Pay Up or Lawsuit Up: The 30-Day Countdown That’s Fueling Arbitration Disputes
Online businesses are increasingly facing a wave of arbitration demands under the California Invasion of Privacy Act (“CIPA”) and similar laws. Enterprising law firms have been at the forefront of this trend, filing claims on behalf of individuals who are often not genuine customers, but rather “litigation testers” or professional plaintiffs. Some law firms recruit claimants from advertisements on social media or elsewhere, often recruiting individuals to bring claims against multiple companies simultaneously. These claimants typically allege technical privacy violations, such as the use of website cookies, chatbots, or session replay tools, and then initiate arbitration demands, often en masse. The underlying strategy is not to resolve the merits of each claim, but to exploit the high cost of initiating and defending one or more arbitrations, thereby pressuring businesses into settlements regardless of the actual validity of the claims. Because the major arbitration providers charge businesses a fee for each case filed, businesses can often face tens or hundreds of thousands of dollars in fees simply to have their cases heard, even if the claims against them ultimately fail.
This development has placed a significant burden on well-intentioned businesses. Many of the arbitration demands are based on dubious or manufactured claims, yet the cost of responding to each individual arbitration—including substantial administrative and arbitrator fees—can quickly become overwhelming. As a result, the threat of arbitration is increasingly being used as a tool for extracting settlements, rather than for resolving legitimate disputes.
In this article, we will examine the legal framework that has enabled this trend, focusing on California’s 30-day arbitration fee payment rule and its potential consequences for businesses. We will then explore the arguments raised by major retail industry groups challenging the rule, review the appellate decisions in the Hohenshelt and Hernandez cases, and preview the upcoming California Supreme Court review that could reshape the landscape for consumer arbitrations in California.
California’s 30-Day Arbitration Fee Rule: Strict Deadlines and Harsh Consequences
California law, specifically Code of Civil Procedure sections 1281.97 and 1281.98, requires that businesses pay arbitration fees within 30 days of the invoice being issued by the arbitration provider, such as JAMS or AAA. In consumer and employment arbitrations, the business is typically responsible for a large part of these fees. In the mass arbitration context, the required payment can be substantial sums—tens or even hundreds of thousands of dollars—that not all businesses have readily available. If the business fails to pay within the 30-day window, the business may be in material breach of the arbitration agreement. The consequences can be severe: the claimant may withdraw from arbitration and proceed in court, and the business may be required to pay the claimant’s attorneys’ fees and costs. The statute does not permit extensions unless all parties agree, and there is no exception for inadvertent delay, substantial compliance, or lack of prejudice to the claimant.
Sections 1281.97 and 1281.98 single out arbitration agreements for uniquely harsh treatment, as no other type of contract is voided on such a hair-trigger basis for a minor delay in payment. Outside of the arbitration context, courts consider the facts and circumstances, including whether the delay was excusable or whether the other party was prejudiced. The law’s lack of flexibility in the arbitration context is also problematic, as it does not allow for any discretion or relief for excusable neglect, inadvertent error, or even situations where the payment is only a few days late due to circumstances beyond the business’s control, such as a payment lost or delayed in the mail or an invoice sent to a spam folder. Courts have held that even disagreement as to whether the amount of the fee is correct does not alter the strict interpretation of the 30-day deadline.
Appellate Decisions To-Date
The legal landscape surrounding California’s 30-day arbitration fee rule is sharply illustrated by the appellate decisions in Hohenshelt v. Superior Court and Hernandez v. Sohnen Enterprises, Inc. These cases not only highlight the practical consequences of the rule for businesses but also frame the core legal debate over federal preemption and the enforceability of arbitration agreements in California.
Hohenshelt v. Superior Court
In Hohenshelt, the dispute arose when an employer, Golden State Foods Corp., failed to pay arbitration fees within 30 days of receiving invoices from JAMS, the arbitration provider. The employee, Dana Hohenshelt, invoked Code of Civil Procedure section 1281.98, which deems such a failure a “material breach” of the arbitration agreement. Hohenshelt elected to withdraw from arbitration and return to court, seeking to lift the stay on litigation.
The Court of Appeal sided with the employee, holding that the statutory language was clear and left no room for discretion: if the drafting party (typically the employer or business) does not pay the required fees within 30 days, it is in material breach, and the claimant may proceed in court. The court rejected the argument that an extension granted by the arbitration provider could cure the breach, emphasizing that the statute only allows extensions if all parties agree. The court also found that the Federal Arbitration Act (“FAA”) did not preempt California’s rule, reasoning that the statute furthered the FAA’s objectives by preventing businesses from stalling arbitrations through nonpayment and ensuring a speedy resolution of disputes.
A notable aspect of the Hohenshelt decision is its strict, almost mechanical application of the 30-day rule, regardless of the reasons for late payment or the absence of prejudice to the claimant. The court’s approach was to treat the statutory deadline as absolute, with no exceptions for inadvertent delay, good faith participation, or even payment made shortly after the deadline. This rigid interpretation has significant consequences for businesses, as even minor administrative errors can result in the loss of the right to arbitrate and exposure to additional sanctions.
Hernandez v. Sohnen Enterprises
In contrast, Hernandez presented a different scenario. The employer, Sohnen Enterprises, paid the arbitration fees after the 30-day deadline, and the employee sought to withdraw from arbitration under section 1281.97. The trial court granted the motion, but the employer appealed.
