How Consumers Are Using Mass Arbitration to Fight Amazon, Intuit, and Other Corporate Giants
Customers forced to resolve complaints through arbitration are giving companies a taste of their own medicine
When angry customers accused Intuit of duping them into buying its TurboTax tax prep software—despite being entitled to a free version—they ran into an unexpected roadblock.
Fine print buried deep in the TurboTax website’s terms of service required them to bring their complaints not to a court but to “arbitration.” That’s a way for businesses and customers to settle disputes without heading to court—but that, consumer advocates say, often protects corporations at the expense of consumers.
So a group of enterprising lawyers representing about 40,000 TurboTax customers employed a kind of legal jiujitsu: They simultaneously filed thousands of arbitration claims, swamping Intuit with fees and prompting it to try to beat a hasty retreat.
How Arbitration Hurts Consumers
Mass arbitration is a response to what Glover calls the arbitration revolution: the decades-long campaign by corporations to keep entire categories of legal complaints out of open court and funnel them instead into the closed-door, virtually unappealable realm of arbitration.
Arbitration was established on a national level by the 1925 Federal Arbitration Act, largely as an efficient way for businesses to resolve conflicts with one another. Inserting arbitration clauses into take it or leave it contracts—where one party has far more power than the other—is a relatively recent development, driven by a string of court cases where business interests succeeded in enforcing arbitration clauses with consumers, employees, and small businesses.
Today, arbitration language now lurks almost everywhere in the consumer landscape. A 2019 study in UC Davis Law Review Online (PDF) found that 81 of the 100 largest U.S. companies now use arbitration in their dealings with consumers. And CR’s own 2020 report showed that more than two-thirds of the top-selling brands in the 10 product categories that get the most traffic on our website—including smartphones, televisions, and washing machines—use arbitration clauses.
Companies claim that consumers benefit from the efficiency of arbitration. And, indeed, when two parties willingly agree to allow an arbitrator to adjudicate their legal conflict, the process can be cheaper and faster than taking the matter to court.
But many studies suggest that consumers prevail less often in arbitration, and win smaller awards when they do, compared with traditional courts. And many of the safeguards built into the court system—the right to conduct “discovery” to establish basic facts, for example, and the right to an appeal—are missing from arbitration.
Arbitration also keeps legal complaints private, even if they allege blatantly illegal or fraudulent behavior. That imposed secrecy has, in practice, allowed everything from financial firm rip-offs to sexual predation to continue years longer than it would have if exposed in a public courtroom.
But perhaps the biggest problem—the one explicitly targeted by mass arbitration—is that most arbitration clauses prohibit consumers from joining together to bring their complaints as a group, or “class.” As a result, as Vanderbilt University law professor Brian Fitzpatrick wrote in his 2019 book, “The Conservative Case for Class Actions” (University of Chicago Press, 2019), the widespread use of arbitration clauses has all but eliminated consumer claims for small-dollar and nonmonetary harms, which generally can’t justify the time, energy, and cost of pursuing them individually.
And without the potential for consumer class-action lawsuits, companies have little incentive to treat consumers fairly when it doesn’t serve their economic interests. “The lion’s share of academic studies has found that . . . class-action lawsuits deter misconduct,” Fitzpatrick writes.
Calling the Arbitration Bluff
In this context, mass arbitration amounts to a kind of legal bluff-calling. If companies insist that consumers arbitrate their complaints individually—perhaps, as Glover argues, never expecting more than a handful of people to actually do it—the lawyers behind mass arbitrations are simply saying, fine, let’s arbitrate, over and over and over again.
Typically companies pay most or all of the fees associated with arbitration proceedings against them. These fees can range from a couple hundred to a few thousand dollars per individual claim—not much for a large company facing a small handful of cases, but potentially massive when thousands of such cases are brought in short order.
For example, in the TurboTax case, a judge tallied (PDF) Intuit’s potential costs for the arbitrations to be at least $128 million—$3,200 for each of the 40,000 clients represented by Keller Lenkner, the firm behind the mass arbitration.
Ironically, note consumer advocates, companies included those purportedly consumer-friendly fee provisions in order to convince judges not to deem the terms “unconscionable”—and therefore unenforceable—in the first place.
“This lays bare as a complete sham the claim by businesses that they are using arbitration to help consumers get problems resolved,” says George Slover, senior policy counsel at Consumer Reports. “They devised forced arbitration to make it hard for consumers to pursue claims at all, and they will readily abandon it when it doesn’t further that anti-consumer interest.”
Glover’s study portrays mass arbitration as, so far, the work of a handful of enterprising law firms willing to take on the financial risk and considerable work the approach requires.
