the Fair Labor Standards Act (FLSA). Id. at 1249-50. At that time, the Fleet Agreement required Postmates to pay “all arbitration filing fees,”[7] which amounted to more than $9.3 million. Id. at 1250. The Postmates plaintiffs, in contrast, were required to pay an aggregate amount of just over $99,000. See id.
Unwilling to pay millions in upfront fees, Postmates refused to proceed with arbitration. See id. at 1250-51. The Postmates plaintiffs then moved to compel arbitration in federal court, seeking an order requiring Postmates to pay the filing fees for all current and future arbitration demands. Id. Postmates responded by arguing that, while arbitration was appropriate, the way in which plaintiffs had initiated arbitration amounted to “a de facto class action” that violated the Mutual Arbitration Provision. Id. at 1252. According to Postmates, each plaintiff should be required to “refile his or her demand as an individual arbitration demand containing additional factual information and legal authorities” applicable to that particular plaintiff before proceeding with arbitration on an individual basis. Id. at 1255.
The district court granted-in-part and denied-in-part both parties’ motions. Id. at 1256. While the court agreed that the Mutual Arbitration Provision obligated both parties to arbitrate plaintiffs’ misclassification claims, it found that the delegation clause deprived it of the authority to decide who should pay for the arbitration, or whether plaintiffs should be required to refile their demands in a particular way. Id. at 1255-56. Accordingly, the court granted the parties’ motions to compel arbitration but left it to the arbitrator to decide how to deal with Postmates’s nonpayment of filing fees. Id. at 1255-56. Postmates has since appealed this order and sought to stay the district court proceedings pending the outcome of the appeal, which was denied. See Adams v. Postmates, Inc., No. 19-3042 SBA, 2020 WL 1066980, at *1 (N.D. Cal. Mar. 5, 2020).
DoorDash
In DoorDash, plaintiffs similarly pursued a misclassification claim under the FLSA, claiming that DoorDash should classify them as employees, not independent contractors. See No. C 19-07545 WHA, 2020 WL 619785 at *1 (N.D. Cal. Feb. 10, 2020). More than 6,200[8] couriers filed individual arbitration demands before the AAA pursuant to the terms of the “Mutual Arbitration Provision” imposed by the DoorDash mobile application. Id. at 1. AAA rules required the DoorDash plaintiffs to pay more $1.2 million in filing fees to initiate these arbitrations. Id. However, under the same rules, DoorDash was required pay nearly $12 million in upfront costs. See id. After plaintiffs made the required payment, the AAA turned to DoorDash. Id. When DoorDash refused pay, plaintiffs petitioned the district court to enforce the Mutual Arbitration Provision, compel arbitration of their dispute, and compel DoorDash to pay the required AAA fees. See id.
The court granted plaintiffs’ motion and compelled DoorDash to arbitrate all disputes with each plaintiff who signed an arbitration agreement. See id. at *3.[9] Judge Alsup explicitly rejected DoorDash’s argument that it should be allowed to avoid arbitration because the fees imposed by the arbitration provision it drafted would be too great, explaining that:
For decades, the employer-side bar and their employer clients have forced arbitration clauses upon workers, thus taking away their right to go to court, and forced class-action waivers upon them too, thus taking away their ability to join collectively to vindicate common rights. The employer-side bar has succeeded in the United States Supreme Court to sustain such provisions. The irony, in this case, is that the workers wish to enforce the very provisions forced on them by seeking, even if by the thousands, individual arbitrations, the remnant of procedural rights left to them. The employer here, DoorDash, faced with having to actually honor its side of the bargain, now blanches at the cost of the filing fees it agreed to pay in the arbitration clause. No doubt, DoorDash never expected that so many would actually seek arbitration. Instead, in irony upon irony, DoorDash now wishes to resort to a class-wide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate. This hypocrisy will not be blessed, at least by this order.
DoorDash, No. C 19-07545 WHA, 2020 WL 619785, at *5.
Defendants (and their counsel) Are Already Looking for Ways to Fight the Trend
The impact of Judge Alsup’s comments in DoorDash may be short lived as corporate defendants are already working to slow the mass arbitration trend by working with arbitration providers to develop business-friendly procedures to impose on plaintiffs.
Insight into this process recently came to light in communications between DoorDash’s counsel, Gibson Dunn, and the International Institute for Conflict Prevention & Resolution (“CPR”). See DoorDash, No. C 19-07545 WHA, 2020 WL 619785 at *4. These messages show that Gibson Dunn worked with CPR to develop a mass arbitration system that would be friendly to corporations while the DoorDash matter was pending. Id. Once finalized, DoorDash changed its terms of service to require couriers to agree to arbitrate all disputes using the new CPR rules, instead of the AAA rules that would require DoorDash to pay a larger share of fees, if they accepted any new delivery work. See id. Counsel should be aware that similar tactics may be deployed by other defendants looking to limit their mass arbitration exposure.