The Court of Appeal reversed, holding that the FAA preempted California’s 30-day rule in this context. The court’s analysis focused on the “equal-treatment principle” established by the U.S. Supreme Court, which prohibits states from imposing special burdens on arbitration agreements that do not apply to other contracts. The court found that section 1281.97’s mandatory finding of material breach and waiver for late payment was an arbitration-specific rule that conflicted with the FAA. Under general contract law, whether a breach is “material” is a fact-specific inquiry, and courts typically consider the circumstances, including whether the delay was excusable or whether the other party was prejudiced. By contrast, California’s statute imposed a strict, automatic penalty for late payment, singling out arbitration agreements for disfavored treatment. The court held that the state law did not override the federal policy favoring arbitration.
What’s Next: California Supreme Court Review
These two cases encapsulate the current legal uncertainty facing businesses in California. Hohenshelt suggests that the 30-day rule is absolute and not preempted by federal law, while Hernandez holds that the FAA preempts the rule. The split in authority has led to confusion and inconsistent outcomes and ultimately creates pressure for businesses to settle non-meritorious claims or risk having to pay the claimant’s attorneys’ fees and costs as a sanction.
The California Supreme Court has granted review in Hohenshelt, with oral argument scheduled for May 21, 2025. The Court’s upcoming review of Hohenshelt could provide much-needed clarity for businesses and claimants alike. The decision may determine whether California can continue to enforce its strict 30-day rule in all consumer and employment arbitrations, or whether the FAA’s equal-treatment mandate will require a more flexible approach.
The outcome could have significant implications for businesses facing arbitration demands, especially in the consumer privacy context, where claimants may attempt to leverage the current statutory regime to pressure businesses into settlements.
We will continue to monitor this case closely and provide updates as the Supreme Court’s decision approaches. Virtually any business with a website faces potential CIPA or similar privacy claims, so those businesses with consumer arbitration agreements should review their arbitration provisions and consult with counsel regarding best practices for managing arbitration fee payments and mitigating the risk of arbitration exposure.
AAA Updates Consumer Arbitration Rules: What Businesses Need to Know
The American Arbitration Association (AAA) recently rolled out significant updates to its Consumer Arbitration Rules and Mediation Procedures, which took effect on May 1, 2025. These changes reflect AAA’s continued commitment to fairness, efficiency, and clarity in alternative dispute resolution. While AAA also revised its employment-related rules, this post focuses on what’s new for businesses handling consumer disputes.
Common types of claims that fall under the updated consumer arbitration rules include Telephone Consumer Protection Act (TCPA) claims, data privacy violations, false advertising, subscription billing disputes, warranty or product defect claims, and issues related to financial services or online transactions. Businesses operating in these areas should carefully review how the AAA’s revised procedures may affect dispute resolution outcomes.
Integrated Mediation Option
One of the most notable changes is the formal integration of mediation into the consumer dispute process. AAA’s newly launched Consumer Mediation Procedures (effective April 1, 2025) are now incorporated directly into the updated rulebook. This gives businesses and consumers a more accessible and cost-effective way to resolve disputes before arbitration becomes necessary.
Expanded Guidance on Claim Consolidation
The updated rules now allow AAA to consolidate multiple claims brought by the same consumer under a single contract into one case. Conversely, if claims stem from separate contracts, AAA can require them to proceed individually. While this administrative discretion initially lies with AAA, the final decision rests with the appointed arbitrator.
Virtual Hearings Now the Default
Acknowledging the evolution of remote dispute resolution, AAA’s revised rules now default to virtual hearings unless the parties agree otherwise, or the arbitrator orders an in-person proceeding. This adjustment can substantially reduce costs and logistical hurdles for both sides.
Enhanced Arbitrator Authority in Managing Disputes
The revisions also expand the powers of arbitrators to streamline the process. Arbitrators can now direct how parties exchange necessary information and enforce compliance through sanctions. These rules aim to ensure both fairness and efficiency while giving arbitrators tools to manage the process effectively.
Additionally, when there is disagreement over which arbitration clause governs a dispute, AAA will make an initial determination — subject to the arbitrator’s final decision.
New Appeals Framework
For consumer contracts that include an arbitration appeal process, AAA has introduced a formal rule to administer those appeals. The updated framework ensures that any appeal complies with the Consumer Due Process Protocol, and that fees and costs align with the Consumer Arbitration Fee Schedule.
Bottom Line
AAA’s updated Consumer Arbitration Rules mark a shift toward more streamlined, transparent, and consumer-friendly procedures. Businesses that rely on arbitration clauses should review these changes closely and consider how the integrated mediation procedures, virtual default settings, and new appeal framework could impact their dispute resolution strategies.
While this post focuses on the consumer rules, it’s worth noting that AAA made similar structural updates to its employment arbitration rules as well — another reminder for organizations to keep their arbitration practices current.
Fourth Circuit Holds That Federal Arbitration Act Trumps Servicemembers Civil Relief Act
In Espin v. Citibank, N.A. 126 F.4th 1010 (4th Cir. 2025), plaintiffs were retired servicemembers who had accrued large balances on their Citibank credit cards during service. Pursuant to the Servicemembers Civil Relief Act (SCRA), which requires that issuers of credit cards cap interest payable by military members, Citibank assessed plaintiffs interest of 6 percent or less while on active duty. But upon their leaving service, Citibank began charging plaintiffs standard civilian rates, a practice that plaintiffs argued amounted to a “veteran penalty” in violation of the SCRA. Plaintiffs also asserted a cause of action under the Military Lending Act (MLA), in addition to other federal and state law claims.
