JAMS Adopts New Mass Arbitration Rules And Fee Schedules

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For businesses that use consumer and workplace arbitration agreements designating JAMS as their arbitration administrator, there is an important new development: JAMS has announced new Mass Arbitration...
United States Litigation, Mediation & Arbitration
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For businesses that use consumer and workplace arbitration agreements designating JAMS as their arbitration administrator, there is an important new development: JAMS has announced new Mass Arbitration Procedures and Guidelines and a new Mass Arbitration Procedures Fee Schedule.

These changes are a welcome improvement. Some lawyers bringing mass arbitrations have focused their attention on businesses with JAMS arbitration clauses because JAMS's prior rules were substantially more burdensome to businesses than other organizations' rules. But, as with the AAA's recent new mass arbitration rules and fee schedules, the changes do not come close to eliminating the risks associated with abusive mass arbitrations. Businesses should consider reviewing and—if necessary—updating their agreements.

THE THREAT OF MASS ARBITRATION

As discussed in our prior Legal Update, mass arbitrations can place significant settlement pressure on businesses that is tied largely to the arbitration fees that businesses must pay. Claimants' lawyers have routinely sought to use the threat of fees to extract settlements regardless of the merit or value of the underlying claims. And often, as a result, mass arbitrations are susceptible to abuse. We've discussed this problem in detail in a report for the U.S. Chamber of Commerce Institute for Legal Reform, Mass Arbitration Shakedown: Coercing Unjustified Settlements.

JAMS'S NEW RULES AND FEE SCHEDULE FOR MASS ARBITRATIONS

Effective May 1, 2024, JAMS has adopted new rules and a new fee schedulefor mass arbitrations.

WHEN DO THE NEW RULES APPLY?

The new rules apply if two criteria are met:

  • First, the parties must have "a pre- or post-dispute written agreement" to apply the new rules.
  • Second, "75 or more similar Demands for Arbitration, or such other amount as is specified in the Parties' agreement(s)," must be "filed against the same Party or related Parties by individual Claimants represented by either the same law firm or law firms acting in coordination."

WHAT'S NEW?

As with the recent new mass arbitration rules adopted by the American Arbitration Association (see our report on those rules), the new JAMS rules contain two new procedures that appear aimed at rectifying a common problem in abusive mass arbitrations—a claimant pool that includes a large number of improper claimants, such as ones who are fictitious or duplicative, who are not even customers of or workers for the targeted business, or who were never exposed to the challenged improper conduct. These claimants are all necessarily asserting patently frivolous claims. But some do not even have arbitration agreements with the targeted business and so do not have the right to invoke arbitration in the first place. Nonetheless, the lawyers who file these improper arbitrations often seek to evade responsibility, asserting that they were entitled to rely on the information typed into online forms by their putative clients or that it is up to the business to identify the improper claimants.

JAMS's new rules impose significant barriers to these practices:

  • First, when claimants' counsel commence a mass arbitration, the filing must include a "Demand for Arbitration Form and applicable arbitration agreement . . . for each Claimant." Each Demand also "must include the first and last name" and "physical address and email address of the Claimant." In addition, the requirement that the "applicable arbitration agreement" be submitted effectively requires the claimant to affirm—and demonstrate—that he or she does in fact have an arbitration agreement with the business.
  • Second, each Demand "must be accompanied by a sworn declaration from counsel averring that the information in the Demand is true and correct to the best of the representative's knowledge." This change makes it easier for arbitrators and courts to conclude that counsel have an obligation not to file knowingly false or unverified claims—and to impose Rule 11-type sanctions if that duty is violated.
  • Third, the new rules make it feasible for businesses to challenge the propriety of arbitration filings at the outset. Under JAMS's prior rules, businesses had no meaningful opportunity to make threshold challenges if the arbitration agreement delegated questions of arbitrability to the arbitrator. JAMS would require the business to pay nonrefundable arbitration fees to get an arbitrator appointed to decide those issues—and so an eventual ruling that the filing was improper would be too late to prevent imposition of the fees. Under the new rules, the business can request appointment of a Process Arbitrator for an entire mass arbitration, who can decide threshold administrative disputes that the parties' arbitration agreements do not allocate to courts for decision. And other than the cost of the arbitrator's time, the only fee that the business must pay at the outset, no matter how many cases are filed, is a single fee of $5,000 (with the claimants paying $2,500).

