The New Mass Arbitration: Just Deserts or Just Another Abuse?

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Dean Reuter:  Welcome to Teleforum, a podcast of The Federalist Society's practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group Teleforum calls, become a Federalist Society member today at fedsoc.org.

 

 

Evelyn Hildebrand:  Welcome to the Federalist Society's webinar. This afternoon, January 12, we discuss "The New Mass Arbitration, Just Deserts or Just Another Abuse?" My name is Evelyn Hildebrand, and I'm an Associate Director of Practice Groups at the Federalist Society. As always, please note that all expressions of opinion are those of the experts on today's call.

 

      Today, we are fortunate to have an excellent speaker lineup, moderated by Professor Brian Fitzpatrick, whom I'll introduce very briefly. Brian Fitzpatrick is the Milton R. Underwood Chair in Free Enterprise at Vanderbilt University Law School. He studies complex litigation, and he's a recent author of The Conservative Case for Class Actions, which was published in 2019 and is coming out in paperback this year. So be sure to check that book out on Amazon and anywhere else books are sold. He is also a member of The Federalist Society's Litigation Practice Group Executive Committee, and we're very pleased he can join us this afternoon.

 

      Logistically, after our speakers give opening remarks and moderate a discussion, we will turn to audience questions towards the end of the program. If you have a question, please enter it into the Q&A feature at the bottom of your screen, and we'll handle questions towards the end of the program.

 

      With that, thank you for being with us today. Professor Fitzpatrick, the floor is yours.

 

Brian Fitzpatrick:  Thank you, Evelyn. I'm delighted to moderate this discussion on what I think is an important and timely matter—mass arbitration. I want to introduce our two very well-qualified speakers. First, I want to introduce Maria Glover. And she is a professor of law at Georgetown. I'm very pleased to say she is also a graduate of the Vanderbilt Law School. We are very proud of her. She has turned into one of the top scholars on complex litigation in the United States of America.

 

She has a publication record that I envy, to be quite honest with you. And she is a particularly important speaker on today's topic because she has what is really the first law review article, the first thorough study of this mass arbitration phenomenon. She is the author of it, and it's coming out in the Stanford Law Review this spring. It's called "Mass Arbitration." And so we're just delighted that she is joining us today.

 

      And our other speaker is no less well-qualified and well-credentialed, and that is Dan Fisher. I know him best from his work as a journalist at Forbes Magazine, but he has a master's degree from Yale Law School, where he was a Knight Fellow there. And he is a consultant in writing and media. And one of his clients is the United States Chamber of Commerce. And he is a long student of the American Civil Justice system, and I've gotten to know him over the years in that capacity. And I'm just so delighted that he can be here with us today.

 

      So, thank you, Maria, and thank you, Dan, for joining us today. I just want to set the stage very briefly, and then I'm going to direct some questions to the two speakers. I want to encourage the audience to go ahead and use the Q&A feature to put your questions in, and I will try to bring those to the forefront as soon as I can. So feel free, at any time, to put your questions in the Q&A box.

 

      Let me just set the stage for folks a little bit here. And that is -- so, I've chronicled it. Maria's chronicled it. A lot of people have chronicled it. Corporations do not like class-action lawsuits very much. And so they started putting these provisions in arbitration agreements which said if there were any disputes, then you had to go to arbitration against the companies, and you had to go one-on-one. They said you couldn't join together with other people. They wanted to insulate themselves from class action by using arbitration agreements. And they were very successful at it. And so successful that something very surprising has happened. And that is, people started to take the corporations up on the offer to go to arbitration one-on-one.

 

And so, lots and lots of people have started filing arbitration claims. So many that there have been a couple of examples of companies not being very happy with this turn of events. There was one in California against Intuit, the maker of TurboTax, where they actually -- after there were so many arbitrations filed against them, they actually decided to settle the matter with another lawyer, a class-action lawyer, and try to get a class-action settlement approved for the same dispute that was the subject of all these arbitrations. And the courts didn't let Intuit do that.

 

      There's another situation involving Uber, I think it's in Massachusetts or New York, where a bunch of their customers or drivers—I forget which one—are going after them in a mass arbitration. And the fees that Uber would have the pay the AAA—the American Arbitration Association—to even start all these arbitrations, is in the tens and tens of millions of dollars. And they don't want to pay these fees because they think that it's abusive. And actually, the AAA now is pursuing Uber, saying, "You owe us this money."

 

      So it's a wild development, I think, this world of mass arbitration. And so, I want to start us off by turning to Professor Glover and asking about her new study that's coming out in the Stanford Law Review. Professor Glover, did I get this scene stated correctly about what's going on with this mass arbitration? And can you just kind of tell us a little bit more about this new world of mass arbitration, and, in particular, what you found when you studied it for your Stanford Law Review article?

 

Maria Glover:  Sure. Yeah. And thanks for setting the scene and kind of getting us up to this really very recent and fairly dramatic development. This, again, as Professor Fitzpatrick says, follows on the heels of just an extraordinarily successful campaign. It was kind of a long game to get to the Supreme Court, to have the Supreme Court bless mandatory arbitration agreements, and, beyond that, to kind of bless them even when they contained—or perhaps, especially when they contained—class action prohibitions. That was kind of as the civil litigation campaign evolved, that was sort of how it developed.

