Mandatory arbitration requirements impede consumers’ ability to obtain relief for illegal business conduct.  Class action relief is eliminated, and a long list of factors cause consumers to fare better in court than in arbitration.  But in many cases today arbitration is the only practical avenue for relief for a wronged consumer, where access to a court trial is effectively blocked. 

Where challenging an arbitration requirement would be fruitless or impractical, this article provides 10 reasons why consumer litigants should consider proceeding directly to arbitration as the best remaining option for their client. In many cases, arbitration may offer a viable avenue for relief when an arbitration requirement blocks other options.

1. No Standing Requirement in Arbitration 

Particularly for statutory damages claims under consumer statutes, federal and even state court standing requirements can kill off otherwise meritorious consumer claims in court.  But, even for statutory-damages-only claims, standing issues should never derail a case when the consumer seeks relief directly in arbitration.  

Constitutional limits on a court’s ability to hear a case have no relevance to a private arbitrator deciding a dispute. See NCLC’s Consumer and Worker Arbitration Provisions § 9.13.  The arbitration provision specifies disputes that the parties agree to handle privately through arbitration, and the agreement does not require that the dispute demonstrate a concrete injury.

Some federal courts find they have no standing to vacate or confirm an arbitration award if the court where the case was originally filed lacked standing. See George v. Rushmore Serv. Ctr., L.L.C., 114 F.4th 226 (3d Cir. 2024); Herskovic v. Verizon Wireless, 2024 WL 4212191 (2d Cir. Sept. 17, 2024). But these cases are not applicable where the consumer initiates the case in arbitration and does not first file in court. Moreover, when the consumer later confirms the arbitrator’s money award in court, that court should have standing because a consumer’s failure to recover the monetary award would be concrete injury.

2.  Arbitration Avoids Interlocutory Appeals over Arbitrability 

In federal court, even when the trial court refuses to enforce an arbitration requirement, the Federal Arbitration Act gives the defendant the right to file an interlocutory appeal on that issue, and the Supreme Court has ruled that the court must freeze the case until the appeal is resolved.  See NCLC’s Consumer and Worker Arbitration Provisions § 2.7.3.

If instead the consumer loses on enforceability of the arbitration requirement and the court stays the case pending arbitration, the consumer cannot appeal that ruling until the arbitration proceeding is resolved.  See NCLC’s Consumer and Worker Arbitration Provisions § 2.7.2. 

These appellate procedures may create such delay that even if the consumer prevails as to arbitrability, the case may no longer be worth pursuing. State rules for appealing state court decisions on arbitrability need not follow the federal rules, but many states’ procedures often do, so similar problems can arise in state court as well. See NCLC’s Consumer and Worker Arbitration Provisions § 2.7.5.

These appellate delays are eliminated by proceeding directly to arbitration. Interlocutory appeals in arbitration are sharply restricted, and there will be nothing for the defendant to appeal since the consumer is not challenging the arbitration provision.

3.  Arbitration Often Avoids Motions to Dismiss and Other Dispositive Motions

Defendants’ motions to dismiss or other dispositive motions in court litigation often cause excessive delay and complicate a case with technical objections, with the risk that the consumer will be prevented from putting on the case on the merits.  Such dispositive motions in arbitration are rare, and the granting of them even rarer. 

Arbitrators fear that an award for the defendant based on such a dispositive motion will be vacated for failure to hear material evidence as required under Federal Arbitration Act §§ 10(a)(3) and 12(a)(1).  Leading handbooks for arbitrators discourage such motions and arbitrators may even require a defendant to first file a motion for leave to file a dispositive motion with a supporting memorandum explaining why the motion will streamline a case. See NCLC’s Consumer and Worker Arbitration Provisions § 9.8.4.  Arbitration often allows the consumer to immediately present evidence supporting the consumer’s case.

4.  No Problems with Personal Jurisdiction Over the Defendant

If an arbitration proceeding’s venue is consistent with the arbitration agreement, the defendant has consented to arbitration in that location, based on service of process consistent with the arbitration provider’s rules. The case cannot be dismissed because of a lack of personal jurisdiction because the defendant has consented to be subject to the arbitration proceedings. 

