Uber Loses Appeal Challenging $91 Million in Mass Arbitration Fees

The Appellate Division of the New York Supreme Court just issued the latest significant ruling in the mass arbitration space, a litigation trend that has been gaining notoriety over the last year and a half.

In mass arbitration, plaintiffs' firms attempt to use companies' arbitration provisions as a weapon against them by gathering thousands of low-dollar-value consumer claims and asserting them individually in arbitration. Because the company is on the hook for the majority of administrative fees often exceeding $1,000 under the standard consumer arbitration rules of some of the major arbitration administrators – such as the American Arbitration Association (AAA) – merely paying these fees is extremely expensive even at the preliminary filing stages. Thus, plaintiffs' strategy is to bury the company in millions of dollars of obligatory filing, case management and arbitrator fees – due long before the merits of any claim are litigated – in an effort to extract a lucrative settlement.

Uber is among the handful of large companies facing claims in mass arbitration. In its April 14, 2022, opinion in Uber Techs., Inc. v. Am. Arb. Ass'n, Inc., No. 15732, 2022 WL 1110550 (N.Y. App. Div. April 14, 2022), the Appellate Division unanimously affirmed the trial court order rejecting Uber's motion for preliminary injunction, in which Uber sought to enjoin the AAA from issuing any additional invoices. The Appellate Division found that Uber failed to establish a likelihood of success on the merits of any if its claims because 1) it could not demonstrate that the AAA had breached any agreed-upon terms by failing to charge reasonable fees; 2) the AAA was fully within its rights under the Consumer Arbitration Rules to charge the fees; 3) Uber could not show any unlawful or unfair conduct by the AAA, as enforcement of the AAA fee schedule did not offend public policy and was not immoral or unethical; and 4) Uber could not seek a declaratory judgment when the remedy it was actually seeking was a monetary judgment.

Case Background

The case first arose in response to an initiative launched by Uber following the death of George Floyd, in which Uber announced it would waive delivery fees for Uber Eats customers who placed orders at certain Black-owned restaurants. The law firm Consovoy McCarthy PLLC then gathered more than 31,000 claimants who paid delivery fees to non-Black-owned restaurants and filed arbitration demands claiming that the fees constituted unlawful reverse race discrimination.

Uber's Terms of Use contains a provision mandating binding arbitration before the AAA and in accordance with the AAA's Consumer Arbitration Rules. Under the Consumer Arbitration Rules, Uber (as the corporate defendant) was required to pay a $500 filing fee, a $1,400 case management fee and a $1,500 arbitrator fee – for each individual case. For the 31,000 cases that Uber is facing, even after certain reductions in fees by the AAA, Uber was invoiced more than $91 million in arbitration fees.

When Uber challenged the enormous fees, the AAA invoked California Code of Civil Procedure §§ 1281.97 to 1281.99, an arbitration rule providing that a drafting party that fails to pay arbitral administration fees under the arbitration administrator's rules within 30 days is deemed to be in material breach of the arbitration agreement and is in default of the arbitration. The rule also allows the arbitrator to impose severe sanctions on the breaching party, including entry of default judgment, monetary sanctions and order of contempt. In response to the AAA's enforcement of the fees charged, Uber filed a complaint against the AAA and simultaneously filed the underlying motion for preliminary injunction.

Holland & Knight Can Help

Holland & Knight is one of the few large law firms with experience defending mass arbitration matters consisting of tens of thousands of individual claims before the AAA. We have a dedicated team of litigators, software engineers and computer programmers who designed and built a proprietary system for defending mass arbitration centered around efficiency and automation. Our attorneys understand the strategies of plaintiffs' firms and know how to combat them in a cost-effective manner. We actively counsel clients on the risks of mass arbitration and strategies to proactively protect against the threat.

If you have any questions regarding best practices for handling mass arbitration matters, please contact authors William Farley, Martin Durkin or Mark Melodia.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.