 

      And mass arbitration—really quickly, let me just define that kind of broadly—is essentially when a large number of individuals who are subject to the mandatory arbitration agreements—either from their employer or from their cell phone company or whomever it is, or whichever it is—all file individual arbitral demands. And, of course, this isn't some coordinated effort among individuals who all get together on Facebook. These are coordinated by, often, single or a couple law firms who file these demands, who do the intake, who file the demands and do all the things that you have to do.

 

And then what happens is it triggers -- as Professor Fitzpatrick was saying, it triggers the fees of the AAA or of JAMS or whatever the arbitral forum may be. And that's evolving as quickly as this development has evolved -- that I'll get into.

 

      So what we're talking about is the filing of thousands and thousands of individual demands. And in that way, it's not completely different from what we see, for example, with direct filing into MDL, but it has a lot of its own distinctive features and elements. And the key findings of my study are sort of in three buckets. One is, how did this ever come about in the first place? Those were some pretty critical findings. How did this ever even happen?

 

And then, the second bucket are, what are the principal elements of what I refer to as mass arbitration 1.0—what mass arbitration looked like when it hit the scene in 2018 and '19.

 

      And then the third bucket of findings are, how is it already changing and what does that tell us about the possible future of mass arbitration, both whether it will exist and, to the extent it will—and I think it will—mass arbitration 2.0 and beyond.

 

      So starting in that first bucket, the findings of how this came about -- I sort of always had always said to my complex litigation students after Italian Colors, that if you just had enough money, it wasn't inconceivable that you could file arbitration demands seriatim. And that would be problematic for defendants for at least two reasons, and problematic financially. One is, arbitration is just not cheap. It's just not. It's extraordinarily expensive, with new fees at every stage: initiation fees, arbitrator retainer fees, arbitrator hourly fees, docketing the case costs money. I mean, literally everything you can think of in arbitration is al a carte. So it's extraordinarily expensive.

 

      And then you look at the arbitration agreements themselves, which were drafted, at least at the time of AT&T against Concepcion, to appear very consumer-friendly. Whether that was actually empirically true or not is a source of debate. But one of the ways in which they tended to be consumer- or employee-friendly was they contained provisions whereby the defendants agreed to pay some or all of the arbitration fees that claimants might otherwise be responsible for.

 

      And so, that is fundamentally what happened. And the money came somewhat indirectly but not unrelatedly to the explosion of third-party litigation funding in the United States in the last decade or so.

 

      So the industry leader in mass arbitration right now is a new firm called Keller Lenkner out of Chicago. Keller Lenkner—I've done multiple interviews with them—they are not receiving funding from third-party funders, but they have a close relationship with third-party funding in as much as the key parties at Keller Lenkner were the principles at GKC Capital, which was sold to Burford Capital in 2016. So GKC was a third-party funder, and they were absorbed by Burford in 2016 for millions and millions of dollars.

 

      That money was invested into Keller Lenkner, which has now become a class-action firm, a mass-arbitration firm, a plaintiff's firm. And it's a plaintiff's firm comprised of former defense lawyers—so former chamber lawyers, Warren Postman, former Gibson Dunn lawyers, like Travis Lenkner. They've got some folks from Williams and Connolly, from Kellogg Hansen.

 

And so, how this came about was sort of a confluence of a fair amount of capital, a fair amount of entrepreneurial spirit, a fair among of risk tolerance, but also a fair amount of expertise because whoever was going to do this -- there's always that joke or that prophetic entrepreneurial young lawyer. Well, the entrepreneurial young lawyer, the enterprising young attorney, wasn't going to be a match for the defense bar that engineered class action waivers and mandatory arbitration agreements, much less the defense bar that got that sanction by the Supreme Court in a series of holdings, the most recent of which being Epic Systems against Lewis.

 

So this was a highly experienced and somewhat surprising lineup of attorneys who kind of knew the defense game in and out because they've played it. They had a not-insubstantial amount of money. And they kind of took a risk. And it was risky for a number of reasons. One, because any sort of innovation, procedural or otherwise, tends to be risky. You don't know if it's going to pay out.

 

Two, it was not at all clear how the arbitral fora would respond to the filing of individual demands. It certainly was not—and frankly, even today, is not—entirely clear how courts ultimately are going to come down on some of this. The early response has been pretty receptive to it in the courts. But this was legally uncertain. It was uncertain how it was going to be received by the arbitral fora. And it was financially going to be pretty costly.

 

So what are the key elements of mass arbitration 1.0 that I've found? One, it requires a pretty big upfront investment to file the demands, to do the targeted advertising, to do the intake—at least there's debate about this—consistent with obligations of individual representation, and then to proceed through negotiations and discussions with the defendant that would result in settlements that are going to have to be effectuated individually.

