In a recent letter and press release from Georgia Attorney General (AG) Chris Carr addressed to major arbitration providers, AG Carr expressed his concern over the treatment of customers and the harm they may experience in mass arbitrations, and asserted that the abuses revealed so far may only be “the tip of the iceberg.” He also praised early efforts by certain arbitration providers to counter abuse, including with arbitration fee schedule revisions and the introduction of process arbitrators, but made it clear that much more remains to be done.
AG Carr also issued a consumer alert warning against mass social-media solicitations for arbitration claims, cautioning that such practices may prioritize volume over merit, leaving consumers with little or no benefit. He advised consumers to verify the legitimacy of mass arbitration solicitations, ensure the lawyers are properly licensed, and carefully review fee structures. ILR commends AG Carr for his letter, the consumer alert, and his focus on protecting consumers from harmful mass arbitration practices. We hope other state AGs will share that focus.
Especially as courts face growing constraints, individual arbitration is a necessary mechanism that offers consumers and employees an efficient forum for resolving disputes without the time and expense of more traditional court-based litigation. As ILR’s research shows, mass arbitration is a distortion of that mechanism. By advertising and harvesting thousands of individual arbitration claims, then exploiting arbitration fee structures by threatening to file those claims simultaneously and trigger massive up-front costs for defendants unless they settle, mass arbitration offers huge paydays to lawyers and litigation funders. At the same time, it can do great harm to businesses by forcing them to settle before the validity of claims is examined, and claimants in settled mass arbitrations can be left with a pittance. In brief, this new tactic is the plaintiffs’ bar’s attempt to replicate in the arbitration context the same type of settlement leverage it can wield in class actions and mass torts. And in order to make this tactic work, many plaintiffs’ lawyers in this space engage in troubling behavior.
ILR’s research details many documented instances of improper tactics, including recruiting claimants through incomplete or misleading solicitations, filing claims without informed client consent, and even pursuing claims on behalf of fictitious or deceased individuals. Mass arbitration ads promising “free money” can deceive potential clients, and as our paper shows, some client agreements even waive clients’ rights to approve settlements or allow the attorneys to claim up to 70% of any recoveries.
Meaningful action from businesses, courts, regulators, arbitration providers, and other stakeholders is essential to address these and other mass arbitration abuses. Thankfully, leaders such as AG Carr are acting.
In addition to reforms that arbitration providers themselves can undertake, ILR’s research outlines a range of different stakeholders who can each take action to combat abuses in mass arbitration:
- Judicial Scrutiny – Courts should exercise their inherent authority to investigate and address frivolous mass arbitration claims, or those pursued for improper purposes, when evidence of abuse arises.
- Legislative Reform – Lawmakers can enact legislation to (i) require the disclosure of third-party litigation funding and establish safeguards for funding arrangements, and (ii) develop remedies to protect businesses, along with their employees, customers, and investors, from the risks posed by coercive mass arbitration tactics.
- Regulatory Scrutiny – State attorneys general and other regulatory bodies, including the Federal Trade Commission (FTC), should exercise their authority to investigate and act against unfair, fraudulent, or unethical conduct by plaintiffs’ lawyers.
- Increasing Oversight for Potential Ethics Violations – State bar organizations should rigorously enforce attorney conduct rules, investigate complaints of unethical practices related to mass arbitration, and take disciplinary action when warranted.
- Optimizing Arbitration Agreements – Businesses should consider crafting arbitration agreements with provisions such as staging, batching, or other measures tailored to mass filings, ensuring the objectives of private ADR are upheld while reducing opportunities for misuse.
To read AG Carr’s letter, click here.
To see the Georgia consumer alert, click here.
To read ILR’s recently published research on mass arbitration, click here.