It’s Time To Reform Mass Arbitration

May 2, 2025 | Ken Hagen

Mass arbitration is facing increased scrutiny, as companies push back against escalating arbitration costs incurred when plaintiffs firms file hundreds or thousands of individual arbitration claims against them at once.

Recent lawsuits involving Sega of American Inc., Janie & Jack LLC, and social gaming operators Zula and Sportzino highlight the need for mass arbitration reform.

These cases raise concerns not only about financial sustainability, but also about the integrity of the arbitration process itself.

A System Being Deluged With Claims

Companies have long turned to arbitration as an alternative to litigation, valuing its efficiency and cost-effectiveness. However, corporations argue that in recent years, some plaintiffs firms have begun leveraging arbitration agreements in a way that exploits the system for financial gain.

The core issue is simple: When a company agrees to an arbitration clause, it typically assumes it will face a limited number of claims at any given time. But plaintiffs firms have used mass arbitration to challenge companies with hundreds or thousands of claims simultaneously, triggering substantial upfront filing fees and administrative costs.

Sega’s $39 Million Arbitration Bill

One of the most prominent recent cases of this type is Sega of America Inc. v. Judicial Arbitration and Mediation Services, filed in Los Angeles County Superior Court on Jan. 27 by Sega, which found itself facing an $39 million invoice from JAMS.

The source of the dispute? Nearly 20,000 arbitration claims filed by the law firm Consovoy McCarthy. Sega alleges that the firm, in partnership with Troxel Law LLP, solicited claimants through aggressive online advertising, using social media platforms like Instagram, Facebook and YouTube to encourage gamers to sign up by promising financial payouts.

Sega’s lawsuit contends that thousands of these claimants were fraudulent, with as many as 8% flagged by data analytics experts as nonexistent, victims of identity theft, or having provided fabricated contact information. Sega’s response was to sue JAMS for breach of contract, arguing that the arbitration provider was charging for services it could not adequately provide.

Additionally, Sega filed a tortious interference claim against Consovoy McCarthy, alleging that the firm encouraged claimants to breach Sega’s end-user license agreement by filing a consolidated petition instead of individual claims.

Janie & Jack’s Fight Against Unexpected Mass Arbitration

Children’s clothing brand Janie & Jack found itself in a similar battle when more than 2,000 individual claimants filed for arbitration through law firm Zimmerman Reed.

In Janie & Jack LLC v. Abbasi, a suit filed on Feb. 24 in the U.S. District Court for the Northern District of California, the company alleges that these filings were not meant to seek legitimate resolutions, but rather to drive up costs and spur a quick settlement.

According to Janie & Jack, the American Arbitration Association invoiced the company for $3.5 million in upfront arbitration fees — an amount far exceeding what the company would have faced in traditional litigation. The company’s lawsuit argues that many claimants never actually agreed to the company’s arbitration terms, and that Zimmerman Reed used mass filings to force a payout.

Zula’s and Sportzino’s Accusations of Fraudulent Claims

The operators of social gaming websites Zula and Sportzino — SCPS LLC and SSPS LLC, respectively — filed suit last year against Kind Law and Ben Travis Law in the U.S. District Court for the District of Columbia, claiming the firms recruited arbitration claimants through misleading advertising.

According to the complaint in SCPS v. Kind Law, these law firms launched extensive online campaigns encouraging users to submit claims, despite many of them never authorizing legal action. Zula and Sportzino allege that the firms were focused not on achieving fair resolutions but on leveraging arbitration rules to extract settlements.

The case was dismissed by the D.C. district court on March 7. But the companies filed suit on Feb. 25 in the New York State Supreme Court, accusing the law firms of malicious prosecution, tortious interference and prima facie tort.

Samsung’s Response to Mass Arbitration Campaign

Another case that has drawn significant attention is Wallrich v. Samsung Electronics America Inc., originating in the U.S. District Court for the Northern District of Illinois. The case arose when Samsung faced mass arbitration alleging defects in its products.

Like Sega and Janie & Jack, Samsung argued that the volume of filings was not a reflection of genuine consumer grievances but rather a strategy designed to force settlement through overwhelming arbitration costs. While the district court ruled for the AAA, the U.S. Court of Appeals for the Seventh Circuit reversed that decision in July 2024.

