Due to a surge in class action litigation against self-storage companies in the last 10 years, many operators have elected to add arbitration provisions and class action waivers to their rental agreements. These dispute resolution provisions have been found to be enforceable in consumer and employment contracts, most recently in a case decided by the United States Supreme Court Epic Systems v. Lewis (2018). In that case, the Supreme Court decided that arbitration provisions and class action waivers were enforceable under the Federal Arbitration Act.
As a result, instead of a class action being brought in one lawsuit on behalf of a “class of plaintiffs,” it is now common to see multiple individual arbitration demands being filed, sometimes in the hundreds (or thousands). These mega filings are called “mass arbitrations.”
The strategy behind mass arbitrations is that the company being sued may not only bear substantial expense associated with the arbitration company assigned to handle the multiple disputes, but it must pay its counsel to respond not just to one consolidated case but the hundreds (or thousands) of individualized matters. The costs of dealing with a mass arbitration matter may end up being too unwieldy and expensive for defendant companies to handle.
Essentially, the strategy has been for law firms and advocacy groups to embrace the use of mass arbitrations as a way of leveraging the arbitration system against companies that once relied on these same arbitration procedures to mitigate the risk of class action liability. Although the Epic Systems case limited a plaintiff’s ability to pursue a class action, which often would provide strength in numbers, the flip to mass arbitrations has demonstrated that individuals can still wield collective power through coordinated legal action.
This shift in the use of arbitrations underscores the importance of drafting such arbitration agreements carefully and staying attuned to evolving legal strategies. While arbitration was initially touted as a cost-effective alternative to litigation, mass arbitrations have, in many cases, flipped that narrative.
One of the most well-known examples of a mass arbitration action impacting a defendant involves the cases brought against Amazon related to alleged privacy violations when using the company’s “Echo” device. In this instance, the plaintiffs’ bar handling the claims filed more than 75,000 individual arbitration demands. Eventually Amazon agreed to drop its arbitration requirement, since the defense of the separate cases alone cost more than the totality of the claims that were being brought.
Certainly, the continued use of arbitration provisions and class action waivers for dispute resolution along with class action waivers has substantial merit, but the time may soon come when these arbitration provisions will need to be updated to address how the potential for mass arbitrations should be handled. For example, one suggestion has been to include language in arbitration contracts to require the use of “test cases,” where the balance of filed cases are temporarily suspended while a limited number of specific cases are tried to address issues of arbitrability, jurisdiction, venue, and the validity of the claims.
In fact, the larger arbitration companies like the American Arbitration Association and the Judicial Arbitration and Mediation Service have begun updating their governing rules to address the handling of mass arbitrations.
There are reasonable strategies that both sides of consumer and employment disputes should have at their disposal when dealing with their claims. To the extent that arbitration provisions and class action waivers remain legal and enforceable, the filing of mass arbitrations has been one way for a class of claimants to seek justice. Hopefully, as these matters arise in the future, a cost effective and efficient way for legitimate large-scale disputes to be resolved will be found.
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Scott Zucker is a partner in the law firm of Weissmann Zucker Euster + Katz P.C. in Atlanta, GA. Scott specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. For more visit www.wzlegal.com.
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This newsletter is for the purpose of providing general legal insight into the self-storage industry. It should not be substituted for the legal advice of your own attorney.
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