 

So basically, you have all the inefficiencies and expenses of individual claiming. And for the firm engaged in mass arbitration, those are frontloaded. But -- and here's a really -- one of the most fascinating things about mass arbitration that this study uncovered is, what mass arbitration does, at the heart of its sort of innovation, is a flip of the conventional wisdom that individual claiming and the costs associated therewith, tend to benefit defendants and disadvantage plaintiffs.

 

Mass arbitration turns that on its head because once that initial investment is made -- and some of that initial investment is enabled by capital, some of that initial investment is sort of papered over by the fact that not every arbitral claimant has to pay upfront fees because there are poverty exceptions, especially under certain arbitral forum rule, and under certain state laws. So once that initial investment is made, then it triggers all the fees that defendants are responsible for, both under the arbitral fora rules and/or under the consumer- or employee-friendly contracts that they drafted in the 2000s and the 2010s.

 

And then that brings us all the way up to speed with what Brian was getting into, which is this is driving corporations into the arms of attempts at other class actions to get rid of these claims. It's driving them, not just for the AAA to come after Uber, but for Uber—and Family Dollar, for that matter—to sue the AAA, arguing that they should not be allowed to assess these millions and millions and millions in upfront initial fees.

 

And, of course, these upfront initial fees impose an extraordinary amount of settlement pressure on defendants. And so, early mass arbitrations have tended to generate settlements for the clients, and often in excess of what they would have received if they'd stayed in a parallel class action. You almost never get apples-to-apples comparisons. With Intuit and Turbo Tax, and with a couple other mass arbitrations, you do, simply because some of the claimants were subject to arbitration agreements. Some of them were not. So some of them had their claims resolved by way of a class action. Some of them had them resolved in mass arbitration. And, at least, early in 1.0, the mass arbitration claimants were doing better.

 

So big upfront investment. But then there's the fee leveraging, the settlement pressure leveraging, the flipping of the individual claiming economics on its head. Another key feature, though, is that because of that initial investment, and also because of the uncertainties and the risks and then the costs that accrue of quasi-individualized claiming as it progresses past just filing, is that you have a higher claim threshold than you're going to see for a class action.

 

The answer as to what the claim threshold is depends firm-to-firm and depends on how slam-dunk the claims appear. But what Keller Lenkner reports is, "Look, we're looking in the high hundreds." Lieff Cabraser and other firms I talked to were saying, "Eh, we're getting in the low thousands, at least." So we're talking a higher claim threshold than you're talking in class actions.

 

And then another key feature of mass arbitrations, at least if they're to work, is to settle the claims. And not just to settle them, but to settle them in arbitration because in a lot of these mass arbitrations, there were attempts by the defendants to settle all the claims by way of a parallel class action in order to avoid the sort of—what they described as being scared to death—situation of mass arbitration. So scared, in fact, that Amazon just dropped out.

 

So that's 1.0. The last bucket is, okay, where are things going? Well, the first obvious thing is that defendants drafted these agreements. They can change them. They already are. And they will. They're going to cut back on the fee-shifting provisions. I think there are legal limits to how far they can go. But they're already starting to do that. They're moving arbitration to more defendant-friendly arbitral fora. I think that's going to have to play out in the courts, how successful those particular changes are.

 

They're introducing—perhaps ironically—batching provisions, in order to try to create, in arbitration, the very thing they were trying to avoid, which is some sort of class-like procedure, in order to diminish the ability of the plaintiff's firms or the mass arbitration firms to turn the economics of an individual claiming against them.

 

So those are sort of the big changes for 2.0. There's other stuff that's going on in the study. But I feel like that's kind of the basic lay of the land. I don't want to say too much more because we'll get into more later. But if there's anything else you want me to add, Brian, I will. But, I think, at this point, I'll stop.

 

Brian Fitzpatrick:  Maria, I think that was incredibly helpful. Professor Glover, that was incredibly helpful. And I want to turn to Dan now, and ask you, Dan, what is your reaction to this mass arbitration phenomenon that we see popping up? And what about some of these findings that Maria discussed from her study? What's your reaction to all this?

 

Daniel Fisher:  First of all, I just want to say, I love this -- I don't know if it's a new style of scholarship, but Elizabeth Burch at the University of Georgia does similar work, which is kind of like – we work on our side of the street. You’re doing real reporting. You’re going in there, and you're actually -- I just find it fascinating.

 

      So my first reaction is this is entirely predictable response by the plaintiff side to the defense efforts to try to defang the class action. It was fascinating how entirely different factors aligned to cause it. I think we have the first derivative of litigation financing, which is Burford paying Keller or whatever—that group—132 million bucks, which they then, cleverly recycled into this new project, having made a fortune in third-party litigation financing and turned it into this.

 

      I think 1.0 is going to be short-lived. And I'm saying that because companies and plaintiff lawyers, they're repeat players. That's what this game is. I mean, the consumer -- better minds than mine disagree, but I just think the consumer is an afterthought in all this. It's simply a business. And they're used to doing the business a certain way. The companies want global peace. The lawyers sell it to them for fees. And so, this is a really interesting effort that they launched. And the defense is just going to come -- they're going to rewrite the contracts. And they're going to get back to the same old game, which is, what's it going to cost to make this go away, and go away completely?