This case, like the others above, underscores the growing concerns among corporations about the financial burden imposed by mass arbitration and the need for procedural reforms to ensure fairness and efficiency.

Reforming Mass Arbitration

While mass arbitration can be a legitimate avenue for claimants to seek redress, the current landscape demonstrates that unchecked mass filings create financial and administrative burdens that undermine the purpose of arbitration.

Companies, arbitration providers and legal professionals need to explore solutions that balance fairness with efficiency. Below are some proposed approaches.

Early Case Filtering and Common Issue Resolution

One of the primary problems with mass arbitration is the inability to screen out meritless claims before incurring massive fees. Adopting a process where an independent panel of experienced judges or arbitrators can evaluate claims at an early stage could reduce unnecessary filings.

By implementing a prescreening process — similar to the multidistrict litigation framework used in federal courts — arbitration can remain fair while preventing meritless claims. This would allow arbitrators to consolidate cases with common legal issues, ensuring that claims are treated consistently, rather than being subject to the variability of batch or bellwether arbitrations.

A significant step in this direction came from the Jones v. Starz Entertainment LLC decision, where, on Feb. 28, the U.S. Court of Appeals for the Ninth Circuit affirmed a lower court’s ruling that arbitration providers could consolidate cases with common legal and factual questions.

This precedent highlights the importance of empowering arbitrators to manage mass claims more effectively, reducing redundancy and improving fairness.

Stronger Affirmation Requirements

One of the reasons companies are facing mass arbitration crises is the ease with which claimants can sign up, often through automated or misleading advertising.

Requiring stronger affirmation standards — such as requiring plaintiffs to personally verify claims under the Federal Rules of Civil Procedure Rule 11 standard — would help ensure that only valid claims move forward.

Adjusting Arbitration Filing Fee Structures

Currently, companies are responsible for significant upfront filing fees, even when claims are later found to be meritless. Some have suggested a shift in the way fees are structured, such as requiring plaintiffs firms to cover initial filing costs that are later reimbursed if claims are validated.

Another approach could be a tiered system, where fees are based on the legitimacy of the claims as determined by an initial review panel.

Opt-In Versus Opt-Out Arbitration Models

Many of these disputes arise from arbitration clauses embedded in standard user agreements.

Some experts have proposed shifting to opt-in arbitration models, where customers must proactively agree to arbitration rather than having it imposed by default. This could reduce mass filings by ensuring that only those who genuinely want arbitration take part.

Expedited Resolution Procedures

Another way to avoid runaway costs is to adopt more efficient arbitration procedures.

Expedited arbitrations, which involve simplified evidence submission and faster decision-making, can help resolve disputes more quickly and cost-effectively.

Striking a Balance: Fairness for Both Sides

Critics of mass arbitration reform argue that restricting filings could unfairly disadvantage claimants — particularly consumers with legitimate grievances.

It is important to recognize that arbitration, at its core, is meant to provide a fair and accessible alternative to court litigation. Any proposed solution must balance the need for efficiency with the right of claimants to seek justice.

By adopting early case filtering, implementing stronger verification requirements and reconsidering fee structures, the arbitration process can become more sustainable for all parties involved. Arbitration shouldn’t be a financial weapon — it should be a tool for fair and efficient dispute resolution.

As the recent lawsuits against Sega, Janie & Jack and social gaming companies demonstrate, the current system is at a breaking point. Now is the time to rethink mass arbitration — before the costs spiral out of control for everyone.

How FedArb is Addressing

These ConcernsFedArb has taken proactive steps to ensure that mass arbitration remains fair, efficient, and cost-effective. By enforcing Rule 11 affirmation requirements and implementing an early case assessment process led by former Article III judges, FedArb promotes procedural integrity and streamlines case management. Additionally, FedArb’s ADR-MDL™ process consolidates common legal issues, reducing redundancy and ensuring uniform resolution. FedArb’s approach minimizes financial risk while maintaining a fair process for all parties, allowing cases to be resolved more quickly and cost-effectively than traditional arbitration providers. Learn more about mass arbitrations with FedArb.

This article was originally published in Law360 on April 24, 2025. Kennen D. Hagen is the president and CEO at FedArb.