Verizon’s $100M settlement poses challenge for mass arbitration critics

Verizon had two chances at the end of 2023 to defend a controversial corporate tactic to avoid paying millions of dollars in arbitration fees when companies are socked with thousands of consumer claims.

The telecom was poised to argue at both the New Jersey Supreme Court and the 9th U.S. Circuit Court of Appeals that its bellwether arbitration process — in which customers whose lawyers have filed more than 25 similar claims must arbitrate their cases in batches of 10, with settlement talks following the resolution of each batch of bellwether cases — is fair to consumers.

The repercussions of the Verizon (VZ.N), opens new tab appeals would have been huge. As you surely recall, most arbitration forums require companies to put up hundreds or thousands of dollars in upfront fees when a consumer files an arbitration demand. When plaintiffs’ lawyers amass hundreds or thousands of clients to file individual arbitration claims, those upfront fees quickly escalate into millions of dollars — and that’s before any determination on the merits of the consumers’ cases.

Companies have complained for years that plaintiffs’ firms abuse the leverage of these initiation fees to force them into unwarranted settlements. Spurred by the U.S. Chamber, some big corporations — including Microsoft (MSFT.O), opens new tab, Live Nation Entertainment (LYV.N), opens new tab and Altice USA (ATUS.N), opens new tab — have recently revised their consumer contracts to mitigate that leverage by requiring consumers to consent to arbitrate only a few cases at a time. That way, companies must only pay initiation fees for those few cases.

Verizon and other proponents of batch or bellwether arbitration contend that it’s a fair way to figure out the legitimacy of consumers’ claims. If consumers prevail in the first batch or two of cases, proponents argue, companies are likely to offer global settlements. Consumers with legitimate claims therefore end up better off, companies insist, because they receive settlement money that defendants would otherwise have to spend on arbitration fees.

But instead of making that pitch to the 9th Circuit or the New Jersey Supreme Court, Verizon quietly reached a $100 million settlement, opens new tab last month to resolve consumer claims that it deceptively tacked on administrative fees to customers’ monthly wireless bills.

Verizon, which continues to deny that its bills were deceptive or improper, resolved the dispute via a New Jersey state-court class action that mirrored similar class actions filed by the same plaintiffs’ firms in federal courts in San Francisco and in Trenton, New Jersey.

The state-court settlement, which received preliminary approval on Dec. 15, is on behalf of a nationwide class and will resolve all of the litigation against the company. (Full disclosure: My husband is a class member and filed a claim after he was sent notice of the deal.)
The deal received little attention at the time, perhaps because of a clause in the settlement agreement that barred class counsel from DeNittis, Osefchen, Prince and Hattis & Lukacs from issuing a press release or otherwise announcing the agreement to news organizations. Several news outlets reported, opens new tab on the settlement after claims notices were sent out earlier this year.

Neither Verizon spokespeople nor Verizon’s outside counsel from Quinn Emanuel Urquhart & Sullivan and Faegre Drinker Biddle & Reath responded to my query.

But I don’t see how the settlement can be regarded as anything but an acknowledgement that bellwether arbitration, at least as Verizon designed its program, is not an easy out for companies facing mass arbitration.

Because Verizon dropped its appeals as part of the agreement, three rulings remain the last word in its case. They’re all bad for bellwether arbitration proponents. In 2022, U.S. District Judge Edward Chen of San Francisco found, opens new tab Verizon’s arbitration contract to be unenforceable, in part because the batch process would require more than 100 years to complete for all of the 2,700 Verizon customers represented by DeNittis, Osefchen, Prince and Hattis & Lukacs to reach arbitration. A New Jersey intermediate appellate court reached, opens new tab the same conclusion in May 2023.

And, perhaps most consequentially for other companies that have adopted bellwether arbitration provisions, an American Arbitration Association arbitrator held, opens new tab in February 2023, after DeNittis, Osefchen, Prince and Hattis & Lukacs filed demands on behalf of about 2,700 clients, that Verizon’s bellwether process does not comply with AAA’s consumer protocols.

The arbitrator concluded that Verizon’s process unreasonably delays claimants’ cases, in contravention of the principle that AAA consumer arbitration is supposed to resolve disputes quickly. The arbitrator credited Verizon’s good faith in arguing that the bellwether process is intended to inform global settlement talks. But he said Verizon’s promises did not supersede the language of its consumer contract, which, “by its unambiguous language would result in extraordinary delays in the resolution of mass claims brought against Verizon,” the arbitrator wrote.

After the arbitrator’s decision, Verizon told, opens new tab AAA that it would waive its batching and bellwether requirements for the claims already filed by the DeNittis and Hattis firms. That was likely a strategic concession, since Verizon was at the time litigating to compel arbitration in the New Jersey class action, where U.S. District Judge Zahid Quraishi had put off a determination of the arbitration agreement’s enforceability.

But Verizon’s willingness to ditch the bellwether procedure when AAA expressed doubts about it is not exactly a ringing endorsement of batch arbitration.

Class counsel DeNittis was in court and unavailable for comment. Verizon’s settlement agreement said that plaintiffs’ lawyers will request $33 million in fees, which must be approved by the court.

It’s a bit ironic that Verizon ended up resolving consumers’ fee claims through a class action. Remember: Mandatory arbitration clauses in consumer contracts originated as a way for companies to avert class actions. It’s been about five years since plaintiffs’ lawyers turned the tables and began filing mass arbitration demands. Judges, for the most part, have been notably unsympathetic when companies argue that mass arbitration is an abuse of the process they forced upon consumers. Reuters