Citibank moved in the district court to compel arbitration, asserting that the terms and conditions of plaintiffs’ credit cards included an agreement to arbitrate disputes and a class arbitration waiver. The district court denied Citibank’s motion, holding that the language in 50 U.S.C. § 4042(a)(3) sufficiently evidences congressional intent to “proscribe waivers of the right to pursue relief as a class in federal court.” Espin, 126 F.4th at 1015. Thus, plaintiffs could proceed in federal court notwithstanding their agreements to arbitrate.
On appeal, the central issue was whether § 4042(a)(3) contains “‘a clearly expressed congressional intention’ to override the FAA’s instruction to enforce arbitration agreements.” Id. at 1016 (quoting Epic Sys. Corp. v. Lewis, 584 U.S. 497, 510 (2018)). According to the Fourth Circuit, it does not. § 4042(a)(3) states that a person “aggrieved by a violation of this chapter may in a civil action…be a representative party on behalf of members of a class or be a member of a class, in accordance with the Federal Rules of Civil Procedure, notwithstanding any previous agreement to the contrary.” According to the court, this provision is permissive, allowing for an aggrieved person to bring a federal class action despite an agreement to the contrary. But the SCRA as a whole does not even mention arbitration and this silence cannot be read as a prohibition on resolution of SCRA claims in a non-federal forum or the enforcement of agreements to arbitrate. The court remarked that congress knows how to override the FAA and has done so under other statutory frameworks—§ 4042(a)(3)’s silence as to arbitration cannot be given the same effect as an explicit mandate. See CompuCredit Corp. v. Greenwood, 565 U.S. 95, 103–04 (2012) (collecting cases). The Fourth Circuit also observed that legislative history—while not dispositive—supports its findings. In both 2019 and 2021, proposed revisions to the SCRA that would have prohibited arbitration of claims absent mutual consent were proposed and not enacted.
In contrast to the SCRA, the court noted that the MLA does manifest a congressional intent to override the FAA. In so holding, the Fourth Circuit joined the Eleventh Circuit, which last year found that “the MLA plainly overrides the FAA.” Steines v. Westgate Palace, L.L.C., 113 F.4th 1335, 1344 (11th Cir. 2024). A summary of the Steines decision can be found in the Winter 2025 edition of The Brief.
Espin clarifies that plaintiffs bringing claims under the SCRA will, at least in the Fourth Circuit, be bound by executed arbitration agreements. This clarification reaffirms the Supreme Court’s consistent refusal to “conjure conflicts between the [Federal] Arbitration Act and other federal statutes,” Epic Sys. Corp., 584 U.S. at 516–17.
2nd Circuit Holds Arbitration Treaty Trumps State Insurance Law
On May 8, the Second Circuit held that the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards trumps a Louisiana state law barring arbitration of insurance disputes in a pair of cases, Certain Underwriters at Lloyds, London et al. v. 3131 Veterans Blvd. LLC and Certain Underwriters at Lloyds, London et al. v. Mpire Properties LLC. In doing so the Second Circuit joined the First and Ninth circuits in ruling that the New York Convention’s provision on the enforcement of arbitration agreements is “self-executing” and, thus, preempts state law consistent with the Supreme Court’s decision in Medellín v. Texas.
The underlying dispute involved damage to commercial properties in Louisiana after Hurricane Ida hit the state in 2021. The insurance policies at issue provided for arbitration seated in New York applying New York law. After settlement discussions failed, the insureds filed suit in Louisiana, while the insurers moved to compel arbitration in the Southern District of New York.
Louisiana’s Insurance Code and subsequent jurisprudence bars enforcement of arbitration clauses in insurance policies. The Federal McCarran-Ferguson Act says that state insurance law controls over conflicting “acts of Congress.” Prior to Medellín, the Second Circuit treated federal treaty law, such as the New York Convention, as “acts of Congress” only if it required legislative action to be enforced, i.e., it is not self-executing. Applying these pre-Medellín rules, the district court found that the New York Convention was not self-executing and that Louisiana’s bar on enforcement of arbitration in insurance disputes reverse-preempted the New York Convention and the Federal Arbitration Act, preventing arbitration of the underlying dispute.
However, in Medellín, the Supreme Court established a different test for determining whether a treaty provision should be considered self-executing. “The Supreme Court did not confine its analysis to the narrow question of whether Congress enacted legislation purporting to implement the treaty at issue[.]” Rather the Court implemented a multi-factor test applying to individual provisions of the treaty to determine whether that provision was intended to take immediate effect in domestic courts.
Applying the Medellín factors to the relevant New York Convention provision, the Second Circuit found that Article II, Section 3 of the Convention – the provision related to the enforcement of arbitration agreements – is self-executing and not subject to statutory preemption rules like that in the McCarran-Ferguson Act.
This Court’s holding does not extend to purely domestic arbitrations, but parties to arbitration agreements with a foreign element can no longer escape arbitration of commercial disputes on statutory preemption grounds.
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Major Changes to AAA Employment Arbitration Rules: What Employers and Litigants Need to Know
Effective May 1, 2025, the American Arbitration Association (“AAA”) implemented significant revisions to AAA Employment/Workplace Arbitration Rules and Mediation Procedures. According to the AAA, these revisions aim to improve transparency, efficiency, and fairness in the arbitration process, while also addressing the evolving needs of workplace disputes. The changes carry important practical considerations for anyone involved in employment arbitration before the AAA. Below we discuss the key updates and what they mean for litigants.
