{"id":22212,"date":"2020-04-13T15:08:27","date_gmt":"2020-04-13T22:08:27","guid":{"rendered":"http:\/\/amicuscuria.com\/wordpress\/?p=22212"},"modified":"2020-04-13T15:37:36","modified_gmt":"2020-04-13T22:37:36","slug":"arbitration-companies-skewered-by-their-own-petard-arbitration","status":"publish","type":"post","link":"http:\/\/amicuscuria.com\/wordpress\/arbitration-companies-skewered-by-their-own-petard-arbitration\/","title":{"rendered":"Companies Skewered by Their Own Petard: Arbitration"},"content":{"rendered":"\n\n
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\u2018Scared to Death\u2019 by Arbitration: Companies Drowning in Their Own System<\/strong><\/p>\n\n\n\n\n\n

\n\n\n\n\nLawyers and a Silicon Valley start-up have found ways to flood the system with claims, so companies are looking to thwart a process they created.\n\n\n\n\n
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The San Francisco headquarters of DoorDash, which a law firm hit with more than 6,000 arbitration claims from workers last summer.Credit…
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\n\n\n\n\nBy <\/strong>Michael Corkery<\/a> and <\/strong>Jessica Silver-Greenberg<\/a>\n\n\n\n\n
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Michael Corkery is a reporter at The New York Times, who writes about finance and its impact on consumers, businesses, and the environment. In 2015, he was part of a team of reporters that revealed how big banks and corporations have forced Americans to give up their day in court and instead submit their disputes to private arbitration. He has also investigated how auto lenders profit from poor people needing cars and how coal companies and their Wall Street backers use bankruptcy to shed environmental obligations.<\/figcaption>\n\n<\/figure>\n\n\n\n\n
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Jessica Silver-Greenberg is an investigative reporter on the business desk at The New York Times. In 2015, she was part of a team of reporters that revealed how big banks and corporations have forced tens of millions of Americans to give up their day in court and instead submit to a private system in which there is no judge and no jury.<\/figcaption>\n\n<\/figure>\n\n\n\n\n
\n\n\n\n\nTeel Lidow couldn\u2019t quite believe the numbers. Over the past few years, the nation\u2019s 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<\/a>, the forum where millions of Americans are forced to hash out legal disputes with corporations.<\/a>\n\n\n\n\n
\n\n\n\n\nMr. 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, Mr. Lidow found more than 1,000 people interested in filing arbitration<\/a> claims against the industry.\n\n\n\n\n
\n\n\n\n\nAbout the same time last year, Travis Lenkner and his law partners at the firm Keller Lenkner had a similar realization. Arbitration clauses<\/a> 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\u2019t handle the caseload.\n\n\n\n\n
\n\n\n\n\nHit with about 2,250 claims in one day last summer, for example, the delivery company DoorDash was \u201cscared to death\u201d by the onslaught, according to internal documents unsealed in February in federal court in California.\n\n\n\n\n
\n\n\n\n\nDriven partly by a legal reformist spirit and entrepreneurial zeal, Mr. Lidow and Mr. 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.\n\n\n\n\n
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Travis Lenkner\u2019s law firm filed about 2,250 arbitration claims against DoorDash in one day.<\/figcaption>\n\n<\/figure>\n\n\n\n\n
\n\n\n\n\n\u201cThere is no way that the system can handle mass arbitrations,\u201d said Cliff Palefsky, a San Francisco employment lawyer who has worked to develop fairness standards for arbitration. \u201cThe companies are trying to weasel their way out of the system that they created.\u201d\n\n\n\n\n
\n\n\n\n\nEven as Supreme Court rulings over the last two decades have enshrined arbitration as the primary way that companies can hash out disputes, giving them enormous sway, consumer advocates and labor rights groups have criticized its inequities.\n\n\n\n\n
\n\n\n\n\nOne of the biggest obstacles for consumers and workers is that payouts on individual arbitration judgments don\u2019t justify the costs of mounting a complex case against a big company.\n\n\n\n\n
\n\n\n\n\nSome of the mass arbitration strategies may be changing that calculus.\n\n\n\n\n