Lawyers in a traditional class-action case need only file suit on behalf of a representative plaintiff. By contrast, the attorneys behind a mass arbitration must identify, contact, and form retention agreements with each of the hundreds or thousands of clients individually, document their stories, and formally initiate their arbitration proceedings.
These steps, plus ongoing communication, require special technology and teams of client-relationship managers. To pressure companies to settle all the claims at one time, the firms also need enough attorneys to move ahead with—or credibly stand ready to move ahead with—a large number of arbitrations simultaneously.
These companies fought tooth and nail to get rid of class actions, and are now asking for class actions because the arbitrations they demanded are costing too much money. Judges have realized it and are laughing them out of court.
When these elements are in place, mass arbitration has been decidedly successful. Many claims that would be economically nonviable because would-be plaintiffs unwittingly “agreed” in the fine print not to bring class-action lawsuits are now able to generate substantial settlement pressure, Glover says. In fact, she says, the high cost of defending against mass arbitration has in some cases generated higher settlements than the cases could have as class-action suits. Keller Lenkner, the firm behind about half the cases Glover identified, says it has secured more than $200 million in settlements since 2018.
And after Amazon was threatened with some 75,000 arbitration cases from consumers saying that its Alexa-voiced Echo devices illegally stored recordings of users—potentially exposing it to tens of millions of dollars in filing fees—the company reversed course on arbitration, changing its terms of service to allow customers to file traditional lawsuits (albeit with other restrictions).
But the true power of mass arbitrations may be best reflected in the legal and logical contortions of companies trying to escape them. Almost all of the mass arbitrations Glover studied began as class-action lawsuits that were dismissed when the defendants asked a judge to “compel arbitration.”
Hit with arbitrations en masse, however, many of the companies not only begged judges to let them off the hook but also did so with arguments directly contradicting their previous ones.
“The irony is off the charts,” says Vanderbilt law professor Fitzpatrick. “These companies fought tooth and nail to get rid of class actions, and are now asking for class actions because the arbitrations they demanded are costing too much money. Judges have realized it and are laughing them out of court.”
Indeed, when the food-delivery service DoorDash tried to avoid arbitration with more than 6,000 of its contractors for alleged wage-theft claims—arbitration that it had insisted on to avoid a class-action claim—the judge refused, remarking on the “poetic justice” of the situation and writing in his opinion that the company’s “hypocrisy will not be blessed.” (DoorDash did not respond to multiple requests for comment.)
The Future of Forced Arbitration
But can mass arbitration really turn the tide on the arbitration revolution? Glover says it is “the first and only counter-offensive to have mounted a proportional response.”
Still, she says, “it’s not a panacea.” The huge cost of launching a mass arbitration limits the number of lawyers able to take on these cases, and pushes those that can to focus on the cases with the largest potential payouts. Thus many claims with legal merit but minimal “marketability” will likely never find a lawyer to champion them as mass arbitrations, she says.
Other experts agree. “Any time someone can find a way to make the mass arbitration approach work, I think it’s great and I’m excited for it,” says Paul Bland, executive director of Public Justice, a legal advocacy nonprofit. “But it has severe limitations.”
Meanwhile, Glover knows of no other companies following Amazon’s lead in removing arbitration language from their consumer contracts. Instead, some are changing their arbitration clauses to make the prospect of mass arbitration less likely and threatening.
Such moves raise the prospect of protracted procedural warfare—an expensive game of whack-a-mole that, Glover says, consumers, employees, and small businesses are likely to lose.
That’s why she feels mass arbitration is, on its own, unlikely to undo the arbitration revolution, and what’s really needed are “significant policy reforms.”
To that end, Consumer Reports has endorsed the Forced Arbitration Injustice Repeal (FAIR) Act, which passed the U.S. House in the last Congress and was reintroduced there and in the Senate in February. If signed into law, it would prohibit companies from imposing forced arbitration as a precondition for buying a product or using a service.
“Contrary to claims by business interests opposing the FAIR Act, it does not make arbitration against the law,” says CR’s Slover. “It just stops a business from forcing it on consumers. If a consumer has a dispute with a business, he or she can choose arbitration or the courts. But it’s not a choice if it’s slipped into the fine print of a contract and takes hold before the consumer even has a dispute.”
In the meantime, Glover has a recommendation for consumers who are harmed by a product but find themselves barred from seeking justice in court: Take advantage of any predispute procedures built into the arbitration clauses in question. If you follow the steps required—usually a matter of filling out an online form or sending a written request to a specified address—some companies will make a settlement offer to avoid further escalating the dispute. “Corporations are always happy to pay off gadflies,” Glover says. “Read the arbitration agreement, find out how to lodge your complaint, and just do it—it’s not that hard.”