5.  Companies Often Refuse to Arbitrate, Allowing Consumers to File in Court

After a consumer proceeds to arbitration, a surprisingly frequent result is that the defendant refuses to participate in the arbitration, giving the consumer grounds to bring the case in court, possibly even as a class action.

Consumer arbitration before the AAA requires the consumer to pay a filing fee of $225.  The business pays all other fees and costs: 

• $600 a year to keep the arbitration provision on the AAA’s registry, or $900 if the exact arbitration provision is not already on the registry;
• $375 filing fee;
• $1,400 case management fee;
• $500 hearing fee;
• The cost for any room rental;
• $300 an hour for arbitrator time, including the arbitrator’s study, hearing, and travel time;
• All arbitrator travel expenses;
• $2,400 if a hearing is cancelled with less than 48 hours’ notice. 

AAA arbitration will typically cost the business over $5,000 and often closer to $10,000, while costing the consumer $225. 

JAMS consumer arbitration can be even more costly for the business. The consumer’s total cost is $250.  The business’ filing fee is $2,000 and the business pays for all other costs, including the arbitrator’s hourly fee, which could easily exceed $300 an hour. The business also pays a case management fee of 13% assessed against all professional fees assessed, including the arbitrator’s time spent for hearings, pre- and post-hearing reading and research, and award preparation.

Things get progressively worse for a business where the arbitration provision does not pass AAA muster, or where the business does not pay all fees and participate in the AAA arbitration. AAA Consumer Arbitration Rule 1(d) provides that if the arbitration provision does not satisfy AAA’s due process protocols and the AAA declines to administer the arbitration, the consumer can then go to court to resolve the dispute.  By agreeing to AAA rules, the defendant has agreed that the consumer can proceed in court under those circumstances. SeeHernandez v. Microbilt Corp., 88 F.4th 215 (3d Cir. 2023).  Because this AAA decision should apply to all consumers subject to the same arbitration provision, the case can proceed in court as a class action. 

The business also may ask itself why it should pay almost $10,000 to resolve the consumer’s relatively small claim, encouraging the business to either settle or refuse to participate in the arbitration. But, if the business refuses to pay arbitration costs or participate in the arbitration, this again should be grounds for the consumer to bring the case in court, either as an individual or possibly a class action. See Cal. Civ. Proc. Code §§ 1281.97 to 1281.99 (West); NCLC’s Consumer and Worker Arbitration Provisions § 9.4.

6.  Turning the Tables on the Business’ Delegation Clause

The typical arbitration provision today delegates to the arbitrator the determination whether the arbitration requirement is enforceable as to the parties and the dispute (a delegation clause).  Frequently a court responds to a consumer’s challenge to an arbitration provision by simply referring the matter to the arbitrator, pursuant to a delegation clause.

The consumer can challenge the delegation clause with the court and, if successful, then can challenge the arbitration provision with the court.  If the consumer is successful on both challenges, the defendant may then file an interlocutory appeal.

Initiating the case instead in arbitration allows the consumer to take advantage of the delegation clause, challenging the enforceability of the arbitration provision before an arbitrator. As described above, this will cost the consumer $225 with AAA or $250 with JAMS but will cost the business well over $5,000 just to decide if the arbitration agreement is enforceable, with the business having very limited right to vacate a ruling for the consumer. If the arbitrator rules that the arbitration provision does not apply, the consumer proceeds to court without a concern about being forced into arbitration. Of course, an arbitrator may have a vested interest in ruling that the arbitration requirement is enforceable, assuming the business puts up the money to participate in the arbitration.

7.  Limited Review of a Punitive Damages Arbitration Award

When a jury awards punitive damages, a trial court may remit the award as excessive, and an appellate court may have to rule whether the award meets the Supreme Court’s due process restrictions, including a rough guideline that the award should be no greater than 9 times actual damages, as long as actual damages are substantial.  See NCLC’s Automobile Fraud § 8.11.3.

If an arbitrator makes a punitive damages award, the only challenge to the award is through a court action to vacate or modify the award. Grounds for doing so are sharply limited and it may be difficult to challenge the size of the award, even one far greater than a 9-to-1 multiplier.  Due process considerations do not apply because the arbitration proceeding is purely private and there is no state action. A court confirming or vacating a punitive damages award is not the type of state action that triggers due process rights. See NCLC’s Consumer and Worker Arbitration Provisions § 9.13.  The business, having picked its desired forum (arbitration), is hardly in a position to claim that the procedure is unfair.

