JAMS Release Mass Arbitration Procedures Following AAA’s Lead

In recent years, plaintiff-side attorneys have increasingly relied on a strategy of “mass arbitration” to force companies into in terrorem settlements, whereby large numbers of claims are settled quickly before the underlying merits of those claims can be tested. One primary driver of this strategy is the significant administrative-fee burden that is incurred for defendants in most arbitral fora when thousands of purportedly individual claims are filed simultaneously. For most companies, it is simply cheaper to settle — even on plaintiffs’ terms — than mount any form of defense, regardless of whether the claims are meritless. As a consequence, mass arbitration tends to undermine the integrity of the arbitral process; no mechanism exists for parties to fairly adjudicate procedural issues or weed out frivolous claims without first incurring prohibitive fees. In response to this emerging trend and significant potential for abuse, the American Arbitration Association recently adopted revised rules for mass arbitrations. Those rules (which Goodwin previously covered) seek to relieve companies of the immediate threat of up-front fees in early stages of an arbitration and provide a process to eliminate at the outset potentially frivolous and improper claims.

Following in the footsteps of the American Arbitration Association (AAA), and explicitly recognizing that “[t]he filing of dozens, hundreds or even thousands of individual claims may create administrative burdens and onerous fees, as well as delay and potential unfairness to all Parties,” Judicial Arbitration and Mediation Services Inc. (JAMS) recently created its own rules for mass arbitrations: the Mass Arbitration Procedures and Guidelines (Procedures). These rules take effect immediately and apply to all JAMS arbitrations that qualify as mass arbitrations.¹ Like the AAA rules, these new procedures are intended to facilitate the fair, expeditious, and efficient resolution of mass arbitrations without the immediate threat of large, up-front filing fees. The procedures are similar to AAA’s rules in several respects, with some notable divergence. Regardless, it should be welcome news to parties seeking the benefits and efficiencies of arbitrations over litigation — where high cost and delay originally drove parties toward arbitration — that more service providers are taking action to regulate mass arbitrations.

Application of JAMS Mass Arbitration Rules

The new Procedures apply only if the parties must have a written agreement adopting the new rules, the agreement of which may be entered into before or after a dispute has arisen.² Thus, where the parties agree, the Procedures may be applied retroactively to an existing dispute. The Procedures are also applicable only to arbitrations that involve “75 or more similar Demands for Arbitration, or such other amount as is specified in the Parties’ agreement(s)” that are “filed against the same Party or related Parties by individual Claimants represented by either the same law firm or law firms acting in coordination.”³

Requirement of Sworn Declaration for Filing

For claimants, the Procedures require that a separate demand must be submitted for each individual claimant and accompanied by a “a sworn declaration from counsel averring that the information in the Demand is true and correct to the best of the representative’s knowledge.”⁴ This requirement specifically addresses the concern that mass arbitrations often include fictitious persons or individuals who have no basis to file a claim in the first place, and provides companies a mechanism for making an initial challenge to demands that lack merit and should not proceed.

New Fee Provisions

Procedure 6 and 7 together amend JAMS’s existing rules governing arbitration fees with respect to mass arbitrations.⁵ Under the revised fee structure, the up-front filing fees are significantly reduced,⁶ as follows:

• Filing fees are set at $7,500 for mass arbitrations “[r]egardless of the number of cases”.
  
  • For arbitrations arising out of “employer-promulgated plans,” fees for employees are capped at $2,500 in the aggregate, with the employer to bear the remainder of the employees’ share of the filing fee and all case management fees.
  • Similarly, for arbitrations arising out of predispute arbitration clauses between companies and individual consumers, fees for consumers are capped at $2,500 in the aggregate, with the company to bear the remainder of the consumers’ share of the filing fee and case management fees.
• Counterclaims are set at $7,500.
• Case management fees are set at 13% of an arbitrator’s professional fees.”
• Arbitrator appointment fees are set at $3,500 for matters involving three or more parties, which shall be assessed for “each arbitrator appointed regardless of the number of cases or groups of cases the arbitrator is appointed to or the number of times the arbitrator is appointed to cases in the Mass Arbitration.”
• Process administrator fees are billed “at the rate reflected in their General Fee Schedule.”

Thus, under these rules, a defendant company may expect to pay anywhere between $5,000 and $7,500 in a mass arbitration and obtain appointment of a process administrator (as discussed below). Notably, 50% of filing fees may be refunded if a matter is withdrawn within five days of filing; after five days, a filing fee is nonrefundable.

