Sega Mass Arbitration Settlement: Lawsuits, Dismissal, and New Terms

The Sega mass arbitration settlement ended a dispute that began in April 2024, when the law firm Consovoy McCarthy PLLC filed 19,541 individual arbitration demands against Sega of America and triggered a $39 million invoice from JAMS. Sega refused to pay, sued both the law firm and the arbitration provider, and in December 2025 reached a settlement with Consovoy McCarthy on terms that have not been publicly disclosed. Sega voluntarily dismissed the underlying federal case with prejudice on June 11, 2026, meaning it cannot be refiled.¹

What Sparked the Fight

In April 2024, Consovoy McCarthy, working with New York firm Troxel Law, filed 19,541 concurrent arbitration demands against Sega with JAMS. The underlying claims alleged that Sega’s advertising practices violated California’s Unruh Civil Rights Act, which prohibits the use of protected characteristics in advertising. Each claimant was filed as a separate case, and JAMS billed Sega roughly $2,000 per claimant in non-refundable initiation fees, producing a single invoice of approximately $39 million.²

Sega later alleged in court filings that the claimants had been recruited through a social media campaign that “dangled the possibility of hundreds of dollars to anyone who claimed they had played a Sega game.”³ Sega called many of the demands “duplicative and fraudulent on their face.”⁴ An amicus brief in a separate California Supreme Court case noted that the demands included a claim filed on behalf of someone allegedly named “Poop Smear,” and that claimants’ attorneys removed false and duplicative names only after Sega identified them.²

Sega’s Two Lawsuits

Instead of paying the invoice, Sega sued both the law firm and the arbitration provider.

On January 27, 2025, Sega filed suit against JAMS in Los Angeles Superior Court, accusing the arbitration provider of false advertising, unfair competition, and breach of contract. Sega argued that JAMS charged fees for services it knew it could not perform at scale and that the invoice amounted to extortion.⁴

On February 10, 2025, Sega filed a federal lawsuit against Consovoy McCarthy in the U.S. District Court for the Eastern District of Virginia, alleging tortious interference with contractual relations and demanding a jury trial.⁵ Sega was represented by Sheppard Mullin.³ The complaint accused Consovoy McCarthy of drumming up thousands of dubious claims through social media recruitment and then weaponizing the arbitration process to generate fees that would pressure Sega into settling.

How the Federal Case Moved

Consovoy McCarthy pushed back hard. In April 2025, the firm filed a motion to dismiss and an anti-SLAPP motion to strike, arguing that its arbitration filings were protected activity. Both were denied as moot after Sega filed an amended complaint on May 2, 2025.⁵

Consovoy McCarthy filed a second motion to dismiss on May 30, 2025. District Judge Claude M. Hilton denied it on July 31, 2025, and denied a follow-up motion to stay on September 22, 2025.⁵ The firm appealed both denials to the U.S. Court of Appeals for the Fourth Circuit, opening two separate appellate dockets (Nos. 25-1878 and 25-2132).

The Fourth Circuit denied Consovoy McCarthy’s requests to consolidate the appeals and to stay the case in October 2025. A petition for rehearing en banc was denied in November 2025.⁶

The Settlement and Dismissal

Consovoy McCarthy filed its opening appellate brief on November 17, 2025. Weeks later the fight ended. On December 9, 2025, both sides filed a joint motion to stay the appellate proceedings, and on December 15, 2025, the Fourth Circuit stayed the case pending administration of a settlement agreement.⁶ The terms have not been publicly disclosed.

A final order was entered at the Fourth Circuit on June 10, 2026, and Sega voluntarily dismissed the district court case with prejudice the next day.⁶¹ The public record does not disclose the outcome of Sega’s separate Los Angeles Superior Court suit against JAMS.

How Sega Rewrote Its Arbitration Terms

After the dispute, Sega revised the arbitration provisions in its end-user license agreement. The current terms require that all disputes be resolved through binding individual arbitration administered by JAMS, with a class action waiver that prohibits users from participating as plaintiffs or class members in any collective proceeding.⁷

The updated agreement also builds in a specific mass arbitration protocol. If 20 or more demands are filed on the same or analogous subject matter with coordinated legal representation, a three-arbitrator panel first resolves dispositive motions and common legal questions, followed by mandatory mediation. Any claims remaining after mediation are grouped into batches of up to 100 and resolved by individual arbitrators.⁷ Before any arbitration can begin, users must complete a 60-day dispute resolution period by submitting formal notice directly to Sega. The agreement carves out exceptions for intellectual property disputes, claims involving hacking or tortious interference, and cases eligible for small claims court.

1
PACER Monitor. Sega of America, Inc. v. Consovoy McCarthy PLLC
2
Supreme Court of California. Manhattan Institute Amicus Curiae Brief, Hohenshelt v. Superior Court
3
Law.com. Sega Suits Claim Consovoy McCarthy Drummed Up 19K Mass Arbitration, Running Up $39M JAMS Bill
4
O’Melveny & Myers LLP. Mass Arbitrations in 2025: Key Legal Shifts Every Company Should Know
5
CourtListener. Sega of America, Inc. v. Consovoy McCarthy PLLC, 1:25-cv-00257
6
CourtListener. Sega of America, Inc. v. Consovoy McCarthy PLLC, No. 25-2132 (4th Cir.)
7
Sega. Sega Account Terms of Service