Conclusion
The fees imposed by mass arbitration provide a powerful way for employees and consumers in certain markets to use the arbitration provisions imposed upon them as a tool to seek meaningful relief. As DoorDash and Postmates show, corporations perceive a legitimate threat when faced with thousands of arbitration demands by plaintiffs. This is only heightened by courts’ reluctance to allow corporate defendants to escape the fee-imposing provisions they drafted and imposed on the employees and consumers seeking to compel arbitration.
That said, the defense bar and corporate defendants are working to devise new ways to extinguish costly mass arbitrations by developing protocols with friendlier fee provisions. For example, the CPR protocol for mass employment-related arbitrations (i.e., where more than 30 similar claims are filed in close proximity of each other against the same respondent), developed-in-part by Gibson Dunn, allows employers to negotiate custom fee arrangements with CPR “prior to referencing the Protocol in their agreements.” (Emphasis in original). This fee structure would once again put power in the hands of the employer by making it possible to obtain a group discount on arbitration costs—i.e., lower fees the more cases filed. Whether such one-off fee arrangements or other new structures are considered fair and enforceable by the courts remains to be seen.
[1] Philip Nannie, Verizon customer sought class action, gets arbitration, Aug. 5, 2011), https://www.nashvillepost.com/home/article/20459788/verizon-customer-sought-class-action-gets-arbitration (Verizon customer forced out of court and not allowed to arbitrate on a class-wide basis).
[2] See generally, AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 337-39 (2011).
[3] Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228 (2013) (rejecting argument that antitrust claims should be excepted from class arbitration waiver because individual claims would cost more than recovery and thus effectively leave individuals without remedy); Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019) (rejecting insistence on class arbitration without unambiguous contractual language providing for it); but see Atalese v. U.S. Legal Servs. Grp., L.P., 99 A.3d 306 (N.J. 2014) (finding arbitration clause unenforceable because it did not clearly and unmistakably signal to plaintiff she was waiving her right to pursue statutory rights in court); Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014) (finding consumer did not manifest consent to arbitrate by simply using website that had terms and conditions agreement containing arbitration clause).
[4] See, e.g., Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 90-92 (2000) (discussing ways the arbitration forum can effectively prevent vindication of rights and therefore be an inappropriate forum to dispute claims, despite an arbitration agreement).
[5] Hall v. Treasure Bay Virgin Islands Corp., 371 F. App’x 311, 312-13 (3d Cir. 2010) (finding “substantively unconscionable” a “provision that required the non-prevailing party at arbitration to pay the costs of the arbitration”); Zaborowski v. MHN Gov’t Servs., Inc., 601 F. App’x 461, 463 (9th Cir. 2014) (finding unconscionable a fee-shifting provision for prevailing party because it would “chill employees from seeking vindication of their statutory rights by pursuing claims in arbitration.”); Smith v. Beneficial Ohio, Inc., 284 F. Supp. 2d 875, 880 (S.D. Ohio 2003) (“Defendant must pay all of the costs incurred as of result of this arbitration.”).
[6] See, e.g., AAA Consumer Arbitration Rules, Costs of Arbitration, at 33 (imposing $200 filing fee upon individual claimant and total of $3,200 in fees to be paid by Business-respondent).
[7] Postmates subsequently revised the Fleet Agreement to require couriers to split the cost of arbitration equally. See Postmates, 414 F. Supp. 3d at 1250.
[8] The total number of couriers who filed arbitration demands was 6,250, of which 5,879 petitioned the district court to compel arbitration. Of the 5,879 petitioners, the court found that 5,010 of them filed adequate signed declarations attesting to the fact that they signed the arbitration agreement.
[9] An additional issue arose as to whether DoorDash was required to pay all attorney’s fees and costs related to arbitration. See id. California Senate Bill 707 (the “Bill”). which took effect January 1, 2020, provides that if the drafting party of the arbitration agreement does not pay the required fees or costs to initiate arbitration in employment or consumer arbitrations, then it is in material breach of the arbitration agreement and it must pay reasonable attorney’s fees for any arbitration compelled by a court. See id. The Bill also gives the employee the right to withdraw their arbitration claim and proceed in a court of appropriate jurisdiction. See id. The DoorDash court, however, held that because the Bill does not apply retroactively it did not cover “the events at issue” in this case. Id.