By George H. Friedman*
Several years ago I attended a speakers’ boot camp. The instructor had a habit of reacting to behavior that bothered him by exclaiming, “That’s just so irritating!” I’ve adopted that expression, which was easy to do since I’m so easily irritated. With that in mind, let me take to the soapbox about an irritating trend: the use of brick-and-mortar, paper-based, in-person arbitration by web-based, online businesses. Think about it: a company’s business is built on the web, lives on the web, thrives on the web, but when it comes to arbitration, brick-and-mortar is the order of the day. Mind you, my irritation has nothing to do with the fact that I chair Arbitration Resolution Services, Inc., an online ADR company. I’m irritated as a matter of principle.
It’s Uber’s Fault
What set me off most recently was Uber. While the mandatory predispute arbitration agreement (“PDAA”) in its contracts with drivers has garnered most of the attention lately, the PDAA in the passenger Terms of Service (“TOS”) was in the news lately. When users sign up online for Uber, they must accept the TOS which, among other things, contains a PDAA and class action waiver. In Meyer v. Kalanick and Uber Technologies, Inc., No. 15 Civ. 9796 (S.D.N.Y. July 29, 2016), Judge Jed Rakoff refused to enforce the PDAA because it did not give clear notice. What got my attention about the arbitration agreement was not that arbitration was required, but how it was to take place. The PDAA called for arbitration at the American Arbitration Association under its regular Commercial Arbitration Rules. The clause even refers the reader to a printing out a PDF and submitting a “written Demand for Arbitration.” And the clause refers to a physical hearing. Huh? Uber exists in the ether. I just don’t get it.
Uber is Not Alone
Uber is not the only offender. Here are just a few that come to mind:
Amazon: The PDAA in its Conditions of Use calls for the AAA Consumer Rules and states: “To begin an arbitration proceeding, you must send a letter requesting arbitration and describing your claim to our registered agent Corporation Service Company, 300 Deschutes Way SW, Suite 304, Tumwater, WA 98501.” I’m sorry. To begin an arbitration involving the mother of all web-based companies I have to print my claim form and send it by snail-mail?? Just asking….
Kayak: The web-based travel search engine has Terms & Conditions calling for the AAA’s Commercial Arbitration Rules. There’s no mention on online arbitration, and to start a case, the consumer “must first send to the Company, by certified mail, a written Notice of Dispute (‘Notice’).” It later says the Notice to Kayak “must be sent to email@example.com. Arbitration.” Not sure what that means.
If you elect to seek arbitration or file a small claim court action, you must first send to Netflix, by certified mail, a written Notice of your claim (‘Notice’). The Notice to Netflix must be addressed to: General Counsel, Netflix, Inc., 100 Winchester Circle, Los Gatos, CA 95032-1815 (‘Notice Address’).
If Netflix starts an arbitration, however, the Terms allow it to “send a written Notice to the email address used for your membership account.”
Priceline: The Terms and Conditions call for AAA arbitration, with a small claims carve out. But again, paper to start the case!
If you decide to seek arbitration, you must first send, by certified mail, a written Notice of Dispute (“Notice”) addressed to: Legal Department, priceline.com LLC, 800 Connecticut Avenue, Norwalk, CT 06854 (“Notice Address”) … A form to initiate arbitration may be downloaded here.
Snapchat: I give Snapchat credit for thinking about online ADR. While its Terms of Service also call for regular AAA arbitration, paragraph 17(c) says that cases involving less than $10,000 may utilize “non-appearance arbitration” at the option of the Claimant. If so, “the arbitration will be conducted by telephone, online, written submissions, or any combination of the three; the specific manner will be chosen by the party initiating the arbitration. The arbitration will not involve any personal appearance by the parties or witnesses unless the parties mutually agree otherwise.” Bravo!
What’s the Problem?
Mind you, I love and respect the AAA. I spent over 20 years at this venerable arbitration institution, many of them as a senior officer. I’m on its National Roster of Arbitrators. I’ve conducted webinars for it. But while AAA performs many functions online, it is not a completely online ADR service. And the problem is not the AAA. As a true believer, I’m pretty sure I’d be ok if these Terms of Service called for online ADR even if it wasn’t handled by ARS. But the thought of paper notices and attending hearings in person for companies built on the web is just so… irritating.
I said several things in past blog posts on this topic that remain true today. Is there a better way to conduct arbitrations short of all participants dragging themselves to the same physical location and using paper? I suggest there is – the Arbitration Resolution Services way. The ARS model is cloud-based, with the entire arbitration or mediation process being conducted online via the web. As I previously blogged, online arbitration offers solutions to the problems that have vexed litigants for years:
- Online ADR makes perfect sense where the entire relationship between the parties has and will be virtual. A completely web-based dispute resolution system helps all parties resolve these disputes in a faster, more efficient and less costly way than traditional arbitration or litigation.
- The ARS rules governing consumer disputes assume that cases will be decided by electronic review of documents without the need for a hearing.
- If a party wants to have a hearing, they can have a telephonic one or one conducted by Online arbitration hearings are scheduled for the convenience of the participants – they never have to leave their homes, offices or businesses. Hearings are conducted via phone and video conference.
- Documents are uploaded and stored securely in the Cloud.
In short, parties, counsel, and arbitrators can conduct an arbitration from start to finish without getting on an airplane, leaving their home or business, or for that matter using a postage stamp.
I suggest businesses whose mode of operation is virtual reconsider the flawed logic of requiring brick-and-mortar arbitration, with in-person hearings and use of paper. Not doing so would be just so irritating.
*George H. Friedman, an ADR consultant and Chairman of the Board of Directors of Arbitration Resolution Services, Inc., retired in 2013 as FINRA’s Executive Vice President and Director of Arbitration, a position he held from 1998. In his extensive career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President from 1994 to 1998. He is an Adjunct Professor of Law at Fordham Law School. Mr. Friedman serves on the Board of Editors of the Securities Arbitration Commentator. He is also a member of the AAA’s national roster of arbitrators. He holds a B.A. from Queens College, a J.D. from Rutgers Law School, and is a Certified Regulatory and Compliance Professional.
 But very slow to truly anger. Ask my kids.
 This is not another screed about mandatory consumer arbitration. Been there, done that. See, for example, What’s a Regulator to do? Mandatory Consumer Arbitration, Dodd-Frank, and the Consumer Financial Protection Bureau in the American Bar Association Dispute Resolution Magazine