What Managing Partners Need to Know About Navigating Mass Arbitration

What Managing Partners Need to Know About Navigating Mass Arbitration

An article by the Husch Blackwell firm discusses how businesses have widely and successfully relied on arbitration clauses embedded in online terms of service to limit litigation exposure. And courts have generally upheld these provisions, even in surprising contexts, such as a New Jersey case where an arbitration clause from a food delivery app was enforced in a rideshare injury suit. 

This underscores a judicial willingness to enforce clickwrap agreements in a broad array of disputes, from personal injury to discrimination and even antitrust. However, this strategy’s widespread adoption has spurred an evolving countermeasure: mass arbitration.

Plaintiffs’ lawyers are increasingly weaponizing these very clauses through mass arbitration campaigns. By simultaneously filing thousands of near-identical claims, they can impose enormous upfront arbitration costs, often hundreds to thousands of dollars per claim, on defendant corporations. This tactic is used not necessarily to pursue individual outcomes but to apply financial pressure that forces companies into early settlement. For some corporations, the cost of arbitration alone has reached tens of millions of dollars before any actual defense of claims begins.

Faced with these risks, the article notes how some companies are rethinking their arbitration strategies. A few have removed arbitration clauses altogether, while others have tried to preempt mass arbitration through procedural innovations like bellwether systems. 

The Ninth Circuit’s decision in Heckman v. Live Nation shows how fraught these efforts can be. The court rejected a novel mass arbitration protocol as unconscionable, emphasizing the lack of notice, opt-out rights, and adequate representation for plaintiffs not selected as bellwether cases.

For managing partners, mass arbitration clauses remain a powerful tool but require nuanced drafting and strategic foresight. Firms advising clients should reevaluate existing terms of service with mass arbitration risks in mind, anticipating judicial scrutiny and designing provisions that balance enforceability with long-term risk mitigation.