1. Expanded Scope – More Disputes Covered
One of the most significant updates is the expansion of the rules’ scope. Previously, the rules were vulnerable to the argument that they only covered disputes between bona fide employers and their employees, leaving open the question of whether employment law claims brought by independent contractors would be subject to the AAA rules. With the new changes, the rules explicitly provide that they apply to all workplace and work-related disputes, including those involving independent contractors. This change bolsters the argument that arbitration agreements between independent contractors and hiring entities may be enforced under the same arbitral forum rules and procedures as those between employers and employees, which in turn may increase the odds that a reviewing court will compel arbitration of claims between an independent contractor and a hiring entity where the arbitration agreement references the AAA Employment/Workplace Arbitration Rules and Mediation Procedures.
2. Administrative Changes – Clarifying Case Management
The AAA has strengthened its arbitrators’ authority to decline or cease administration of a case if required administrative or arbitrator fees are not paid. This change largely falls in line with existing California state law (Code of Civil Procedure, section 1281.98), but now applies the California rule across the country. Failure to pay arbitration administration fees could now result in the AAA withdrawing from the process entirely, potentially pushing disputes into court. Employers, hiring entities, and their counsel should confirm that internal processes are set up to handle the prompt disposition of administration fees to avoid any potential disruptions to ongoing arbitration proceedings.
Additionally, similar to how the strengthened fee enforcement reduces the risk of parties stalling proceedings, the AAA has extended the automatic stay period from 60 to 90 days when a party seeks court intervention at the outset of a case. This change provides courts with more time to address important threshold issues before arbitration proceeds, helping ensure that early legal challenges are resolved without prematurely advancing the arbitration process. This change may also have significance for cases involving the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“EFAA”) or California Private Attorney General Act (“PAGA”), where there may be a need for a judicial determination as to the scope of arbitration if there is a disagreement between the parties.
3. Procedural Updates – Embracing Virtual Hearings and Streamlining
Reflecting the post-pandemic shift toward remote work, the AAA has made virtual hearings the default format in employment cases – though parties can still agree to in-person proceedings, or arbitrators can decide the format.
Additionally, the new rules allow the AAA to consolidate multiple claims brought by the same party in separate matters under the same contract. For employers or hiring entities facing such a scenario, this rule change will offer streamlined proceedings but also increase the complexity and potential exposure of a single arbitration.
4. Expanded Arbitrator Powers – Subpoenas, Depositions, and Sanctions
Under the newly revised rules, arbitrators have significantly enhanced authority, including the ability to:
Issue subpoenas for witnesses and documents[1]
Order depositions
Modify or clarify awards on their own or at the parties’ request
Impose sanctions for misconduct
The AAA also reworked Rules 21 and 22, which pertain to the exchange of information, to emphasize the arbitrator’s authority to grant necessary information exchange as required for a party to fairly present its claims and defenses.
Additionally, the AAA revised arbitrator authority for allowing motions, including dispositive motions. The former rules provided general guidance on the arbitrator’s authority to grant interim measures, while the revised rules explicitly outline the arbitrator’s authority to allow motions, including dispositive motions, thereby clarifying the scope and process for such motions.
5. Confidentiality and Transparency – What Will Be Published
Under the new confidentiality rules, arbitrators have authority to resolve disputes over confidentiality between parties. The AAA will continue to publish redacted arbitration award summaries and release quarterly data on employment caseloads.
The AAA’s rule revisions mark a meaningful shift in how employment disputes will be managed and resolved in arbitration. Whether you are an employee, independent contractor, or employer, understanding these changes is crucial to navigating the arbitration process effectively.
FOOTNOTES
[1] State and federal law place limitations on arbitrators’ subpoena powers. Under California law, although arbitrators generally have authority to issue subpoenas for both witness testimony and document production for arbitration hearing and depositions, pre-hearing discovery is limited to certain circumstances. (Code of Civil Procedure, section 1282.6). Similarly, the Federal Arbitration Act (“FAA”) permits arbitrators to compel witnesses and document only at the arbitration hearing, not for general pre-hearing discovery. (Federal Arbitration Act (“FAA”), 9 U.S.C. section 7).
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Manifest Disregard Discarded: Fifth Circuit Limits Grounds to Vacate Arbitration Awards
“Manifest disregard of the law” is no longer a valid basis to challenge arbitration awards, at least not in the federal courts of Texas, Mississippi and Louisiana. Rather, according to the Fifth Circuit’s decision in U.S. Trinity Energy Services v. Southwest Directional Drilling, 2025 WL 1218096 (Apr. 28, 2025, No. 24-10833), the grounds for challenging an arbitration award are limited to those grounds enumerated by Congress in the Federal Arbitration Act. Those include:
where the award was procured by corruption, fraud, or undue means;
where there was evident partiality or corruption in the arbitrators, or either of them;
where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
9 U.S.C. § 10.
Manifest disregard of the law, which is not included among the grounds for vacatur in the FAA, requires a party to demonstrate the arbitrator correctly stated or understood a proposition of law but then ignored it. Courts have historically been receptive to this argument and have recognized it as an additional, limited basis to set aside erroneous arbitration awards if none of the above-listed FAA grounds applied. This judge-made doctrine opened the door for losing parties to argue that an arbitrator’s decision should be set aside for ignoring the law in favor of the arbitrator’s “own brand of industrial justice.”