\n\n\n\n\nMr. Lidow runs FairShake, a start-up that uses an automated system to get the arbitration process started. If the claim results in a payout, the start-up takes a cut.\n\n\n\n\n
\n\n\n\n\nMr. Lidow got interested in arbitration after the e-commerce company he founded to sell ethically sourced clothing shut down. A former mergers and acquisitions lawyer, he wanted to use some of his digital know-how to disrupt the cumbersome, clubby legal system that nearly every American must agree to use instead of going to court against their employer, rental car provider or cable company.\n\n\n\n\n
\n\n\n\n\nIn 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.\n\n\n\n\n
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Over two months in 2018, the start-up FairShake notified telecom companies like Comcast that it planned to file 1,000 arbitration claims.Credit…
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\n\n\n\n\nThe 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 Mr. Lidow, that seemed like a long time for two of the nation\u2019s largest companies, with ample legal resources, that have vouched publicly for the efficiencies of arbitration over court.\n\n\n\n\n
\n\n\n\n\nIt was particularly notable because AT&T was at the center of a landmark 2011 Supreme Court ruling that anointed arbitration was a fair forum for legal disputes.\n\n\n\n\n
\n\n\n\n\n\u201cFrom our perspective, the companies weren\u2019t prepared to administratively handle that volume,\u201d Mr. Lidow said. \u201cThe whole system wasn\u2019t prepared.\u201d\n\n\n\n\n
\n\n\n\n\nAn AT&T spokesman said FairShake\u2019s \u201csystem is unnecessary because our process is so easy to follow and efficient for consumers.\u201d\n\n\n\n\n
\n\n\n\n\nFairShake is expanding its focus to other industries, like consumer finance and home security. For the arbitration claims that FairShake has settled, consumers have gotten an average payout of $700.\n\n\n\n\n
\n\n\n\n\nMr. Lenkner and his colleagues at Keller Lenkner, which is based in Chicago, also see a potentially viable legal niche in mass arbitration.\n\n\n\n\n
\n\n\n\n\nA former lawyer at Boeing who clerked for Justice Anthony M. Kennedy on the Supreme Court, Mr. Lenkner said most companies never expected that people would actually use arbitration.\n\n\n\n\n
\n\n\n\n\n\u201cThe conventional wisdom might say that arbitration is a bad development for plaintiffs and an automatic win for the companies,\u201d he said. \u201cWe don\u2019t see it that way.\u201d\n\n\n\n\n
\n\n\n\n\nKeller Lenkner\u2019s first wave of cases have focused on workers in the gig economy. Many of these workers, particularly at food delivery companies, have been thrust onto the front line of the coronavirus crisis by ferrying food and supplies to housebound consumers, while risking getting sick. A large number of their employers require these workers to sign arbitration clauses.\n\n\n\n\n
\n\n\n\n\nMr. Lenkner said he believed that his firm could economically mount arbitration claims, one by one, because the gig workers had similar allegations against companies like Uber and Postmates \u2014 namely that they have been misclassified as independent contractors.\n\n\n\n\n
\n\n\n\n\nOne of the firm\u2019s 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.\n\n\n\n\n
\n\n\n\n\nIt began last summer when Keller Lenkner filed more than 6,000 arbitration claims on behalf of couriers for DoorDash, known as \u201cdashers.\u201d\n\n\n\n\n
\n\n\n\n\nAmong them was Victoria Diltz, a single mother in the Bay Area who works at a fast-food restaurant and as a housekeeper, and relies on making deliveries for DoorDash to generate extra cash for a tank of gas, groceries or car payments.\n\n\n\n\n
\n\n\n\n\nShe said the company\u2019s formula for paying workers was inconsistent, but as an independent contractor she had no way to challenge that.\n\n\n\n\n
\n\n\n\n\n\u201cThey know we are desperate for the cash, so we will do whatever,\u201d said Ms. Diltz, 46, who lived out of her car for a period while working for DoorDash.\n\n\n\n\n
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Victoria Diltz of Newark, Calif., filed an arbitration case against DoorDash over how the company classifies workers.<\/figcaption>\n\n<\/figure>\n\n\n\n\n
\n\n\n\n\nThe cases were taken to the American Arbitration Association, an entity that provides the judges and sets up the hearings for such disputes.\n\n\n\n\n