The Process Arbitrator can:

  • Hear challenges to the propriety of the filings, including not only compliance with the new "filing requirements" but also compliance with any "applicable conditions precedent" to arbitration. In a number of mass arbitrations, the claimants' lawyers have ignored the claimants' obligation to comply with contractual pre-conditions to arbitration, such as providing written notice of disputes and engaging in settlement discussions before arbitration. The new Process Arbitration procedure gives businesses a new mechanism to enforce these requirements.
  • Hear disputes over other administrative matters, such as which arbitral rules apply, the location of arbitration hearings, how to select merits arbitrators, and whether later-filed cases are part of the same mass arbitration. In addition, the Process Arbitrator can decide "[w]hether to batch, consolidate or otherwise group the Demands or claims" for any purpose, including "discovery, arbitrator appointments, merits hearings or otherwise."
  • Decide that particular administrative disputes require fact-specific individualized proceedings as well as address disputes regarding the precedential impact of their rulings. In addition, determinations of "threshold jurisdictional and arbitrability disputes" remain "subject to final determination" by the merits arbitrator "or a court."

WHAT'S THE NEW FEE SCHEDULE?

As discussed above, the new rules eliminate the old per-case filing fees and replace them with a new single filing fee of $5,000 for the business and $2,500 for the claimants, no matter how many cases are included in a mass arbitration. JAMS charges an additional $7,500 to the business if it asserts counterclaims.

If cases survive review by the Process Arbitrator (or if no Process Arbitrator is requested), JAMS now charges an Arbitrator Appointment fee of $2,000 (for two-party matters) and $3,500 (for cases with three or more parties) for each arbitrator appointed, regardless of the number of cases assigned to that arbitrator. Because it is common in mass arbitrations to assign multiple cases to a single arbitrator, this change is a significant reduction of the old per-case filing fees. JAMS continues to charge the merits arbitrator's regular hourly rate, as well as a Case Management Fee in each case equal to 13% of the arbitrator's fee.

IMPLICATIONS FOR MASS ARBITRATIONS AND NEXT STEPS

These rule changes should make it easier for businesses to resist the most abusive forms of mass arbitrations by making it affordable to obtain appointment of a Process Arbitrator to hear challenges to the filing of arbitrations in the names of nonexistent customers or workers. The new rules also should make it easier for businesses to seek to hold claimants' counsel responsible for improperly filed arbitrations—and to enforce contractual requirements regarding the arbitration process.

At the same time, the rule and fee-schedule changes make it important for businesses to revisit their arbitration agreements. Indeed, JAMS states that the new rules apply only if there is a "pre- or post-dispute written agreement" to apply the new rules. Accordingly, businesses with agreements for JAMS arbitration should consider updating their agreements to incorporate these new rules and fee schedules.

Businesses may wish to consider adding additional procedures to facilitate the fair and orderly resolution of mass arbitrations. As a baseline, arbitration agreements should be designed with the needs of individual consumers and workers in mind. A robust pre-arbitration dispute resolution process—requiring claimants to explain their concerns so that the company has an opportunity to resolve them cooperatively—facilitates the quick settlement of disputes, without the need to arbitrate at all.

Our mass arbitration paper also identifies ways that businesses can contract for the use of appropriate procedures, including bellwether arbitrations, to address mass arbitrations. In the preamble to the new rules, JAMS stated that, "[u]nlike other providers, JAMS does not include either mandatory mediation or test cases in these new [Mass Arbitration] Procedures." Businesses may wish to include these or other procedures in their arbitration agreements. JAMS's new rules make it possible to obtain Process Arbitrator rulings enforcing those new procedures. These developments also underscore why businesses should consider updating their arbitration agreements to promote fair resolution on the merits while protecting against abusive practices.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

JAMS Adopts New Mass Arbitration Rules And Fee Schedules

United States Litigation, Mediation & Arbitration
Contributor
Mayer Brown is a distinctively global law firm, uniquely positioned to advise the world’s leading companies and financial institutions on their most complex deals and disputes. We have deep experience in high-stakes litigation and complex transactions across industry sectors, including our signature strength, the global financial services industry.
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