In U.S. Trinity Energy Services, the Fifth Circuit held that “manifest disregard of the law” is not a valid basis for vacatur and could not be used as “a backdoor for a party to seek judicial review of the arbitrator’s interpretations.” The Fifth Circuit also explained that the fourth statutory basis – where the arbitrators exceed their power – does not include “manifest disregard of the law”:
Grafting “manifest disregard of the law” as a basis for a losing party at arbitration to prevail under § 10(a)(4) would risk tension with Hall Street—and would run headlong into Oxford Health—by forcing us to conduct a less deferential review of a panel’s award than the FAA contemplates. Indeed, adopting Trinity Energy’s reading essentially would rewrite the question a judge must ask from “whether the arbitrators construed the contract at all” to “whether they construed it correctly.”
…
Like our court has held before, “the statutory grounds are the exclusive means for vacatur under the FAA.” Jones, 991 F.3d at 615 (quoting Citigroup, 562 F.3d at 355); see Dream Med. Grp., L.L.C., Old South Trading Co., L.L.C., No. 22-20286, 2023 WL 2366982, at *2 (5th Cir. Mar. 6, 2023) (per curiam) (“These limited circumstances do not include vacating an arbitration award based upon the merits of the claims that were heard by arbitrators.”). The text Congress enacted means what it says throughout § 10(a), and judicial reconfiguration of § 10(a)(4) would betray congressional intent. See Dream Med. Grp., 2023 WL 2366982, at *3 (appellant’s “§ 10(a)(4) arguments amount to an invitation for us to reassess the merits of the Panel’s decision, which does not fall under the limited text of § 10(a)(4) or support vacatur”). In short, we cannot substitute a court panel’s judgment in place of an arbitration panel’s decision by recognizing “manifest disregard of the law” as a basis for vacatur embedded within § 10(a)(4).
The U.S. Trinity Energy Services case involved a subcontract for construction of a natural gas pipeline. The arbitrators awarded the drilling subcontractor over $1.6 million in standby costs caused by COVID-19 and other delays. The prime contractor challenged the award claiming that it was inconsistent with certain provisions of the subcontract. The district court rejected that argument, and the Fifth Circuit affirmed. The arbitrators had considered the evidence, recited the relevant subcontract provisions, and considered their effects. The prime contractor failed to show that the arbitrators exceeded their power “by disregarding the subcontract entirely.” As such, the Fifth Circuit held that the arbitrators’ decision must stand, “however good, bad, or ugly.”
A full copy of the court’s decision is located here.
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Florida Appellate Court Calls Audible: Agency Principles Bind Sport Spectator to Arbitration Agreement in Electronic Ticket She Never Saw
On April 9, 2025, a Florida appellate court addressed whether a football game spectator had to arbitrate her claims under the terms of a ticket she did not buy or possess. Applying traditional agency principles, the court held she did.
In Miami Dolphins, Ltd. v. Engwiller, __ So. 3d __, 2025 WL 1064381, Florida’s Third District Court of Appeal addressed whether a football game spectator who gained access to the stadium when her mother displayed the electronic tickets for both of them was required to arbitrate her negligence claims against stadium management and the football team pursuant to the ticket terms. Following the U.S. Courts of Appeals for the Fourth Circuit (applying Maryland law) and Fifth Circuit (applying Texas law), the court applied traditional agency principles in reasoning that the spectator, a non-signatory, was bound to arbitrate.
Plaintiff filed a negligence action against the Miami Dolphins and stadium management for injuries she sustained at the Hard Rock Stadium in late 2022 after a fight broke out at a Miami Dolphins-Pittsburgh Steelers game. She gained access to the stadium with electronic tickets her mother accepted from her employer. To accept the tickets, her mother logged into the Dolphins Account Manager website, which displayed the following notice between the user log-in fields and the “Sign In” button: “By continuing past this page, you agree to the Terms of Use . . . .” The phrase “Terms of Use” was hyperlinked, bold, and in a contrasting aqua ink. That hyperlink directed users to the “2022-2023 Hard Rock Stadium Ticketback Terms,” which explained that the ticket was a revocable license to enter the stadium for the event, subject to the described terms that included a mandatory arbitration provision.
Pursuant to this provision, the team and the stadium owner moved to compel arbitration. The trial court denied the motion. The appellate court reversed in favor of arbitration. It first considered whether the mother had accepted the arbitration agreement and (1) determined that the phrase “Terms of Use” was conspicuous enough to put a reasonable user on notice and that Plaintiff’s mother assented to these terms when she claimed the tickets; and (2) rejected the Plaintiff’s assertion that the terms were merely “exemplars” and that a party seeking enforcement of an electronic contract must produce a screenshot from the same device used by the other contracting party.
Turning to the Plaintiff/daughter, the court determined that, although she never accessed or possessed the tickets, once Plaintiff allowed her mother to present the ticket on her behalf to enter the stadium, her mother acted as her agent. The court explained that all entrants to the stadium were required to agree to the conditions of the single-use license set forth in the terms and that finding otherwise would allow a guest to accept the benefits of that license without the related conditions.
Event attendees often purchase tickets on behalf of family and friends. In so doing, they accept the applicable terms. Traditional agency principles bind non-signatories to those terms, including arbitration provisions, when they use that ticket regardless of whether they access or possess it so long as the purchaser received notice of the terms.
Mistake No. 10 of the Top 10 Horrible, No-Good Mistakes Construction Lawyers Make: Not Treating Your Arbitrator Like Santa
I have practiced law for 40 years with the vast majority as a “construction” lawyer. I have seen great… and bad… construction lawyering, both when representing a party and when serving over 300 times as a mediator or arbitrator in construction disputes. I have made my share of mistakes and learned from my mistakes. I was lucky enough to have great construction lawyer mentors to lean on and learn from, so I try to be a good mentor to young construction lawyers. Becoming a great and successful construction lawyer is challenging, but the rewards are many. The following is the final No. 10 of the top 10 mistakes I have seen construction lawyers make, and yes, I have been guilty of making this same mistake.