 

      And so I found it fascinating, some of the alternatives that we see coming out of the AAA and the others, which -- we're back to bellwether cases, we're back to test verdicts, all in an attempt to try to figure out what are these cases really worth? And so, I think that the pendulum's just going to swing back in that direction. I don't know how much longer that mass arbitration business model—which is really an arbitrage—is going to work.

 

Brian Fitzpatrick:  Yeah. You know, I think I have the same intuition as Dan does here—and I think, Maria, you said it's already going on—which is the companies are just going to rewrite their contracts so they don't have to pay all these arbitration fees. And that's going to really put a dent in the economic model of the mass arbitration.

 

      Is there any reason, Maria, to think that companies won't be successful in doing that? I mean, don't they have a lot of leeway in how they write these arbitration provisions? The Supreme Court's really been pretty supportive of really whatever the companies want to put in those provisions. And so won't they just make this problem go away by saying, "Either you, the plaintiff, have to pay more of the fees, or, B, we're going to set up a new procedure in arbitration," like Dan was talking about—test cases, where it's going to really reduce the cost?

 

Maria Glover:  So I think there's multiple layers to the answer that I'm going to provide. And fundamentally, as Dan was saying, and as I say in the article, this is the latest, in some ways, in a mutually destructive procedural arms race. So, the pendulum, as ever, will swing back. And as you say, the Italian Colors decision, in particular, seems to leave open the possibility that you can put whatever you want in the contracts. I think that the responses to mass arbitration are going to test the limits of that.

 

      So some defendants are responding to this by just getting out. It's not worth it to them. And maybe they have other reasons for wanting to get out. For example, Amazon's out. And now you have to go to Washington state to litigate against them. So that's probably a multifarious set of strategic considerations.

 

      So some are going to exit. Some have already responded by staying in. So Uber, which is engaged in a lawsuit with the AAA right now, is sort of finding itself in an ironic position because it's suing the AAA for the second time that it's been hit with a mass arbitration. And before the court in New York, the AAA is kind of saying, "Oh come on. Like you all didn't know. You already got hit with this in 2018. This can't possibly be surprising. And yet, you chose to continue."

 

Brian Fitzpatrick:  Can I ask one, just, procedural question? The whole point of arbitration, isn't it, that the arbitrator decides a lot of the questions? I don't know if, strictly speaking, we're talking legal questions. I think we are. How does the court settle a dispute between the company that hired the arbitrator and the arbitrator? Isn't that a contract dispute that the arbitrator would decide? I just don't know.

 

Maria Glover:  And that's one of the many fascinatingly ironic questions to come up in all of this because, often, what's happening in these mass arbitrations is they start as class actions. Defendant moves to compel, they go to arbitration, and then it returns to the court by way of plaintiff's motion to compel arbitration, and they're quoting language from the defendant's earlier motion to compel that said the arbitrator is supposed to decide all this.

 

      And so Family Dollar's suit against the AAA, and the EDDA, and then Uber's suit against the AAA in New York, raised similar issues, like, why is the court even deciding all of this? But --.

 

Brian Fitzpatrick:  I don't think the companies want the arbitration providers to be deciding the question of whether they have to pay all the fees to the arbitration providers. The companies want that question resolved in court, not amongst the arbitrators.

 

Maria Glover:  Yes. I think that's fair. Although, so far, they're not succeeding in court. It's on appeal in New York. And then, the Family Dollar, they settled out with AAA in Virginia. But this is just the beginning of that fight.

 

      So the companies, A) that are super sophisticated, B) that can very easily change their arbitration agreements because they're online, and they're retroactively applied, are already changing. They're changing in numerous ways. Right? They're reducing their fee obligations. They're injecting the batch protocols. They're sending it to more defendant-friendly fora. I even posited in the piece that they don't even have to send it to defendant-friendly fora, they just have to send it to a fora that can't cope with all the cases and call it facially neutral. And that probably would work, at least with the Supreme Court.

 

      But there is legal uncertainty, especially in California, which has the Armendariz decision about how you cannot impose costs on an arbitration claimant that are in excess of what they would have to pay in court. Right? That's still good law. Then you have the open question of what's the daylight between Concepcion and Italian Colors, as to how far the arbitration agreements can go before states can jump back in with unconscionability, 3.0, and new forms of effective vindication.

 

      But then there's a subset of defendants who I don't even think are going to be in those legal fights. And those defendants are in two broad categories. One, perfectly sophisticated defendants, but who aren't really in this first wave of mass arbitration, and, based on my frequent attendance at various CLEs, are really only just finding out about this, like, now. And so they haven't really thought about it. And they're not going to be out in front of this. So for them, it will persist.

 

      And then I think there's an entire subset of potential defendants who are not of the nimble, on the cutting edge, constantly changing their arbitration agreement variety. And I think they may find themselves in the 1.0 version of mass arbitration for quite some time. For the more sophisticated defendants, it's going to be more of a 2.0 variety. And it's going to be a push and pull on the legal questions.