\n\n\n\n\nDoorDash 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 that the association required to start the legal process.\n\n\n\n\n
\n\n\n\n\nThen DoorDash got the bill for the 6,000 claims \u2014 more than $9 million.\n\n\n\n\n
\n\n\n\n\nDoorDash balked, arguing in court that it couldn\u2019t 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.\n\n\n\n\n
\n\n\n\n\nThe company made other moves seeking to limit the damage from mass arbitration.\n\n\n\n\n
\n\n\n\n\nDoorDash\u2019s lawyers at the Gibson Dunn firm reached out to another arbitration provider, which turned out to be more accommodating on some issues important to the company.\n\n\n\n\n
\n\n\n\n\nThe International Institute for Conflict Prevention & Resolution, or C.P.R., was willing to allow DoorDash to arbitrate \u201ctest cases\u201d and avoid having to pay the fees all at once. C.P.R. also took feedback from Gibson Dunn on the proposed new rules, though it did not consult with the dashers\u2019 lawyers.\n\n\n\n\n
\n\n\n\n\nIn a statement, C.P.R. 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.\n\n\n\n\n
\n\n\n\n\nIf they wanted to keep \u201cdashing\u201d for DoorDash, workers had to sign a new contract designating C.P.R. as the new arbitrator.\n\n\n\n\n
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Some food-delivery services like Postmates require drivers to sign arbitration clauses before working for them.<\/figcaption>\n\n<\/figure>\n\n\n\n\n
\n\n\n\n\nBut a federal judge in San Francisco wasn\u2019t 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.\n\n\n\n\n
\n\n\n\n\nIn a statement, a spokeswoman for DoorDash said the company \u201cbelieves that arbitration is an efficient and fair way to resolve disputes.\u201d\n\n\n\n\n
\n\n\n\n\nBut in a hearing, Judge Alsup questioned whether the company and its lawyers really believed that.\n\n\n\n\n
\n\n\n\n\n\u201cYour law firm and all the defense law firms have tried for 30 years to keep plaintiffs out of court,\u201d the judge told lawyers for Gibson Dunn late last year. \u201cAnd so finally someone says, \u2018OK, we\u2019ll take you to arbitration,\u2019 and suddenly it\u2019s not in your interest anymore. Now you\u2019re wiggling around, trying to find some way to squirm out of your agreement.\u201d\n\n\n\n\n
\n\n\n\n\n\u201cThere is a lot of poetic justice here,\u201d the judge added.\n\n\n\n\n
\n\n\n\n\nMichael Corkery is a business reporter who covers the retail industry and its impact on consumers, workers and the economy. He joined The Times in 2014 and was previously a reporter at the Wall Street Journal and the Providence Journal. @mcorkery5<\/a>\n\n\n\n\n
\n\n\n\n\nJessica Silver-Greenberg is an investigative reporter on the business desk. She was previously a finance reporter at the Wall Street Journal. @jbsgreenberg<\/a> \u2022 Facebook<\/a>\n","protected":false},"excerpt":{"rendered":"

\u2018Scared to Death\u2019 by Arbitration: Companies Drowning in Their Own System Lawyers and a Silicon Valley start-up have found ways to flood the system with claims, so companies are looking to thwart a process they created. By Michael Corkery and Jessica Silver-Greenberg Teel … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-22212","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"http:\/\/amicuscuria.com\/wordpress\/wp-json\/wp\/v2\/posts\/22212","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/amicuscuria.com\/wordpress\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/amicuscuria.com\/wordpress\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/amicuscuria.com\/wordpress\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/amicuscuria.com\/wordpress\/wp-json\/wp\/v2\/comments?post=22212"}],"version-history":[{"count":8,"href":"http:\/\/amicuscuria.com\/wordpress\/wp-json\/wp\/v2\/posts\/22212\/revisions"}],"predecessor-version":[{"id":22226,"href":"http:\/\/amicuscuria.com\/wordpress\/wp-json\/wp\/v2\/posts\/22212\/revisions\/22226"}],"wp:attachment":[{"href":"http:\/\/amicuscuria.com\/wordpress\/wp-json\/wp\/v2\/media?parent=22212"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/amicuscuria.com\/wordpress\/wp-json\/wp\/v2\/categories?post=22212"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/amicuscuria.com\/wordpress\/wp-json\/wp\/v2\/tags?post=22212"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}