January 14, 2020 / 10:30 PM / 10 days ago

FanDuel wants N.Y. state court to shut down mass consumer arbitration

(Reuters) - In late November, the online fantasy sports sites FanDuel and DraftKings won a sweeping victory in multidistrict litigation alleging that they duped consumers about the odds of winning a contest at either of the sites. U.S. District Judge George O’Toole of Boston ruled (2019 WL 6337762) that consumers who agreed to the companies’ terms of service – which included a mandatory arbitration provision – must arbitrate their claims. Plaintiffs’ lawyers leading the MDL had argued that the FanDuel and DraftKings arbitration provisions were unenforceable, but Judge O’Toole agreed with the companies that threshold issues about their consumer contracts must be decided by an arbitrator, not by the court.

Last week, FanDuel filed a suit in New York State Supreme Court, seeking an order to halt 1,000 arbitration cases against the company. FanDuel’s suit contends that the arbitration demands were filed outside of New York’s statute of limitations for consumer fraud and that consumers’ potential damages are so small that their cases should have been brought in small claims court rather than at the American Arbitration Association. The company’s lawyers at ZwillGen argue that under New York law, which governs the company’s consumer contracts, state courts have the authority to conduct a threshold review of arbitration demands and to permanently stay claims the court deems to be untimely.

That’s right: Six weeks after persuading a federal judge that its arbitration clause requires threshold issues to be decided by an arbitrator, FanDuel is asking a different court to decide a threshold arbitrability issue.

FanDuel counsel Marc Zwillinger of ZwillGen said in an email statement that the state court suit was a “necessary” response to the tactics of Keller Lenkner, the plaintiffs’ firm that filed mass arbitration demands against the company. “Due to AAA’s fee structure - which is not designed for mass, identical filings like these - AAA won’t review the relevant aspects of these claims until companies pay millions of dollars in fees,” Zwillinger’s statement said. “AAA should fix these rules. In the meanwhile, New York law allows companies to ask a court to determine if the claims are time-barred before arbitration has to start. This procedural filing is designed to seek only that ruling.”

FanDuel’s New York state court suit does not address the same allegedly deceived consumers as its motion to compel arbitration in the MDL. The Keller Lenkner clients who have demanded arbitration against the company are not named plaintiffs in the consolidated litigation in federal court. In December, despite FanDuel’s timeliness arguments to AAA’s administrative staff, the arbitration service directed the company to pay $300,000 to move forward with the mass arbitration.

Instead of complying with AAA’s Jan. 10 payment deadline, FanDuel filed its petition to squelch the cases, asserting that New York law gives courts the power to halt arbitration that is filed too late.

Keller Lenkner thinks otherwise. “FanDuel’s attempts to avoid arbitration with our clients misstate the law and the facts,” said Keller’s Warren Postman in an email statement. “FanDuel avoided liability in federal court by telling the court that all disputes ... must be resolved exclusively in arbitration. But now that a significant number of consumers have filed individual arbitrations, FanDuel has run to court to argue that it should not have to face claims. (Its) tactics are a transparent attempt to transform arbitration from an alternative forum for dispute resolution into a get-out-of-jail-free card.”

As you know, Keller Lenkner has orchestrated mass arbitration campaigns against gig economy companies such as Uber, Lyft, Postmates and DoorDash, signing up thousands of workers to file demands for arbitration of their wage-and-hour claims. The firm’s arbitration cases against FanDuel – and, as I’ll explain, a parallel campaign against DraftKings – are different because they’re asserting consumer fraud. I’ve heard considerable skepticism in the consumer class action bar about the prospects of mass consumer arbitration because potential damages don’t warrant the expense of individual arbitration. Keller Lenkner seems to be betting, however, that consumers in the FanDuel cases are entitled to multiples of New York’s statutory damages of $500 if they can show they were duped by more than one allegedly deceptive ad. (The DraftKings cases are governed by Massachusetts law, which allows consumers to recover their actual damages.)

It’s worth watching the FanDuel litigation to find out whether mass consumer arbitration has a future. FanDuel is arguing that the filing of a class action does not toll the statute of limitations for an arbitration claim. Keller Lenkner hotly disputes that theory, but if FanDuel is right, it’s going to be harder for plaintiffs’ lawyers to amass consumers to bring mass arbitration demands.

FanDuel, like all of the other companies known to have been targeted in Keller Lenkner mass arbitrations, contends that the plaintiffs’ firm is engaged in a shakedown, attempting to leverage requisite arbitration fees to extract a settlement. Keller Lenkner first approached FanDuel and DraftKings in April 2019, notifying both companies that it had amassed thousands of clients who were prepared to file arbitration demands unless the companies agreed to global resolutions, according to a filing in the fantasy sports MDL in Boston federal court. At the time, FanDuel and DraftKings were awaiting a ruling from Judge O’Toole in the MDL on their motions to compel arbitration. Both companies held initial talks with Keller Lenkner but failed to reach a deal. In October, a month before Judge O’Toole granted the companies’ motion to compel arbitration, Keller Lenkner filed 1,000 arbitration demands against both FanDuel and DraftKings. The plaintiffs’ firm has since told the companies, according to FanDuel’s court filings, that it represents about 18,000 consumers who were allegedly deceived by their ads.

Unlike FanDuel, DraftKings is not facing an AAA deadline for fees on the 1,000 arbitration demands filed against it. According to a letter that DraftKings’ lawyers at Boies Schiller Flexner sent last month to Judge O’Toole in the MDL, AAA administrators determined that DraftKings’ arbitration provision did not comply with AAA consumer protocols. (The provision required consumers to arbitrate in Boston and to give up demands for punitive damages.) DraftKings declined to waive the problematic clauses so AAA said it would not hear the cases. At a Jan. 8 hearing before Judge O’Toole, lead counsel in the MDL argued that consumers must be allowed to proceed in court with claims against DraftKings because AAA had deemed their arbitration agreements unenforceable. Because AAA’s decision involved Keller Lenkner clients – and not named plaintiffs in the MDL - the judge said MDL plaintiffs should obtain their own rulings from AAA before he decides whether to allow them to litigate before him.

I reached out to DraftKings counsel Damien Marshall of Boies Schiller and to MDL lead counsel Hunter Shkolnik of Napoli Shkolnik; Melissa Emert of Stull, Stull & Brody and Jasper Ward of Jones Ward but didn’t hear back.

The views expressed in this article are not those of Reuters News.

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