 

And then, of course, to your point, Brian, the less that the plaintiff's firms can rely on the fee leveraging, the more pressure it puts on slam-dunk cases, the more pressure it puts on their ability to credibly threaten the costs of individualized claiming, which go beyond filing. And there's going to just be, I think, a lot of jockeying for advantage in the next five to seven years.

 

But I have come to the tentative conclusion, contrary to my initial, which was, this is just going to die. I've come to the conclusion that, no, this is going to get jockeyed and bandied about. And it's going to play out in a number of different ways depending on the sophistication and nimbleness of the defendant, the awareness of the defendant, and the limits of the legal doctrines that are still in existence, and then, to some degree, the preferences of the parties because fundamentally, what this gets to is the Issacharoff and Witt inevitability of aggregation point, where there’s a mass hard, there’s a mass.   

 

And you can eliminate the device, but you can't eliminate the mass that's behind it. And this is, in some way, the hydraulic pressure that's resulting from that. And I think we're in for an enormous number of cases that bat this around.

 

Brian Fitzpatrick:  You know, one of the things that I have found interesting over the years is how slow companies are to change their boilerplate contracts. You know, before mass arbitration, a lot of us thought every company in America would change their contracts to put class action waivers in, after this 2010decision, AT&T v. Concepcion. But study after study shows huge percentages of companies never change their contracts. And I marvel at how slow they can sometimes be. And so you might be right that this sticks around for at least a lot of companies longer than, perhaps, it might otherwise.

 

But I do want to raise a question from one of our audience members. One of our audience members thinks that this mass arbitration thing is very hard to pull off. "It's going to be very rare," the question writer says, "because it's so hard to identify class members. How do you figure out who these people are in order to sign them up to file all these arbitration demands?"

 

And I wanted to ask you, Dan, about one of the most interesting things that I read in Maria's study—Professor Glover's study. And that is, there's a shortcut out there. I didn't know this was possible, but there's a shortcut out there that some lawyers take to find the identifications of all the putative class members. They file a class action in court first, even though there's an arbitration clause that says there's a class-action waiver. They file the class action, and they try to get a list of the class members from the defendant in discovery before the case is dismissed in favor of arbitration.

 

So they file a class action, even though it's probably not going to succeed because of the class-action waiver, in order to get this list of class members. Then they turn around and use that list to file these mass arbitrations. And I've got to tell you, you know, I'm a big fan of class actions. But that struck me, Dan, as kind of an abuse of our system—to file a case that you are pretty sure is not going to go anywhere just to get this list, and then to use the list to file a mass arbitration. What did you think about that, Dan?

 

Daniel Fisher:  I guess I didn't read it quite that way. I thought the defendants were trying to cast it that way with arguments that -- they used bad faith arguments and other things. But I thought maybe it's just -- as I said, these are repeat players, and repeat players play familiar games. They try the class action. Maybe we'll get out on unconscionability. It will be something else. But also, we're just going to use our first weapon, and then, if that fails, we'll fall back on this newfangled thing.

 

When I was reading it, it reminded me of when I was building a house. And there's a lot of very efficient, logical ways to build a house other than sticks and bricks. And you can have a prefabricated metal frame and everything else. And when you talk about this with a contractor, they're like, "Yeah. No. I'd have to charge you double because I just don't…" It's too risky to them. They don't know how the procedure's going to work out. And I think that's more what we're witnessing here.

 

If it's a labor, if it's an FSLA, there's a proven way to figure out who all the class members are. We're going to try the thing we know. And then maybe these newfangled guys will come in and we'll try this other procedure. So that's kind of how I read that. I'm not even sure, in a consumer class action, if you could do it, could you? But they wouldn't do a small-dollar consumer class action. They do home furnaces that failed at a cost of $5,000 apiece, and it would be relatively easy to find everybody who bought them, right?

 

Maria Glover:  Well, I mean, Lieff Cabraser tried the Fitbit class action, and, Dan, my findings kind of line up with what you said. It wasn't as Machiavellian as it could be. It was more, well, why --.

 

Daniel Fisher:  But a good corporate lawyer could paint it that way in a heartrending pleading.

 

Maria Glover:  I mean, We're not sure they're going to move to compel, especially in California. We're not even sure who's subject to the agreement, certainly not the whole class. And so, Lieff Cabraser tried the Fitbit class action, and it would have been marketable as a class action. And the claims were worth something between $20 and $80 for, like, a $156 device, but it wasn't marketable as a mass arbitration, which was one of the best examples I was able to get of that higher claim threshold.

 

      But I wanted to say something in addition to the class list. Right? That's a nice way to get those names. But there's something else that's happening. And I allude to this both in how did this come about, and how is it progressing? And I think that we're just starting to appreciate, in real ways—in the legal world, I don't mean in the world writ large, but in the legal world—that the technologies of automation and tracking and identification, and targeting that have long been used by Amazon and everybody who's going to advertise to me on my phone after this webinar because of things my phone overheard me say -- those technologies are not unique to service and they're not unique to Amazon. They're not unique to Verizon.

