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Data Breach Defense: Mobilizing Against Weaponized Mass Arbitration
Most companies have experienced or will experience a data breach. Increasingly, companies also face the risks associated with mass arbitration weaponized by the overwhelming volume of claims after a breach. This article explores:
- Mass arbitration's emergence as a class action alternative in data breach cases;
- The risks and liabilities associated with mass arbitrations;
- The limited options for mounting an effective response to mass arbitrations;
- The ways companies can minimize their mass arbitration exposure; and
- Mass arbitration settlement strategies in data breach cases.
Prevalence of Arbitration Clauses and the Rise of Mass Arbitrations
Arbitration can provide an effective and efficient means of resolving disputes for all parties involved. The prospect of efficient, out-of-court resolution has prompted many companies to insert a binding arbitration clause in most of their consumer contracts. Following the Supreme Court decision in AT&T Mobility LLC v. Concepcion, companies have included consumer-friendly and conscionable arbitration provisions that require the company to pay any arbitration filing fees regardless of which party initiates the arbitration. These arbitrations usually come packaged with class action and jury trial waivers.
The widespread use of consumer arbitration clauses, coupled with the liberal federal policy favoring arbitration under the Federal Arbitration Act, has drawn the ire of many plaintiffs' attorneys, who are effectively blocked from pursuing many consumer actions or class actions in court. Another subset of the plaintiffs' bar, however, has sought to leverage these arbitration clauses into quick settlements. Enter the mass arbitration.
The typical mass arbitration scheme involves the threat of thousands upon thousands of putative claimants who are ready to file individual claims against a company en masse. This fleet of claimants is typically represented by one firm that solicited them through online advertising or targeted outreach. The firm then approaches the company with an ultimatum: Enter into a global settlement now or face the cost of defending against thousands of claims and their attendant fees in arbitration.
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