Arbitration filings put firms’ system to test

Teel Lidow couldn’t quite believe the numbers. Over the past few years, the nation’s largest telecom companies, like Comcast and AT&T, have had a combined 330 million customers. Yet annually an average of just 30 people took the companies to arbitration, the forum where millions of Americans are forced to hash out legal disputes with corporations.

Lidow, a Silicon Valley entrepreneur with a law degree, figured there had to be more people upset with their cable companies. He was right. Within a few months, Lidow found more than 1,000 people interested in filing arbitration claims against the industry.

About the same time last year, Travis Lenkner and his law partners at the firm Keller Lenkner had a similar realization. Arbitration clauses bar employees at many companies from joining together to mount class-action lawsuits. But what would happen, the lawyers wondered, if those workers started filing tens of thousands of arbitration claims all at once? Many companies, it turns out, can’t handle the caseload.

Lidow and Lenkner are leaders in testing a new weapon in arbitration: sheer volume. And as companies face a flood of claims, they are employing new strategies to thwart the very process that they have upheld as the optimal way to resolve disputes. Companies, in a few instances, have refused to pay the fees required to start the arbitration process, hoping that would short-circuit the cases.

“There is no way that the system can handle mass arbitrations,” said Cliff Palefsky, a San Francisco employment lawyer who has worked to develop fairness standards for arbitration. “The companies are trying to weasel their way out of the system that they created.”

One of the biggest obstacles for consumers and workers is that payouts on individual arbitration judgments don’t justify the costs of mounting a complex case against a big company.

Lidow runs FairShake, a startup that uses an automated system to get the arbitration process started. If the claim results in a payout, the startup takes a cut.

In the spring of 2018, FairShake bought targeted Google ads that invited anyone with gripes against a cable and internet company to start the arbitration process through its website. Over two months, FairShake notified companies like AT&T and Comcast that it was filing 1,000 arbitration claims.

SHEER VOLUME

The companies were caught off-guard. It took six months for many of the claims to move through arbitration. And some were still making their way through the system two years later. To Lidow, that seemed like a long time for two of the nation’s largest companies, with ample legal resources, that have vouched publicly for the efficiencies of arbitration over court.

“From our perspective, the companies weren’t prepared to administratively handle that volume,” Lidow said. “The whole system wasn’t prepared.”

An AT&T spokesman said FairShake’s “system is unnecessary because our process is so easy to follow and efficient for consumers.”

Lenkner and his colleagues at Keller Lenkner, which is based in Chicago, also see a potentially viable legal niche in mass arbitration.

He said most companies never expected that people would actually use arbitration.

One of the firm’s latest showdowns is with DoorDash, a leading food delivery app in the United States. It shows the traction that mass arbitration is gaining with judges and the lengths that companies will go trying to stop it.

It began last summer when Keller Lenkner filed more than 6,000 arbitration claims on behalf of couriers for DoorDash, known as “dashers.”

Hit with about 2,250 claims in one day, DoorDash was “scared to death” by the onslaught, according to internal documents unsealed in February in federal court in California.

The cases were taken to the American Arbitration Association, an entity that provides the judges and sets up the hearings for such disputes.

FLOOD OF CLAIMS

DoorDash specified in its contracts with its roughly 700,000 dashers that they had to use the association when filing an arbitration claim. The company also told the dashers that it would pay any fees the association required to start the legal process.

Then DoorDash got the bill for the 6,000 claims — more than $9 million.

DoorDash balked, arguing in court that it couldn’t be sure that all of the claimants were legitimate dashers. The American Arbitration Association said the company had to pay anyway. It refused, and the claims were essentially dead.

DoorDash’s lawyers reached out to another arbitration provider, the International Institute for Conflict Prevention & Resolution, which was willing to allow DoorDash to arbitrate “test cases” and avoid having to pay the fees all at once.

In a statement, the institute said the new rules for mass arbitration were broad based and not specific to the DoorDash case. It also said the new rules had provisions that were generally favorable to plaintiffs.

If they wanted to keep “dashing” for DoorDash, workers had to sign a new contract designating the institute as the new arbitrator.

But a federal judge in San Francisco wasn’t willing to go along with it. The judge, William Alsup, ordered DoorDash in February to proceed with the American Arbitration Association cases and pay the fees.

In a statement, a spokeswoman for DoorDash said the company “believes that arbitration is an efficient and fair way to resolve disputes.”

But in a hearing, Alsup questioned whether the company and its lawyers really believed that.

“Your law firm and all the defense law firms have tried for 30 years to keep plaintiffs out of court,” the judge told lawyers for Gibson Dunn late last year. “And so finally someone says, ‘OK, we’ll take you to arbitration,’ and suddenly it’s not in your interest anymore. Now you’re wiggling around, trying to find some way to squirm out of your agreement.”