On May 2, JAMS announced its new Mass Arbitration Procedures and Guidelines and Mass Arbitration Procedures Fee Schedule (together, the Procedures), with the express goal to “facilitate the fair, expeditious and efficient resolution of Mass Arbitrations” and implicit intent to reduce the administrative burden and onerous fees of mass arbitrations, as well as the delay and potential unfairness to the parties. While effective immediately, the Procedures only apply if the parties have agreed to their application in a pre- or post-dispute written agreement. This limitation significantly decreases the effectiveness of the Procedures as a tool for hedging risks and limiting the high costs of mass arbitration.

“Mass Arbitrations” covered by the Procedures are defined as 75 or more similar Demands for Arbitration (or such other number of Demands specified in the parties’ agreements), filed against the same party or related parties by individual claimants represented by either the same law firm or law firms acting in coordination. The Procedures do not specify the time period for reaching the numerical threshold to constitute a mass arbitration.

Significant improvements effected by the Procedures include: (1) the appointment of a Process Administrator to make preliminary and administrative determinations in mass arbitrations; and (2) modifications in the JAMS fee schedule for mass arbitrations. The early designation of a Process Administrator with broad powers to determine preliminary and administrative matters parallels new mass arbitration rules implemented by the American Arbitration Association (AAA) and the International Centre for Dispute Resolution (ICDR). The Procedures do not provide for mandatory mediation or test cases and do not apply to class action arbitrations.

Under the Procedures, the Process Administrator will make non-merits decisions that apply to all of the individual arbitrations. The assignment of these decisions to a single Process Administrator rather than individual arbitrators should substantially reduce arbitration costs and produce uniform and coordinated decisions regarding discovery, scheduling, and other procedural matters. Under the Procedures, companies involved in mass arbitrations will need to cover at least $5,000 of a new one-time $7,500 fee JAMS will charge at the time it appoints the Process Administrator, together with the Process Administrator’s professional fees. However, these costs will likely be dwarfed by the savings produced by the Process Administrator.

In addition to adding a new Process Administrator fee, the Procedures provide for a $2,000 (or $3,500) Arbitrator Appointment Fee for each arbitrator rather than a filing fee in the same amount for each arbitration demand. This deferral of the fee from the date of filing to the date of arbitrator appointment should reduce (but not eliminate) the undue leverage claimants currently have in mass arbitrations. The assessment of the fee based on the number of arbitrators rather than the number of arbitration filings could hugely reduce mass arbitration costs (and associated leverage) if the parties’ arbitration agreement provides for group and/or bellwether arbitrations, as well as application of the Procedures.

Unfortunately, for some unexplained reason JAMS did not make the Procedures automatically applicable to mass arbitrations. Rather, the Procedures only apply if the parties have agreed to their application in a pre- or post-dispute written agreement. As we noted in our prior analysis of the AAA’s Mass Arbitration Supplementary Rules, available here, attorneys initiating mass arbitrations will have little incentive to reach efficient post-dispute agreements since the inefficiency and cost of arbitration to the business under attack provide the principal leverage to the mass claimants.

Our Take:

Our view is that the Procedures represent a substantial step forward in addressing the growing problem of mass arbitrations. Any company with an arbitration agreement designating JAMS as the arbitration forum should consider immediately amending the arbitration agreement to make the Procedures applicable. However, merely calling for application of the Procedures (and/or AAA mass arbitration rules) is no substitute for a well-crafted pre-dispute arbitration agreement providing for bellwether and/or group arbitrations. Additionally, there are many other tools that companies can and should promptly incorporate into an arbitration agreement to reduce the risks of mass arbitration and provide additional certainty regarding the arbitration process. Troutman Pepper attorneys are well-versed in mass arbitration risks and would be happy to help.