On January 15, the American Arbitration Association (AAA) issued amended Mass Arbitration Supplementary Rules and new Consumer Mass Arbitration and Mediation Fee Schedules (collectively, the New Rules). The New Rules will apply to all mass arbitration cases filed on or after January 15, but not to any mass arbitrations filed prior to that date. The New Rules aim to reduce friction and enhance process efficiency. However, unless the New Rules are supplemented by a well-constructed pre-dispute arbitration agreement, they will not solve the principal problems posed by mass arbitrations.
Under the New Rules, a mass arbitration is defined as 25 or more similar Demands for Arbitration filed against or on behalf of the same party or related parties, where representation of all parties is consistent or coordinated across the cases. The New Rules encourage the parties to agree to additional processes that make the resolution of their mass arbitration more efficient. However, the New Rules cannot require the parties to reach post-dispute agreement on arbitration procedures. And attorneys initiating mass arbitrations will have little incentive to reach efficient post-dispute agreements since the inefficiency and cost of arbitration to the business under attack provide the principal leverage to the mass claimants. While the AAA states that the New Rules apply in the absence of a post-dispute agreement as to any issue covered by the New Rules, it should be possible to draft pre-dispute arbitration provisions that supplement, but do not conflict with, the New Rules.
The New Rules modestly reduce fees and costs on businesses (by approximately $700 per case for an arbitration with a one-day hearing lasting 8 hours). But these net cost reductions are unlikely to move the ball forward in a meaningful way.
Fees under the New Rules and Old Rules are as follows:
- Initiation Fee (New Rules Only)
This new fee is $8,125 for the business and $3,125 for the individuals. It will be billed and must be paid upon the filing of a mass arbitration by the individuals. It covers the cost of an administrative review of the filing, an administrative conference call with the AAA, and the appointment of a process arbitrator and/or global mediator.
- Filing Fee (Old Rules)/Per Case Fee (New Rules)
These fees remained unchanged for the business and increase $25 per case for the individuals, as shown below.
|First 500 Cases
|Cases 3,001 and Beyond
|New Rules: Individual Per Case Fee Business Per Case Fee
|Old Rules: Individual Per Filing Fee Business Per Filing Fee
- Arbitrator Appointment Fee (New Rules)/Case Management Fee (Old Rules)
Under the New Rules, if merits arbitrators are directly appointed, the Arbitrator Appointment Fee is $450 per case for the business and $50 per case for the individuals. If the merits arbitrators are appointed by a list and rank process, the fee is $600 per case for the business and $75 per case for the individuals.
Under the Old Rules, the per-case Case Management Fee, imposed on the business, was $1,400 for one arbitrator or $1,775 for three arbitrators.
- Final Fee (New Rules)/Hearing Fee (Old Rules)
Under the New Rules, the fee is $600 per case for the business, with no fee for the individuals.
Under the Old Rules, the fee was $500 per case for the business, with no fee for the individuals.
- Arbitrator Compensation
Under the New Rules, arbitrator compensation is $300 per hour. Under the Old Rules, it was either $2,500 per hearing day (for arbitrations with hearings) or $1,500 per case (for desk/documents-only arbitrations without hearings).
In the past, the AAA has approved arbitration agreements that modify the normal allocation of responsibility for fee payments. Whether it will be possible to do this under the New Rules remains to be seen. However, for multi-party arbitrations — for example, group arbitrations of common issues of law or fact contemplated by some arbitration agreements — we anticipate the AAA will establish fees at the time the arbitration commences.
In addition to the fee revisions, the New Rules:
- Provide for a process arbitrator to decide disputed procedural issues, including whether claimants have satisfied the filing requirements in the parties’ arbitration agreement, which arbitrations should be included as part of the administrative filing, and the selection process for merits arbitrators. We regard this as a material improvement in the New Rules.
- Encourage party agreements concerning additional processes that make the resolution of the mass arbitration more efficient, such as limits on briefs, motions, and discovery requests or agreements allowing testimony via affidavit or recorded deposition. However, by and large the New Rules do not determine such matters in the absence of pre-dispute or post-dispute agreement of the parties.
- Provide that, with the exception of initial Demands for Arbitration, party submissions that are substantially similar across a mass arbitration may be filed in a single document and need not be filed separately in each individual case.
- Provide that virtual hearings are the preferred method of evidentiary hearings for cases subject to the New Rules.
- Encourage and authorize, but do not unilaterally provide for, the assignment of multiple cases to a single merits arbitrator, who will decide each case on its own merits.
- Require global mediation within 120 days from the deadline for the answer to the arbitration demand but allow for unilateral opt-out from the mediation process.
Our view is that the New Rules represent a modest step forward in addressing the growing problem of mass arbitrations. However, the New Rules are no substitute for a well-crafted pre-dispute arbitration agreement. Businesses facing potential mass arbitrations would be well-advised to draft arbitration agreements with their individual circumstances, preferences, and the New Rules in mind.