 

And one of the biggest investments that these firms have made, that the Keller Lenkners have made -- are these tech apparatuses because, yes, they are extraordinarily costly to set up, but once you've set up and you've got that sort of quasi-well-oiled machine that you can maintain -- Keller Lenkner has its entire tech apparatus and tech team. Cory Zajdel in Baltimore set something up at his firm. The more you get firms setting that up, the less critical a class list is, which, good thing if you care about doing mass arbitration because whether those class lists are going to get released is not a foregone conclusion. It's being fought pretty vociferously in the Eleventh Circuit right now.

 

So that technology, there's a mass arbitration—I think this is public now—that's bubbling up against a company called Money Lion right now. And you can't find it on Facebook unless Facebook found you. And the firm’s using the sort of technologies that Facebook and Instagram, and all the other platforms have developed in order to achieve economies of scale to find claimants. And that's going to be the wave of the future, not just for mass arbitration, but for MDL and, again, it requires incredible upfront investment.

 

But I think we're only starting to see the tip of the iceberg of this confluence of third-party funding, innovative, individualized/collective claiming, and the technological capacity to identify and target claimants. I think we're just starting to see that. And that is an economy of scale that I think will perpetuate mass arbitration further than the economics might appear it would perpetuate in your first glance at it.

 

Brian Fitzpatrick:  That's really interesting, Professor Glover. And one other kind of nut and bolt question I have about how this mass arbitration works is why does it matter how big the claim is for each plaintiff? Because if we're talking about thousands of dollars in fees that the defendant is on the hook for, you can still impose those fees on the defendant even if the claim is worth one dollar. So why isn't it the fees that the defendant's on the hook for that is the real driver, instead of the amount that the claim is worth?

 

Maria Glover:  So you're getting to a question that I probably asked in 17 different ways to a lot of the attorneys I interviewed because of the many perplexing things, you’re just dead on that that is so perplexing to me. Why would the claim value threshold be so much higher, especially when, unlike in litigation, you've got this hammer of Thor in the arbitration fees?

 

And the best answer I could cobble together -- because of course, no one's going to just hand me their balance sheets and their risk-benefit analysis, but the sort of answer that emerged is, even with the fees, the combination of the startup costs to get the claimants, the costs to maintain an individualized claiming model at the firm, the cost to build up and maintain the client-services apparatus, the tech apparatus, and the resources needed to go toe-to-toe with a defense bar that is very invested in fighting you at every stage, at least as of now, just don't make it marketable for that low-value claim.

 

      Now, ten years out into the future, if this still exists or it gets transported, as I mention in the article, out of arbitration into some other individualized claiming forum that looks like that, could the claim-value threshold go down? Sure, if you move the numbers around. But currently, the startup costs, the initiation costs, and the maintenance costs of this sort of practice are pretty prohibitive, and frankly, for most firms, still just really unattractive.

 

I mean, I talked with a lot of attorneys that said, "Count me out. No thank you. I'll enjoy watching it, but the last thing I want to do is change what my established practice of 30 years is, pump $200 million into this." And so, right now, the economies just don't work out. And I think the uncertainty about where it's going to go, and the obvious point that defendants hold the drafting power, probably is going to hold that relatively constant.

 

Brian Fitzpatrick:  Interesting. Dan, you know you raised something at the beginning that I thought was crucially important. And that is -- you said, "This is all a game between plaintiff's lawyers and defendant's repeat players," as you put it. And the people that are kind of on the sidelines are the actual consumers or employees—the actual claimants.

 

And what I'm wondering is this, Dan. From your perspective, what is the best way to serve the consumers or the employees that have a claim against a company? What is the best method of resolving their dispute? Is it a class action? Is it something in arbitration? Is it something else that we haven't discussed? What do you think should be done if 10,000 consumers have a similar beef against a company?

 

Daniel Fisher:  Well, my perspective is, is there a beef? I think the class action exists because it makes economic sense for the lawyers—for the plaintiff lawyers—and for the defendants. But the evidence is overwhelming that in consumer class actions, the supposed clients don't even know it exists. They don't get any money out of it. They could care less. So then you have to fall back on, "Well, there's a valuable deterrence effect." Well, how much deterrence is there if it's coming out of insurance? Because the evidence, again, is that they settle these things for insurance.

 

So the target says, well, I'm the target today. My competitor is going to be the target tomorrow. All the costs are passed through the consumer. Even in Professor Glover's article, I noted -- she said arbitration -- the companies save billions of dollars with arbitration. Well, in competitive industries, those billions of dollars flow through to employees and consumers. So there is a benefit if there's just less litigation. The consumer does better. So I question the premise of class actions outside of civil rights. So I'm way out on the edge there -- not the faulty furnace that costs $10,000 to replace, but you quote Jonathan Selden a lot. That's his stock in trade.

