COLUMN-How Amazon learned to stop worrying and love arbitration (again)

The opinions expressed here are those of the author, a columnist for Reuters.

By Jenna Greene

Aug 24 (Reuters) - Not long ago, mass arbitration loomed as one of corporate America's biggest legal bogeymen.

"A shakedown," the U.S. Chamber of Commerce called the phenomenon in 2023, describing it as coercive, abusive and a form of blackmail.

Today, however, the tactic -- in which attorneys representing consumers flood a company with individual arbitration demands -- appears to be losing some of its punch. Companies and arbitration providers have been rewriting the rules governing mass filings, making it harder for plaintiffs' lawyers to use the prospect of enormous filing fees to force settlements.

The clearest sign yet may be Amazon's decision to reinstate mandatory arbitration for customer disputes after a five-year hiatus.

As my Reuters colleague Greg Bensinger reported, Amazon changed its conditions of use on Aug. 14, notifying U.S. customers by email that, with limited exceptions, they can no longer sue the company in court. Most disputes must instead proceed through individual arbitration, although small claims cases and pending lawsuits are exempt.

Amazon's new rules impose a series of procedural hurdles that plaintiffs' lawyers say could make it economically infeasible to pursue low-value claims on behalf of large groups of consumers with similar grievances.

“It’s a huge barrier,” plaintiffs' lawyer Raphael Janove of Janove, who co-chairs the American Association for Justice’s Mass Arbitration Litigation Group, told me. “It effectively makes it impossible to bring mass arbitrations.”

An Amazon spokesperson declined to comment on the specifics of the rules but said the return to arbitration “will offer customers a fast, cost-effective way to resolve disputes.”

The benefits for Amazon are broader. Arbitration is typically confidential and reduces the risk that claims end up before sympathetic juries. That could prove valuable as Amazon continues to defend personal injury lawsuits over allegedly defective products sold on its platform, an area where courts have split on the company's liability.

TURNING THE TABLES

Mass arbitration's original genius was its simplicity. Companies had spent years using arbitration clauses to block class actions, requiring cases to be arbitrated individually. Starting around 2017, however, plaintiffs' lawyers began to turn the tables, filing thousands of near-identical arbitration demands at once.

The tactic exploited a feature of the system: Defendants were typically obliged to shoulder hefty upfront arbitration filing fees simply to get the process started. Those costs could quickly reach into the tens of millions of dollars, creating enormous pressure to settle regardless of the merits of the claims.

The strategy proved so effective that some companies began retreating from arbitration altogether. Amazon did exactly that in 2021 when it scrapped its decade-old requirement that its customers arbitrate disputes.

The move came after the company was hit with about 75,000 individual arbitration demands alleging its Alexa voice-assistant software illicitly recorded users.

The cases settled for an undisclosed amount. The firm that spearheaded the litigation, Keller Postman, in a 2022 news release, called it an “unprecedented—and astounding” outcome that restored access to the courts for over 140 million Amazon consumers.

A Keller spokesperson declined to comment on Amazon’s return to arbitration.

According to Amazon’s new conditions of use, dissatisfied consumers can no longer proceed straight to arbitration.

Instead, they must first try to resolve their grievance via Amazon customer service. If that fails, the customer must submit a notice of dispute using Amazon’s claim form and negotiate “in good faith” for 60 days before arbitration can commence.

These requirements alone are likely to weed out many would-be claimants, plaintiffs' lawyers say, especially if a small amount of money is at stake or the alleged injuries are indirect.

Consider a proposed class action filed in July, before Amazon reinstated mandatory arbitration. The plaintiffs allege Amazon misrepresented the environmental sustainability of seafood sold on its platform.

Thousands of consumers who bought products such as canned tuna could potentially be swept into the class. Had the suit been filed after Amazon's rule change, however, how many customers would pursue an individual arbitration? My guess: very few.

CAT AND MOUSE

For claims against Amazon that make it to arbitration, the proceedings will be administered by Irvine, California-based JAMS, a private arbitration and mediation company.

Elizabeth Carter, its senior vice president of operations, told me that JAMS rolled out new procedures for mass arbitrations in 2024. The American Arbitration Association also made similar changes that same year.

One key difference is when and how fees are assessed. JAMS now charges a single, flat fee of $8,000 to kick off a mass arbitration, regardless of how many cases are filed. The corporate defendant pays at least $5,500, with the claimants responsible for the balance. Additional fees paid by the defendant accrue as the cases progress.

As Carter noted, arbitration is a “creature of contract,” allowing parties to customize their own agreements. Amazon's new mass arbitration protocol applies if 25 or more similar cases are filed within six months by the same lawyers, or by lawyers working in coordination. Amazon also requires that plaintiffs disclose any third-party litigation funding.

A JAMS process administrator then groups the cases in “batches” decided by a single arbitrator.

Plaintiffs' lawyer Caleb Marker, a partner at Zimmerman Reed in Los Angeles, describes the process as “a procedural morass," adding, "it’s just that Amazon prefers this procedural morass over class actions, probably after an internal cost-benefit analysis.”

Still, Amazon’s new rules are likely not the final word on the viability of mass arbitration.

For example, Vanderbilt Law School professor Brian Fitzpatrick, an expert in class action litigation, said the batch provisions could be vulnerable to a court challenge, including over whether the procedures as laid out actually fall within the definition of “arbitration” under the Federal Arbitration Act of 1925.

“It’s a cat and mouse game,” Fitzpatrick told me, with each side “shifting in response to what the other side did last.”

Five years ago, Amazon determined that the courtroom was the better option. The company’s return to arbitration suggests that calculus has changed. The question now is how long it may take plaintiffs' lawyers to change it again.

(Reporting by Jenna Greene)