The opinions expressed here are those of the author, a columnist for Reuters.
By Alison Frankel
Feb 14 (Reuters) - A couple of weeks ago, when I told you about a petition to compel arbitration by a customer of the pay-television service Starz Entertainment, I focused on what seemed to be an unusual tactic to fend off thousands of demands for arbitration: requiring customers to pony up thousands of dollars in mediation fees before they can launch formal arbitration cases.
But in a motion to dismiss the petition, Starz argued that the mediation fee issue has actually been solved – and that Keller Postman, the law firm for Starz customers who have demanded arbitration, refuses to accept the solution because it’s trying to force Starz into an unwarranted settlement by making the mass arbitration too expensive to defend.
A caveat before you read on: The Starz case is one of the most procedurally complicated mass arbitration disputes I’ve encountered in several years of writing about this ever-developing practice area. In a way, though, the complexity makes the case all the more important, since Starz and Keller Postman are both raising issues that are likely to recur in future mass arbitration cases.
So here's the background. Keller Postman, a mass arbitration pioneer, signed up tens of thousands of Starz customers who contend that the company violated video privacy laws by sharing their viewing data without their consent. The plaintiffs firm Starz about the looming mass of claims in January 2023. Soon thereafter, Keller Postman launched arbitration demands at JAMS for about 7,300 clients.
Starz said that under the terms of its customer contracts, the claimants were required to mediate with a JAMS mediator before they could proceed to arbitration.
That led to a showdown between Keller Postman and Starz counsel from DLA Piper.
The two sides could agree on who was required to pay for mediation, which can cost as much as $12,000 per day. Keller Postman said its clients should have to pay more than $250, which is the maximum fee for consumers in JAMS arbitrations. Starz said the rules for arbitration didn't apply to mediation. It demanded that Keller Postman’s clients split mediation costs with the company. Keller Postman countered that such fee-splitting – as a prerequisite for arbitration -- is unconscionable.
Much wrangling ensued between Starz, Keller Postman and JAMS. Ultimately, JAMS agreed with Keller Postman that an arbitrator must decide the threshold issue of who bears the cost of the requisite pre-arbitration mediation.
But the arbitration forum agreed with Starz that the threshold mediation fee issue could be decided in a consolidated proceeding before a single arbitrator, rather than in 7,300 individual arbitrations, as Keller Postman requested.
The matter of fees lurked beneath all of this procedural skirmishing. As you know, mass arbitration critics contend that plaintiffs lawyers use the cost of arbitration – typically more than $1000 per case for companies facing consumer claims – as a lever to force companies into unwarranted settlements.
If JAMS had required Starz to pay fees for 7,300 individual arbitrations, the total cost would have topped $12 million. (And remember, those 7,300 claimants were only a fraction of the tens of thousands of Starz customers allegedly represented by Keller Postman.) But because JAMS ordered a consolidated proceeding before a single arbitrator, Starz was on the hook for only $1,750 in fees.
JAMS appointed an arbitrator for the consolidated proceeding. More than 7,000 of Keller Postman’s clients called for her disqualification. Starz then asked JAMS to appoint a arbitrator to oversee the entire consolidated arbitration. Keller Postman said the appointment of a arbitrator would improperly interfere with the rights of the handful of its clients who were willing to proceed before the original arbitrator.
Keller Postman then filed a petition in federal court in Riverside, California, to compel arbitration on behalf of one of those clients. Its argument, in brief: Starz forced customers to agree to individualized arbitration, but when thousands of customers actually demanded arbitration, the company threw up improper obstacles and ultimately forced them into a consolidated proceeding that is contrary to its own contract.
In the dismissal motion filed on Tuesday, Starz offered a different interpretation. The company, which disputes the merits of customers' video privacy claims, said its handling of the case at JAMS proves that it is ready and willing to move ahead with arbitration.
Starz said it has abided by JAMS’ procedures at every turn. It also said there’s inconsistent about its call for a consolidated arbitration even though it bars customers from suing as a class: In the consolidated arbitration, it said, every customer is still asserting an individual claim.
Starz said Keller Postman’s “cynical” petition to compel arbitration is the culmination of six months of obstruction by the plaintiffs firm in the wake of JAMS’ decision to consolidate the arbitration and charge Starz just $1,750.
“Keller’s ultimate goal is purely one of litigation strategy -- to seek this court’s help in overruling JAMS’s arbitration decisions in order to try to make it too expensive for STARZ to defend itself on the merits at arbitration and force an early settlement payday,” the motion said.
Starz said there’s reason for U.S. District Judge Kenly Kato to entertain Keller Postman’s petition, since the parties are already in arbitration at JAMS, which is contractually empowered to resolve any procedural questions.
And finally, according to Starz, the principle of judicial estoppel bars Keller Postman from asking the court to rule on the mediation fee dispute because the firm has already told JAMS that an arbitrator must decide that question.
Starz declined to comment on its motion. Keller Postman sent me an email statement on the filing, asserting that it is Starz, the plaintiffs firm, that has behaved cynically.
The company, Keller Postman asserted, “is trying to have it both ways by denying consumers the fair and efficient path of a class action, but also denying them their contractual right to individual arbitration.”
Starz has requested a March 14 hearing.
Read more:
Wells Fargo sues over American Arbitration Association's rules for mass disputes
New Starz suit reveals latest mass arbitration defense: Make customers pay for mediation
Epson’s unusual mass arbitration defense: Sue your (alleged) customers
(Reporting By Alison Frankel)