 

And so, I think then -- I'm like a stammering law school student in one of your classes right now because -- well, we'll go to MDLs. Well, as Elizabeth Burch and others point out, the MDL is just a class action without the benefit of any of the procedural rules of protections of Rule 23. So that's not working out real well. Individual arbitration—settle these things one by one. Well, even the companies don't apparently want that. They already won a batch.

 

I just think the class action is not an effective method. I think low-dollar claims are low dollar for a reason. It's because the only people who care about them are the lawyers who hope to aggregate them and make a fee. And so, I would just say that they're not worth pursuing. I think I will end—because I'm just digging myself deeper into a hole here—is that -- I think the two procedures that the CPR and the AAA plans look intriguing to me.

 

      I think if both sides could kind of – so I'll end by saying, workers comp arose in a similar -- my understanding of it, it arose in a similar situation where you had a chaotic -- increasingly sophisticated translators and non-lawyers figured out how to deal with workplace injuries using the courts, using other procedures, and eventually the employers cried uncle, and went to their legislature and said we've got to come up with a different system. And it was predictable. It was lower cost. The benefits were more liberal in some ways, less liberal in others. But you know you had a guaranteed payout, and it was the employers who drove that bargain. I think maybe we're fumbling towards another bargain, and perhaps mass arbitration is an intriguing experiment along those lines. So that's my vague answer.

 

Brian Fitzpatrick:  So it sounds like to me, Dan, your view is either we shouldn't let people pursue these low-value claims, they're just not worth it to anybody except for --.

 

Daniel Fisher:  I just think the economics should rule there, that --

 

Brian Fitzpatrick:  Yeah.

 

Daniel Fisher:  -- they're just not worth pursuing. There's nothing going on there --

 

Brian Fitzpatrick:  Or maybe we can --

 

Daniel Fisher:  -- that the courts need to be involved with.

 

Brian Fitzpatrick:  – or maybe we can come up with an arbitration procedure that makes more rational sense than what we have now, and something more like a workers' comp administrative-cheap procedure. Maybe we'll come up with something like that in the next version of arbitration.

 

Maria, what do you think?

 

Maria Glover:  Yeah. I was going to say --.

 

Brian Fitzpatrick:  What about the consumers? What about the claimants? How are they fairing in mass arbitration? And what do you think should be done with these small-value claimants?

 

Maria Glover:  Yeah. So let me get to the descriptive, and then I'll offer kind of a -- I wouldn't say a third way because it's not necessarily inconsistent with, or couldn't overlap on, some of the things that Dan said. And this goes to some conversations Dan and I have -- I love talking to Dan. So this goes to some of our conversations. But descriptively, at least under one point, though, we're seeing claimants fair much better in mass arbitration than they were fairing in literally the parallel class action for the same claims. And we had reports -- even though there were confidentiality agreements, there were a number of claimants whose names were accidentally released in exhibits, and then they were willing to talk, and said, "Look, I literally got my actual damages."

 

And one thing that's kind of interesting about mass arbitration—and I point this out in the piece—is that it starts, in some ways, as a feel-good story because the claims, for the most part, do seem fairly meritorious. They do seem to involve people who care about it. Right? These are gig economy workers who are paid far below minimum wage while delivering all of our food and goods during a pandemic, and they're owed, sometimes, tens or fifteens or twenty thousand dollars. And they're getting it in mass arbitration.

 

But the sort of dark side to that—or the less optimal side if you're trying to design this for first principles—as I say in the piece is it's not so much blame-worthy that either the plaintiffs or the claimants are having to rely so much on what we might say as non-merits-related settlement pressure to get actual damages because that's our only choice.

 

But is that really how we want to be running a railroad, where you only get actual damages if you're able to gin up a ton of merits-divorced settlement pressure that, so far, has come about in cases that seem relatively likely under the relevant legal principles and the state laws that would apply to have some legs? But they don't necessarily have to, right? There's nothing about leveraging fee-shifting that demands an obviously meritorious claim. That just is somewhat happenstantial so far.

 

      As to the sort of normative about these low-value claims -- I mean, Brian, you've written normatively about the deterrent value of class actions. I've written descriptively, as has Steve Burbank and Sean Farhang, about the descriptive reality of how the United States regulates harm and regulates markets and polices markets in the United States. And it's through private litigation, and it's through private enforcement, and very little top-down regulation, very little government regulation. And so we're not so much over-litigated as we are performing the function that Congress has sort of delegated for the longest time as it comes with regulation.

 

      And so—and this goes to the conversation I had with Dan—my beef is not so much with the economics of low-value claims. My beef is with the fact that we continue to hold out the class action or other aggregative mechanisms, whatever they are, as either good or bad. And that is -- that's just black-and-white false thinking, and it's an awful lot to put on any procedural mechanism.

 

      Fundamentally, to me, the question is not so much, "Does a consumer actually care about this claim," but, "Do we actually care about regulating misconduct and how?" I think there are a number of statutes where the debate would be a relatively good one, and should be a relatively robust one, as to whether we should even be policing this. And I say that toward the end of the article -- that, fundamentally, Congress and legislatures are not making those hard calls between cases that matter to claimants and cases that only matter to attorneys, conduct that we want to regulate, irrespective of claimant buy-in, and conduct that, really, we regulate because it benefits attorneys.