Your and your client’s goal after a construction arbitration is to open the emailed award and be as happy as Ralphie, in the beloved movie A Christmas Story, when he opened up his Red Ryder BB gun Christmas morning. While he later almost “shot his eye out” while battling pirates in his backyard, the point is that he was a good boy all year, and it was up to Santa to review his behavior and decide if he deserved his desired BB gun. In any arbitration, your Santa is, of course, your arbitrator. While you may have presented the best case possible, there is no guaranty of your desired award/present under the tree. The mistake made by many lawyers is failing to treat the arbitrator like Santa to make it as easy as possible for that arbitrator to put you on the very nice award list. You need to – prior, during, and after the hearing – provide the best possible cookies and make it more likely for Santa to easily slide down the chimney to deliver that great award in your favor under the tree.
Some of these suggestions below are equally applicable to trial judges, but never forget that most construction arbitrators are not full-time neutrals and are concurrently practicing as a lawyer representing clients. Yes, there are non-lawyers on many panel lists (like the AAA), but the use of any non-lawyer on a three-person arbitration panel is very rare these days. One of the most touted benefits of arbitration is that the experienced arbitrators are experts in construction and can sift through irrelevant evidence and arguments as opposed to a judge (or jury) who may have zero experience in construction.
Know your arbitrator’s likes and dislikes. Santa does not want fish sticks left by the tree; he wants milk, really good cookies and fresh carrots for his reindeer. All arbitrators have their own likes and dislikes, and doing something before, during or after a hearing that is a “dislike” is a bad idea. While you vetted potential arbitrators during the selection process, once chosen, you need to do so all over again. You should be able to get some good information since most of the better-known arbitrators are those that are chosen more often. Reach out within your firm as well as to your construction colleagues. What kind of scheduling order does she prefer? What about handling discovery disputes and dispositive motions? Any preferences for how exhibits are put together? What about “hot boxing” experts (testifying back to back)? Is a time clock used for witnesses (and to reign in long-winded lawyers)? More importantly, are there are any known tendencies on specific issues (like delay damages)? Is there an oft-used arbitrator who is unbelievably hard on parties in their presentation about meeting their burden of proof on damages, even with the informality of arbitration and where the rules of evidence may not be strictly enforced?
Wear the white hat in pre-hearing matters, and don’t be a jerk. Arbitrators hate discovery disputes and ego fights between lawyers just as much as judges. I have found that because as an arbitrator I am not an elected judge, and arbitration is informal, this brings out the jerk in some lawyers. Being a zealous advocate is not the same. Will being difficult help your client? You are building your credibility with the arbitrator in every pre-hearing filing and in-person or telephonic hearing.
Don’t forget that the arbitrator is a construction expert. You helped choose the arbitrator because of his or her expertise. This is not a trial judge who, as in the middle of a bench trial years ago where I was counsel, called the lawyers up and asked, “I keep on hearing about something called a ‘pay application.’ What is that?” In a large multi-week arbitration where I served as chair, one of the lawyers during a direct examination went on for 30 minutes getting the witness to talk about certain construction processes as if the panel were a bunch of fifth graders. As nicely as I could, I interrupted the lawyer and said that he could move on and that the panel did not need to be educated on that topic. Did that impact his credibility? Yes, it did, but the panel did not penalize his client for such a stupid waste of time. Santa knows that time is money, and he has other houses to visit.
Remember the arbitrator is drinking through a fire hose of facts and exhibits. While you have been living with the case and know the thousands of pages of the project and the hundreds of exhibits, remember that the arbitrator is hearing testimony and reviewing exhibits for the first time when the hearing begins. Yes, there may have been dispositive motions and a pre-hearing brief, but when the hearings start, the arbitrator is listening to testimony, making notes, and juggling exhibit books. The lesson? Take your time with your examinations. Slow down. Make sure the arbitrator is caught up to where you are. Provide a brief summary before an examination of what areas you intend to go over, as well as what exhibit books you will use. Santa wants time to understand the house, the living room’s layout, and where best to put the presents.
Create a joint set of exhibit books. The previous blog post, No. 9, emphasized the many benefits of working with the opposing counsel and creating a joint set of exhibit books. Most good arbitrators require such a process, and it stops the problems (delays and confusion) of each side showing up with its own 20 thick exhibit binders when 75% of the exhibits in each set of binders are the same.
Identify the exhibit books you will be using before an examination. Do not wait until you begin a witness examination (direct or cross) to specify which book you will be using. Tell the arbitrator (and counsel) before you start which books you will be using so everyone can pull out those books and better follow your examination. Again, this eliminates all sides going back and forth to find the applicable witness books.
Consider creating witness exhibit books. This may seem counterintuitive if the goals is to limit the number of books, but if you have a witness with a small number of exhibits that are scattered among multiple books, consider putting together an exhibit book for that witness that has the exhibits already numbered (as well as what books they are in).
Color code the exhibit books on the front and the spine. Most counsel use the same black exhibit books. While there may be a label on the front and sometimes the spine, especially if there are multiple books, there can be confusion and time wasted. Using a different color code on the labels, or even different color binders, can help efficiency (“Please go to book 5, the red one”).
