I’ve spent the last 15 years of my life litigating class actions, which means for the last 15 years, no one has ever wanted to call me.  Calling me meant something bad had happened and likely on a massive scale. It meant the potential for millions of dollars in exposure, if not more, and the stress and headaches that come with it. 

None of that has changed. I still litigate cases with putative classes that consist of millions of people, with statutory damages that would keep even the most hardened in-house counsel up at night, and with bet-the-company level exposure.  And while I do everything I can to alleviate it, the stress of litigating a class action is still there. 

But something has changed. In the past, arbitration was the great equalizer.  Through a couple provisions, notice, assent, and, when necessary, a motion to compel, companies could immunize themselves from the massive exposure and resource consumption normally associated with class actions.  That is no longer the case.   

That isn’t to stay that arbitration agreements are no longer enforceable.  They still can be enforced, although it is becoming harder and harder to do so.[1]  Nor is it to say that arbitration agreements no longer prevent class actions. They still do. Instead, it is to stay that massive exposure, stress, and headaches are no longer limited to class actions.  They accompany arbitrations, too. 

As with most things, the internet is to blame for this. First, the internet has increased the number of individuals with whom a company can interact.  Pre-internet, a company’s customer base was generally limited by geography. A shoe store in Des Moines, Iowa sold to Des Moines residents.  Now, if that shoe store has a website, there really are no geographical limitations, so its customer base and, in turn, potential putative class size has grown exponentially. Second, the internet has made it much easier for plaintiffs’ counsel to identify putative class members. Long gone are the days of injured individuals seeking out plaintiffs’ counsel. In my world, there are few, if any, “injured” individuals (at least not in the normal sense of the term), and, nowadays, the plaintiffs’ firms are the ones doing the seeking.  Using the internet, Plaintiffs’ counsel can run an ad seeking residents of a certain state who visited/shopped at/created an account with a particular company, dangle the possibility of compensation, and in as little as a few days, have hundreds, if not thousands, of potentially “injured” individuals.[2] More potential class members and more access to them. 

How, you may ask, do those two things make arbitration more painful?  Some will claim that arbitration has myriad benefits, including confidentiality, reduction in legal spend, and expedited proceedings.  And, to some extent, that is true.  But the real advantage of arbitration is that it allows companies to enforce their class-action waiver, which, in turn, prevents plaintiffs counsel from using its representation of one person (i.e., the named plaintiff) to represent all “similarly situated” persons (i.e., the putative class). If the arbitration provision applies then the class-action waiver is likely enforceable, thereby forcing plaintiffs counsel to locate and be retained by every person asserting a claim. Even the best plaintiffs’ counsel can only do this for a small fraction of the total potential class. And the fewer the claims, the smaller the exposure. 

You may be thinking to yourself: if fewer claims are better and arbitration necessarily leads to fewer claims, how is arbitration not better?  The answer lies in the number of arbitration claims filed.  In every case, as the number of arbitrations filed increases, the benefits to company decrease.  And, at a certain point, arbitration becomes plaintiffs’ counsel greatest weapon. 

The reason for this is simple: while class actions were designed to adjudicate thousands or even millions of claims in an efficient manner, arbitrations were not.  Even the newly drafted and implemented mass-arbitration procedures are ill-suited to handle what would otherwise be a small putative class. Let me explain:

1. Arbitrations are pay-to-play; class actions are not.  A company receives a notice from a plaintiffs’ firm stating that the company has violated a statute that the company believes does not apply to it for doing something the company believes it does not do. The company decides it wants to litigate.  If the claims are filed in court as a class action, the company files a motion to dismiss, perhaps incurring a first-filing fee.  If the claims are filed in arbitration, the company receives from the arbitrator an initial invoice that includes a potentially hefty initiation fee for each arbitration filed.  The company could be facing hundreds of thousands of dollars in fees simply to have the opportunity to prove the claims are bogus. 

2. Arbitrations penalize motions practice. Every class action litigator will tell you motions are her best friend.  Motions to dismiss, motions to transfer, motions to stay, motions for summary judgment, and oppositions to motion for class certification.  Each presents an opportunity to end the class action.  In court, each consecutive motion comes at a cost; someone has to draft the motion. But the company is not also paying the judge to rule on it.  That is not true in arbitration.  Companies not only pay their attorneys to draft the motion, but they pay the arbitrator to decide it, and, on top of those fees, the arbitration panel generally tacks on a 13% “administration fee.” 

3. Even successful motions in arbitration have little impact.  The company facing mass arbitration decides to file a motion for summary judgment, and the arbitrator permits it.  The company devotes the time and money necessary to draft and file it, and, lo and behold, the company wins.  That ruling likely has zero impact on any of the other thousands of arbitrations pending. One motion, one win.  That’s it.  And when the average amount in dispute in each arbitration is less than $10,000, who wants to devote the time and money necessary to win one claim?

4. Arbitration removes companies’ greatest defense: class certification.  The benefit of being allowed to represent millions of unknown putative class members comes at a cost: plaintiffs’ counsel must establish to the court that the class can be certified. That is not an easy lift.  Indeed, most litigated class actions live or die at the class certification stage.  Class certification is, in effect, a class-action litigator’s trial. Arbitration gets rid of class certification.  No company would waive the ability to defend itself at trial, yet most are more than happy to remove the requirements of class certification by including an arbitration provision in their terms. 

In sum, the access the internet has allowed—both by consumers to companies and by plaintiffs’ counsel to putative class members—has made arbitration less desirable.  And in desperately holding onto the idea that class actions are to be avoided at all costs, companies are effectively hamstringing themselves.  Put another way, “class action” is no longer a dirty word.