The opinions expressed here are those of the author, a columnist for Reuters.
By Alison Frankel
Feb 1 (Reuters) - Corporate creativity seemingly has bounds when it comes to combating mass arbitration.
I’ve already told you about companies requiring consumers to arbitrate claims in small batches, using class actions to settle disputes after barring consumers from suing as a class and even suing customers for allegedly skipping pre-arbitration requirements.
But here's a tactic I haven’t seen before: The pay-TV company Starz Entertainment, which requires consumers to engage in mediation before they file a formal arbitration case, is insisting that customers split mediation costs, according to a petition to compel arbitration.
Mediation can cost upward of $10,000 a day, the filing said. So, according to plaintiffs' lawyers from Keller Postman, Starz is effectively insisting that its customers put up thousands of dollars in mediation fees before they can bring an actual arbitration claim. That, according to Keller Postman, is a violation of California law.
Fair warning: There are definitely two sides to this story. Starz, as I’ll explain, contends that its goal is a fair and efficient resolution of allegations that it violated video privacy laws by sharing customers' viewing data without their consent. The company and its lawyers blame Keller Postman for thwarting efforts to streamline the mass arbitration. It claims that the plaintiffs firm is maneuvering to use the leverage of arbitration fees to force Starz into a settlement.
Both sides, in other words, are claiming the moral high ground. Thanks to Keller Postman’s petition, which was filed on Wednesday in federal court in Riverside, California, it will be up to a judge to decide which side deserves it.
What’s undisputed is that in January 2023, Keller Postman JAMS – the arbitration forum specified in Starz’ consumer contract – that it represents about 100,000 Starz customers with video privacy claims. The plaintiffs' firm subsequently said it would stay arbitration for most of those clients but demanded to proceed with individual arbitration for 7,300 Starz customers.
The Starz consumer contract requires customers to enter mediation before launching arbitration. Mediators, as I mentioned, don’t come cheap: According to Keller Postman, the daily rate for a JAMS mediator averages $13,000. Hourly rates average $900.
Keller Postman told Starz that its clients should each bear only $250 of that cost because that’s the cap on consumer fees under JAMS arbitration rules. Starz responded that the arbitration rules don’t apply to mediation. There is specified cap in JAMS rules on consumer mediation fees, so, according to Starz, Keller Postman’s clients must split the entire cost of pre-arbitration mediation.
In June, JAMS sided with Starz.
Keller Postman said that didn't matter. Under the terms of Starz’ consumer contract, the plaintiffs' firm said, only an individual arbitrator — and JAMS itself — can decide the threshold question of how much customers must pay for pre-arbitration mediation. (I know, this is all a bit head-spinning.)
Keller Postman demanded that its first batch of 7,300 clients be permitted to initiate arbitration.
Starz then asked JAMS to consolidate the 7,300 cases into a single arbitration to decide common issues, beginning with the threshold fight over mediation fees, arguing that it would be a waste of time and money to handle the cases individually.
Starz acknowledged that its contract bars consumers from arbitrating as a class. But the company said its demand for consolidated arbitration was different because each customer would still be pursuing an individual claim, albeit before a single arbitrator. The contractual “prohibition on class or representative proceedings,” Starz insisted, “has relevance to JAMS’ ability to consolidate individual arbitrations.”
Keller Postman opposed consolidation, asserting that its clients were only following the rules that Starz imposed on them. Starz told consumers that they had to arbitrate their disputes individually. Forcing claimants into a consolidated proceeding, Keller Postman said, would violate that very contract.
JAMS agreed to consolidate the cases before a single arbitrator.
That only escalated the battle between Keller Postman and Starz.
Most, but all, of Keller Postman’s clients sought to disqualify the appointed arbitrator. The firm said its clients were simply exercising their right under California law to have a say in who oversees their cases.
Starz, meanwhile, said Keller Postman was trying to fracture the consolidated arbitration to force Starz to pay additional fees. The company persuaded JAMS to remove the appointed arbitrator from the consolidated case, even though some of Keller Postman’s clients were willing to proceed.
“Your true strategy is to maximize the procedural costs of arbitration to make your clients’ claims too expensive to defend,” DLA wrote to the plaintiffs' firm on Jan. 17.
Keller Postman’s Albert Pak told me by email that Starz is the real obstructionist. The company insisted on individual mediation when it thought it could impose crippling mediation fees on each claimant, Pak said, then refused to allow the original arbitrator to proceed on behalf of its willing clients.
Starz declined to provide a statement.
Keller Postman filed Wednesday’s petition to compel arbitration on behalf of a client who did seek to disqualify the original JAMS arbitrator, arguing that her case should be allowed to proceed. The petition also said that the Starz arbitration contract cannot be enforced if, as Starz insists, consumers are on the hook for thousands of dollars in upfront mediation fees before they can arbitrate their actual claims.
The stakes for Starz are huge, considering that Keller Postman told JAMS that it represents 100,000 customers. If each one is entitled to individual arbitration, Starz would be facing $170 million in initial fees alone.
Remember when companies touted arbitration as a quick, uncomplicated way to resolve customer disputes?
If else, the Starz case shows those days are long gone.
Read more:
Epson’s unusual mass arbitration defense: Sue your (alleged) customers
Verizon’s $100 million settlement gets thumbs down from lawyers for 10,000 customers
‘Bellwether’ arbitration takes another hit ahead of key appeal
(Reporting By Alison Frankel)