Make sure each page in each exhibit is numbered. While many of the exhibits will have their own numbers, confusion and delay occur when, for instance, there is an exhibit that has 20-60 pages, but the individual pages are not numbered. This happens with photos, long text streams, and multiple invoices. There is nothing more frustrating for an arbitrator (and a witness), and it disrupts an examination, for the lawyer to say: “Please turn to book 18, exhibit 135, and if you go about a fourth of the way in, you will see a picture that looks like…” And no one can find it. Worse, halfway through your “Perry Mason-like” cross examination about that picture, the arbitrator says, “Counsel, sorry, I must have been looking at the wrong picture. Can you orient me?”
Make good decisions on what exhibits go into your books, and keep up with what exhibits have been used in the hearing. The arbitrator understands that since there is limited pre-hearing discovery in most arbitrations (sometimes no depositions), the tendency is to include every document or email. But be careful not to dump scores of exhibits into books that may not have even been used. This will impact your credibility. And pay close attention to what exhibits are used during the hearing. It may be (again, treat your arbitrator like Santa) that with everyone’s cooperation, there can be scores of exhibits removed from books, or even complete books can be withdrawn.
Ralphie deserved his BB gun, but not the destruction of his family’s turkey by the next- door neighbor’s coon hounds. By thinking about and implanting the many ways to make your arbitrator’s decision-making more efficient, you create credibility for yourself and your client and will increase the likelihood of an excellent Christmas morning.
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District Court Holds Withdrawal Liability Claim Not Barred by Employer’s Dissolution
In Central States, Southeast & Southwest Areas Pension Fund v. Sheets Enterprise, No. 24 cv 2277 (N.D. Ill.), a district court held that an employer could not avoid being held liable for withdrawal liability simply because it had been dissolved under state law. The decision is instructive because it shows the limits that state law dissolution proceedings may have in avoiding obligations like withdrawal liability that are created by federal law.
Background
Sheets Enterprises (“Sheets”) was a Kentucky corporation that contributed to the Central States Pension Fund (the “Fund”). In late-2016, Sheets ceased all operations for which contributions were required to the Fund, thereby effecting a complete withdrawal, and the next year, Sheets filed a notice of dissolution with the Kentucky Secretary of State. The Fund only learned of Sheets’ withdrawal and its subsequent dissolution in May 2023, nearly six years later. In November 2023, the Fund assessed Sheets with $675,000 in withdrawal liability and commenced suit when Sheets failed to pay.
Sheets did not commence arbitration to challenge the withdrawal liability and instead presented two principal arguments in the collection litigation. First, it argued that the court lacked personal jurisdiction to entertain suit against a dissolved corporation. Second, Sheets argued that the Fund’s claim had been extinguished as part of dissolution proceedings under Kentucky state law. Those laws provide that a dissolved corporation may dispose of claims against it if it publishes notice of its dissolution and no potential claimants sue within two years. Sheets argued that because it published its notice in 2017, and the Fund had failed to file suit to collect the withdrawal liability within the next two years, any further efforts by the Fund to collect the liability were time-barred.
The District Court’s Ruling
The district court rejected both defenses and entered judgment in favor of the Fund. The Court held that dissolved corporations retain the capacity to sue and be sued under Kentucky law, and thus there was no basis for Sheets’ contention that the Court lacked personal jurisdiction over it. The Court also held that ERISA preempted any limitations period under Kentucky’s dissolution statutes. Under ERISA, suits to collect withdrawal liability must be brought within six years after the cause of action arises or within three years of the date the plaintiff acquires knowledge of the cause of action. The Court held that the statutory limitations period could not be shortened by Kentucky state law.
Proskauer’s Perspective
The Court’s ruling is another example of the broad scope of ERISA’s preemptive reach. Employers that intend to dissolve and wind up their affairs should be especially mindful of the decision, as those proceedings may not be sufficient to dispose of claims for withdrawal liability owed to multiemployer pension plans.
The Performance Review- Arbitration Agreements – What, Why, and How [Podcast]
GT Shareholders Brian Kelly and Michael Wertheim discuss changes in California’s employment arbitration landscape and its integration with federal law. (Plus, would Col. Nathan Jessup’s famous courtroom soliloquy have the same impact bouncing off the four corners of a conference room at an arbitration proceeding?)
GT’s The Performance Review – California Labor & Employment Podcast is a discussion on the latest trends and developments in California Labor & Employment law.
When Headless PAGAs Attack!
As we reported here, a split in authority has developed in the California Court of Appeal regarding what to do when an employer moves to compel arbitration of a Private Attorneys General Act (PAGA) that is “headless”—that is, a claim seeking penalties on behalf of all allegedly aggrieved employees except the named plaintiff. (This is the latest trick the plaintiff’s bar has come up with in an effort to thwart enforceable arbitration agreements, because if there’s one thing plaintiffs’ lawyers hate, it’s arbitration!)
In Leeper v. Shipt, Inc. the court held that a PAGA claim cannot be headless, so in this circumstance, the “individual” PAGA claim is implied, and can be compelled to arbitration. On the other hand, Parra Rodriguez v. Packers Sanitation, Inc. held that a court must take the complaint as it finds it and cannot “imply” an individual PAGA claim that was not pled.
The California Supreme Court has granted review of Leeper to answer two questions:
Does every PAGA action necessarily include both individual and non-individual PAGA claims, regardless of whether the complaint specifically alleges individual claims?
Can a plaintiff choose to bring only a non-individual PAGA action?