8.  Very Limited Appellate Review of a Favorable Award

Appellate review of an arbitration award for the consumer is mostly limited to grounds specified by statute to vacate or modify an award. Review based on the award’s merits may not be possible or carefully circumscribed. See NCLC’s Consumer and Worker Arbitration Provisions § 11.4, 11.5.

9.  Class Arbitration, If Allowed, Places the Defendant at Great Risk 

Defendants often fear class arbitration more than class actions in court because of limited judicial review, no standing requirements, limited dispositive motions, potentially looser procedural requirements, more room for arbitrator discretion, and the like.  As a result, the typical arbitration provision outright bans class arbitration, and Supreme Court rulings protect such a provision.  AT&T Mobility L.L.C. v. Concepcion, 563 U.S. 333 (2011); American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013).

Matters are quite different when an arbitration provision does not explicitly ban class arbitration.  Since the typical arbitration agreement delegates to the arbitrator most arbitrability issues, it should be the arbitrator who construes the silent arbitration provision as to whether it allows for class arbitration. See NCLC’s Consumer and Worker Arbitration Provisions § 10.2.2.  If the arbitrator finds an intent to allow class arbitration, then the Supreme Court has ruled that courts should rarely overturn this ruling.  Oxford Health Plans, L.L.C. v. Sutter, 569 U.S. 564, 568–569 (2013).

10.  Mass Arbitration Can Be Highly Effective and Less Difficult Than You Think

When damages are not large and thousands of consumers are injured by the same practice, individual arbitrations are not viable to obtain relief for all injured consumers, and the arbitration provision will likely rule out class actions in court and class arbitration. In this situation consumers increasingly are turning to mass arbitrations, where numerous individual claimants bring largely identical individual arbitration claims against the same defendant at the same time before the same arbitration provider through the same lawyers. 

Bringing a mass arbitration has been aided by technological advances in case and client management software that have made sophisticated, large-scale tracking and communication cheaper and easier. Not only does mass arbitration offer a practical remedy for individuals, but it is also a procedure that businesses very much want to avoid.

At risk for the business is having to provide relief for potentially thousands or even tens of thousands of similarly harmed consumers, the very relief the defendant was trying to avoid in requiring arbitration.  In addition, the business must pay arbitration fees and costs for all of those thousands of individual arbitrations. Both the AAA and JAMS in 2024 enacted mass arbitration fee schedules that equalize to some extent the arbitration fees between consumer and business.  But a business’s costs can be considerable even under those fee schedules if the arbitration provision indicates the business will pay for its own arbitration fees and those of the consumer. 

When a law firm develops cost-effective and successful processes and automation for handling large numbers of largely identical claims, mass arbitration can have certain advantages even over class actions in court:

• Unlike class actions, mass arbitrations are not one-lose, all-lose (or one-win, all-win). Claimants’ counsel can continue to “try” cases until, through refinement, evidence accumulation, practice, or better arbitrator selection or management, until they begin to get results they believe are fair—and settle only then. The “re-usability” of discovery and briefing, for example, may make later cases more efficient.
• The best evidence can be used in each individual case, not just the common evidence as in class actions.
• Unlike class actions, individualized damages such as personal injuries and emotional distress can be recovered when otherwise allowed by law.
• Attorney fees in mass arbitration can be based on a contingent fee agreement between clients and the attorney.
• Settling a mass arbitration only affects clients participating in the settlement and does not release the claims of any other consumers who may not be part of that settlement and who may wish to litigate their claims further.

Obviously, one law firm bringing several thousand individual arbitrations raises issues as to resources and manageability. While modern technology and even AI may simplify this, it is recommended that those new to mass arbitration pair with firms with more expertise in the area. See also the mass arbitration practice tips found at NCLC’s Consumer and Worker Arbitration Provisions § 10.7.

Additional Resources

Individual arbitration step-by-step practice tips pointers: NCLC’s Consumer and Worker Arbitration Provisions Chapter 9.

Class arbitration law and procedures: NCLC’s Consumer and Worker Arbitration Provisions §§ 10.2–10.5.

Mass arbitration practice tips and responding to business attempts to evade mass arbitration: NCLC’s Consumer and Worker Arbitration Provisions § 10.7.