 

Those are calls for the substantive law—whether it should be on the books, what the remedial scheme should be. And if we continue to just recycle and use as the piñata the procedural aggregative mechanism, we're just never answering the hard regulatory questions that I think these things raise.

 

Brian Fitzpatrick:  Well, let me ask you this, Professor Glover. Do you, maybe, agree with Dan that some of these low-value claims maybe aren't worth the time to go to court or arbitration or anything? Maybe we ought to just say, you know, that's the normal friction of living in a society—is every once in a while, we're going to lose $5, $10, $25.

 

Maria Glover:  I would agree, but within the context of what I said. But that would not influence what I thought about the class action or not. It would influence whether I thought, for example, we should actually make legally cognizable a claim that a free phone, in fact, required you to pay tax. I mean, The case in Concepcion was a beautiful vehicle because it was a beautiful vehicle. Those claims do not engender much sympathy even among those of us who are somewhat class-action sympathetic.

 

So I would say, yes, I agree to the extent that it's within a context of, I think that these are hard regulatory calls and they go to the sort of remedial schemes and the substantive regulatory regimes. And whether the class action layers on top of those is something that I'm sure every legislator is aware of, but that's the wrong target for our ire.

 

Brian Fitzpatrick:  You know, one of our audience members brought up, I thought, an interesting potential solution. And that's small claims court. And the audience member asks, "Why don't the companies just require you to go to small claims court? That way, they won't have to pay all these arbitration fees." What do you guys think about small claims court?

 

Daniel Fisher:  Didn't they create the arbitration system? Aren't the fees of their own making? I don't know.

 

Maria Glover:  That's one -- that is a revision to the contracts that some companies, I know, were sort of toying with. I mean, look, Yogi Berra says, "It's dangerous to make predictions, especially about the future." But I fundamentally don't see why you can't export this model to small claims. Yeah, technically, attorneys aren't supposed to be there. But that hasn't stopped them in the past, right?

 

So if this gets sent to small claims court, then it puts front and center the question of just how much work the fee-leveraging is doing. But fundamentally, you can still run an individualized claiming model in other fora besides arbitration. But small claims -- I think that's more something that we need to be on the lookout for in terms of potential revisions to the contracts. I think it's a completely open question whether small claims court is at all prepared for that potential delivery.

 

Brian Fitzpatrick:  Dan, do you think the companies would be happy with small claims court?

 

Daniel Fisher:  To be honest, I don't even know how small claims court works. But I think the day that Amazon --.

 

Brian Fitzpatrick:  They didn't cover that at Yale Law School, Dan?

 

Daniel Fisher:  No. You don't even learn how to write a brief in Yale Law -- no -- first year. I could just see the poor judge in Seattle who just finds out that Amazon revised its contract. I mean, he would figure out a way to make that not happen, I think.

 

Brian Fitzpatrick:  Very good. Very good. Well, you know, we're almost out of time. And I just wanted to give you guys a chance if there's anything else you think our audience members should know about mass arbitration. We have a couple minutes. So if you want to say something, please do. Otherwise, we can close out our discussion. Maria, do you have anything you want to add?

 

Maria Glover:  Well, first of all, thank you for having me. And thanks for covering this topic. And thanks to everyone who attended. And I appreciate everyone who read the study. And for those who haven't, it's sort of a fast-evolving area. And the draft kind of updates often. But we'll have to stop at some point. And I think that's where I'd sort of leave things, which is -- this is the first study of it, but I can't imagine it will be the last. And I can't imagine that the implications, as I go into in the paper, won't be fairly substantial.

 

And while they do fit in this larger narrative of a pendulum swinging between procedural warfare, they really put some of the most fundamental questions about civil regulation, private enforcement, civil justice, privatized procedure, on the table in a really stark way. And I think they're important questions. And I think we're just beginning to see the developments evolve on those questions. And so, to the extent you're interested in it, I would just say, this has been absolutely fascinating for me. And I hope it's as fascinating for you as it was for me.

 

Brian Fitzpatrick:  How about you, Dan? Any final words for us?

 

Daniel Fisher:  I just think the workers’ comp analogy is the one that comes to my mind. You have large employers with large numbers of workplace injuries and a tort law system that attempted to shove it off on the worker or the guy driving the locomotive who hit the worker. That didn't work. It broke down. I think this has been a dilemma for mass production—mass capitalism. We're seeing -- the experiment continues. And I'm just hoping it goes in a direction different than the traditional class action.

 

Brian Fitzpatrick:  Maybe technology will end up saving us. Maybe we'll have artificial intelligence do the dispute resolution in a very cheap, cheap way for these small claims. But only the future will tell us that. Thank you to Professor Glover. Thank you to Dan Fisher for your time today. Thank you to all of our audience members for your attention. It really was very interesting to learn about this brand-new phenomenon. See everyone later. Take care. Bye-bye.

 

[Music]

 

Dean Reuter:  Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.