Process Arbitrator

Unlike other providers, JAMS does not include either mandatory mediation or test cases (also known as “bellwether” cases) in its Procedures, each of which may be effective in resolving mass arbitrations or avoiding excessive arbitration fees. However, like the new AAA rules, the JAMS rules provide for the appointment of a process administrator to work with the parties to design a reasonable process so that cases can be heard as soon as practicable.⁷

Under the new Procedure 3, JAMS may appoint a process administrator “to hear and determine preliminary and administrative matters in a Mass Arbitration.”⁸ While a National Arbitration Committee (NAC) adjunct and not an arbitrator, a process administrator is nevertheless empowered under the new Procedures to convene administrative conferences and hearings and determine preliminary and administrative matters “as may be necessary to ensure the orderly and efficient resolution of the claims brought in a Mass Arbitration.”⁹ For instance, the process administrator is empowered to hear and resolve challenges that certain claimants may lack a factual or legal basis to pursue the purported claims prior to a full hearing.¹⁰ The process administrator also has the authority to determine “[w]hether to batch, consolidate or otherwise group the Demands or claims,” including batching or grouping claims around “discovery, arbitrator appointments, merits hearings or otherwise.”¹¹ To the extent that a particular demand may require individual proceedings to address fact-specific issues, a process administrator is authorized to set hearings on these matters.¹² Any rulings by the process administrator are binding on subsequently filed matters that are part of the mass arbitration.¹³ Finally, the process administrator’s determinations of “threshold jurisdictional and arbitrability disputes” remain “subject to final determination” by the merits arbitrator “or a court.”¹⁴

Under Procedure 4, the process administrator can hear and determine preliminary and administrative matters in a mass arbitration, resolve disputes about the interpretation and applicability of the procedures, and determine whether threshold jurisdictional and arbitrability disputes are arbitrable.¹⁵ In terms of proceeding to the merits phase of the arbitration, Procedure 5 clarifies that the selection of the “Arbitrator(s)” can be made by the parties or the process administrator.¹⁶

AAA vs. JAMS Mass Arbitration Rules

The JAMS Procedures embrace the same concept as the new AAA rules in an effort to preserve the integrity of the arbitration process in the face of mass arbitrations while at the same time addressing commonly held concerns on behalf of both claimants and defendant companies. There are some notable differences, however.

Most significantly, the AAA rules apply at the determination of AAA¹⁷ while, in contrast, the JAMS Procedures will apply only if the parties agree in writing to follow the JAMS mass arbitration procedures. In other words, under the JAMS Procedures, unless the parties agree, the prior rules and fee structure will remain in effect, whereas for mass arbitrations under AAA, the AAA is the sole decider as to whether its updated rules apply. This gives significant leverage to claimants and their attorneys to resist designating the JAMS Procedures after a dispute arises in an effort to preserve the effect produced under the typical JAMS rules and fee structure.

Another significant difference is that under the AAA mass arbitration rules, a determination by the process administrator is reviewable by a merits arbitrator under an “abuse of discretion” standard of review.¹⁸ In contrast, the JAMS Procedures are silent on this issue except that a merits arbitrator or court may review a determination on arbitrability.¹⁹ AAA also requires pre-arbitration mediation, whereas JAMS does not. The AAA rules further differ by acknowledging that a “process arbitrator” (comparable to the JAMS role of process administrator) may determine that the disputes are appropriate for a small-claims court.

Finally, JAMS defines mass arbitrations more narrowly than AAA, requiring 75²⁰ similar filings, as opposed to AAA’s 25²¹ as the baseline threshold for what qualifies as a “mass arbitration.”

For ease of comparison, see chart below.

Takeaways

• The New Procedures Encourage Administrative Efficiency. The threat of mass arbitrations is somewhat alleviated to the extent that parties can agree to apply the JAMS Procedures. The role of a process administrator also provides parties the opportunity to craft efficient and nonburdensome proceedings without incurring excessive arbitration fees.
• Professional Fees Should Still be Considered. While the new fee schedule significantly reduces fees assessed on a per-case basis (which are now assessed at a flat rate regardless of the number of individual demands filed), separate professional fees for process administrators and arbitrators — assessed according to the General Fee Schedule — and case management fees assessed as a percentage of overall costs may still be nontrivial.
• Claimants May Retain Leverage in Certain Proceedings. The requirement of pre- or post-dispute written agreement to apply the new Procedures may result in certain claimants, particularly those in pending or ongoing matters, to resist application of the new Procedures in an effort to retain the effects of in terrorem leverage under the old rules. However, going forward, companies will have the opportunity to tailor arbitration agreements to take advantage of the JAMS Procedures.

^[1] Id. at Procedure 1(a).
^[2] Id.
^[3] Supra note 3 at Procedure 1(c).
^[4] Supra note 3 at Procedure 2(c).
^[5] Supra note 3 at Procedure 6 & 7.
^[6] For a comparison of the old per-case fee scheduled used by JAMS, see “Comprehensive Arbitration Rules and Procedures—Effective June 1, 2021.” 
^[7] https://www.jamsadr.com/mass-arbitration-procedures
^[8] Supra note 3 at Procedure 3(a).
^[9] Supra note 3 at Procedure 3(e).
^[10] Supra note 3 at Procedure 3 (e)(iii) (“Which Demands for Arbitration, including subsequently filed Demands, should be included as part of the Mass Arbitration[.]”).
^[11] Supra note 3 at Procedure 3(e)(vi).
^[12] Supra 3 at Procedure 3(d).
^[13] Supra note 3 at Procedure 3(h)(i)
^[14] Supra note 3 at Procedure 4 (b).
^[15] Id. 
^[16] Supra note 3 at Procedure 5.
^[17] Supra note 1 at MA-1(f) 
^[18] Supra note 1 at MA-6(j)
^[19] Supra note 3 at Procedure 6.
^[20] Supra note 5.
^[21] Supra note 1 at MA-1(c).

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.