A Shift in Consumer Arbitrations?

Consumer arbitration has long operated under a fairly predictable framework. Businesses typically bear the brunt of the associated fees, particularly under agreements governed by the rules of providers like the American Arbitration Association (AAA) or JAMS. This approach is rooted in both fairness and practicality — most consumers would balk at initiating arbitration if they faced steep up-front costs just to have their claims heard. Recognizing this, many companies adopted cost structures that absorbed the lion’s share of administrative and arbitrator fees.

But the landscape may be starting to shift.

Fee Structures and the Leverage of Mass Arbitration

The traditional fee structure — where businesses pay the majority of the arbitration costs — has unintentionally given rise to a powerful tool for plaintiffs’ firms: mass arbitration. By filing thousands of claims simultaneously, often over alleged technical or procedural violations, firms can force companies to pay millions in arbitration fees before a single case is even decided on the merits.

This strategy can create significant pressure on companies to settle quickly, even when liability is unclear. While mass arbitration has opened avenues for consumers to vindicate rights that might otherwise go unpursued individually, it has also prompted businesses to reevaluate the economic realities of their arbitration clauses. That reevaluation has given rise to innovative — and potentially controversial — changes.

Starz Entertainment’s Novel Approach

One such change comes from Starz Entertainment, a subsidiary of Lionsgate and a prominent player in the digital streaming industry. Starz has implemented a customer agreement that takes a different approach to managing dispute resolution. This new contract includes a two-step process: first, a mandatory mediation conducted through JAMS, and only after that, arbitration may proceed.

But it’s not just the sequencing that’s notable — it’s the cost-sharing provision. Under the Starz agreement, the parties are required to split the costs of the mediation equally. That includes administrative fees and mediator compensation, which, in some cases, could amount to thousands of dollars per claimant. For a single dispute, such a provision might be reasonable. But in the context of mass arbitration, where thousands of consumers may have similar claims, the economics change dramatically.

The law firm Keller Postman, which represents approximately 100,000 Starz customers, has raised serious concerns. The firm contends that the agreement places a substantial financial burden on consumers, one that effectively obstructs access to arbitration by requiring significant upfront costs before a case can proceed. According to this view, what appears to be a procedural formality — mediation — becomes a gatekeeping mechanism that frustrates the fundamental promise of arbitration: a fair, accessible, and efficient path to resolve disputes.

Legal and Strategic Considerations

The Starz model raises numerous legal and strategic questions. Is such a fee-splitting provision enforceable? Does it run afoul of consumer protection laws or public policy? Will courts interpret it as an impermissible barrier to arbitration?

While no court had yet ruled on the specific Starz agreement as of February 13, 2024, the broader legal landscape suggests these provisions will be scrutinized carefully. Courts have historically invalidated arbitration terms that are deemed unconscionable or that effectively preclude consumers from pursuing their claims.

On the other hand, businesses may argue that mandatory, cost-sharing mediation is a reasonable step designed to resolve disputes early — before incurring the full expense of arbitration. From this perspective, mediation serves as a legitimate filter, allowing the parties to avoid unnecessary litigation while encouraging compromise and resolution.

Implications for Mass Arbitration

At its core, the Starz agreement appears to be a response to the increasing prevalence — and cost — of mass arbitrations. By requiring each claimant to bear a portion of the cost before reaching arbitration, the company may be attempting to deter bulk filings or at least ensure that claimants are serious and invested in their cases.

This is a calculated risk. If successful, it could alter the dynamic between corporate defendants and mass arbitration plaintiffs. Other companies may follow suit, adopting similar fee-shifting clauses and pre-arbitration mediation requirements. If courts uphold such provisions, the economics of mass arbitration could shift significantly.

On the flip side, if courts reject these provisions as unfair or coercive, companies may find themselves back at square one — facing the full financial impact of coordinated arbitration campaigns.

Mediation as a Pre-Arbitration Strategy

The increased use of mediation as a condition precedent to arbitration is noteworthy. Mediation remains one of the most effective and flexible tools in the alternative dispute resolution (ADR) arsenal. It offers a confidential setting where parties can speak openly, explore settlement options, and avoid the time and cost associated with a full hearing.

When used properly, pre-arbitration mediation can serve as a pressure-release valve, helping parties reach resolution without the adversarial posturing that often characterizes litigation. However, for mediation to be meaningful, it must be accessible. If the costs are prohibitive — especially for individual consumers — the process may become a barrier rather than a bridge.

This delicate balance highlights the importance of drafting ADR provisions with care and foresight. The language must be clear, fair, and adaptable to the realities of modern dispute resolution — including the rise of coordinated claims.

What Comes Next?

As of mid-February 2024, no court had rendered a decision on the enforceability of the Starz provision, but the challenge by Keller Postman has thrust the issue into the spotlight. Legal observers are watching closely. The outcome could set a precedent for future consumer arbitration agreements and influence how businesses structure their dispute resolution protocols.

Regardless of the outcome, the message is clear: the rules of engagement in consumer arbitration are evolving. Both companies and consumers must be prepared to navigate a shifting landscape — one that increasingly requires legal sophistication, strategic planning, and adaptability.

Conclusion

The Starz Entertainment arbitration model may represent the leading edge of a broader trend — one in which companies experiment with new ways to manage the risks of mass arbitration. Whether that trend will be curtailed by judicial intervention or embraced as a legitimate evolution remains to be seen.

In the meantime, businesses would do well to review their arbitration agreements carefully. Small changes in wording or structure can carry significant legal consequences. Likewise, consumers and their advocates must stay vigilant — ensuring that the rights guaranteed by arbitration agreements are not diluted by burdensome prerequisites or hidden costs.

For parties navigating this terrain — whether as consumers, corporations, or counsel — the guidance of a skilled and balanced neutral can make a substantial difference. Complex issues like fee-shifting provisions and mass arbitration strategy benefit from the insight of professionals who understand both the letter and spirit of ADR.

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