As we previously noted, Leeper held that a plaintiff could not bring a headless PAGA claim, while Parra Rodriguez simply avoided the question altogether. The California Supreme Court is now poised to answer that underlying question. The stakes are high, because if the California Supreme Court blesses the headless PAGA device, it will provide yet another avenue for arbitration-bound employees to avoid their arbitration agreements completely.
It is perhaps notable that the Supreme Court denied a motion to de-publish Leeper pending review—i.e., it can still be cited as authority to trial courts pending the Supreme Court’s ruling. Thus, Leeper remains persuasive authority, and litigants may continue to cite it in lower courts and may argue that courts should follow Leeper and not Parra Rodriguez (to the extent those decisions conflict).
We will monitor this case closely and report on further developments.
Health Care Litigation: Seven Considerations in Forum Selection
Choosing where to resolve a health care dispute can be overwhelming at first glance. After all, in addition to determining where a case can be brought in the first place, there is the question of where it should be brought. The answer will vary based on each case’s unique situation. However, there are at least seven factors that should be considered in all cases.
1. Favorability and Availability of Precedent
Generally, the law will not meaningfully vary between federal jurisdictions or even their state-court counterparts. Nevertheless, researching how the law operates in the various courts may be the difference between winning and losing in a particular case. Whether it is because the law itself is different, the law has been interpreted differently, or there is simply a lack of favorable precedent in one jurisdiction and an abundance in another, there are many ways the law in a particular forum may compel a winning or losing result.
Similarly, particularly complex cases brought before courts with little experience in such cases may result in unexpected or disadvantageous decisions. Consequently, if there is limited precedent in a particular forum, it may be more advantageous to resolve the dispute in another court that regularly deals with the type of case presented, even if precedent in the other forum is slightly less favorable.
2. Evidentiary Considerations
Federal courts, state courts, and arbitration proceedings each may employ different rules of evidence. Federal courts are required to adhere to the Federal Rules of Evidence, while state courts and arbitration proceedings are generally free to adopt any evidentiary rules. Although the rules are often similar, which set of rules is utilized can ultimately influence a particular case’s success, especially in health care litigation.
Consider, for example, that under the Federal Rules portions of learned treatises—referring to a published work considered authoritative in its field—may be used as substantive and impeachment evidence.[1] In contrast, in some state courts, such as Florida, learned treatises may only be used as impeachment evidence. Thus, if a particular case hinges on the fact finder relying upon a learned treatise to prove or disprove a fact or issue, evidentiary considerations suggest the case would be better litigated in federal court.
3. Resolution Speed
Arbitration proceedings are favored for their speed and efficiency as compared to traditional litigation in federal and state courts. Indeed, according to a 2017 published study administered by the American Arbitration Association, cases adjudicated by arbitration take on average 11.6 months to get to trial.[2] Meanwhile, the median time in 2024 for a civil case to get to trial in federal court was 31 months.[3] This efficiency is typically the result of focused discovery, streamlined procedures, and flexible rules. Quickly resolving litigation may be particularly important to health care companies because litigation may impact a company’s valuation, which can have downstream consequences for a merger or acquisition, or ability to borrow.
That said, not all federal and state courts are created equal. Some courts are known for their speedy resolution of cases, such as the Eastern District of Virginia, which in 2024 reported taking a median time of 14.2 months from the filing of a case to the start of a civil trial.[4]
4. Convenience
Parties, witnesses, experts, counsel, and locations pertinent to the litigation may be far away from where a particular courthouse is located. This distance can make it difficult for parties to gather evidence and participate in court proceedings. In arbitration, parties typically agree on where the proceeding will take place to avoid these burdens, and the proceeding may occur in less formal locations, such as a conference room.
5. Costs
Because litigation tends to take longer than arbitration, there will be greater legal fees involved when taking a case to trial. These legal costs will further increase if a case is appealed, which is often unavailable for arbitral decisions except on limited grounds.
Additionally, costs associated with gathering evidence and traveling to court proceedings will be reduced if one courthouse is closer than another. Keep in mind that each court system may charge different fees, and fee amounts can quickly add up.
6. Privacy
Most court proceedings are open to the public, absent certain crimes and cases involving minors. In contrast, arbitration proceedings are held in private. Keep in mind, however, that private does not mean confidential. Thus, although arbitration proceedings are generally conducted behind closed doors and away from the media, parties may be free to disseminate information related to the arbitration.
7. Probable Necessity of an Appeal
If a party anticipates their success will depend upon an appeal, perhaps because of a need to overturn a statute or precedent, arbitration will not likely be advantageous because an arbitrator’s decisions are generally binding on the parties and only appealable on limited grounds, such as fraud, misconduct, or bias. In contrast, state and federal trial court decisions are routinely appealed on substantive, procedural, and constitutional grounds.
In summary, choosing where to resolve a health case dispute is an important and complex decision. An experienced health care attorney can offer thoughtful and insightful advice to help guide you through every step of the decision.
[1] See Fed. R. Evid. 803(18).
[2] Roy Weinstein et. al., Efficiency and Economic Benefits of Dispute Resolution through Arbitration Compared with U.S. District Court Proceedings, Micronomics Economic Research and Consulting (March 2017), 2, http://go.adr.org/rs/294-SFS–516/images/Economic%20Impact%20of%20Delay%20Micronomics%20Final%20Report%20%282017-03-07%29.pdf
[3] United States Courts, https://www.uscourts.gov/data-table-numbers/c-5 (download the Excel spreadsheet “U.S. District Courts – Median Time From Filing to Disposition of Civil Cases, by Action Taken” for the period ending December 31, 2024), Column K, Row 8.
[4] Id. at Column K, Row 37