Individualized arbitration is an effective dispute resolution system that has benefited consumers, employees, and companies in no small part due to its cost efficiency, especially when compared to more traditional litigation in the court system. Plaintiffs’ lawyers have misused this system by pursuing mass arbitration, but a new fee schedule announced by the American Arbitration Association (AAA) is the first step in reducing this abusive practice.
In the mass arbitration business model, lawyers simultaneously file thousands of identical arbitration claims targeting the same defendant. This triggers massive up-front bills to defendant businesses because they, not the claimants, cover the fees that must be paid upon initiation of the arbitration. The plaintiffs’ lawyers’ objective here is not to receive a favorable decision on each claim, but instead to confront the company with the prospect of either paying potentially millions in fees simply to fulfill their obligation at the outset of the arbitration, or to commit to considerable settlements to resolve the massive amount of claims. By leveraging up-front fees, these lawyers employ a coercive, no-lose scheme. If the company doesn’t want to pay those fees or settle the litigation for an exorbitant sum, it must navigate the overburdened, inefficient court system that could take years to resolve the disputes. While more should still be done, the fee schedule changes recently implemented by AAA should help reduce at least some of the mass arbitration problems.
The new arbitration fee schedule should make it easier and less expensive for businesses to engage in arbitration because the fees are now split between the parties involved. For example, with the new fee schedule, the fee that the parties must pay to start the arbitration process is a $3,125 initiation fee for claimants and an $8,125 initiation fee for businesses, regardless of how many cases are filed. Previously, the per case filing fees that ranged between $175 and $450 per case had to be paid at the start of the mass arbitration which could quickly add up to millions of dollars that businesses would have to pay just to begin the process.
Additionally, the new rules allow for the appointment of a process arbitrator who can address challenges to the propriety of filings, ensuring they meet AAA’s requirements and the terms of the contract between the parties. This is crucial as it allows businesses to uphold their contractual obligations and prevents plaintiffs’ lawyers from disregarding key contract elements when filing for arbitration.
Arbitration serves as a vital channel for resolving disputes efficiently. It enables individuals to address claims that may be impractical or costly to pursue through traditional court litigation. Lawsuits can incur significant expenses, and securing legal representation for small-scale disputes can pose challenges. A plaintiffs’ lawyer might argue that such claims should be pursued in class actions—but many individuals have unique claims that do not qualify for class action lawsuits. For many, arbitration represents the primary avenue for effectively resolving conflicts. Not to mention ILR research has shown that consumers and employers win more money, more often, and more quickly in individualized arbitration than in court-based litigation.
While the arbitration fee schedule changes address some of the most severe issues in recent mass arbitrations, they fall short of completely eradicating all the dangers linked to this plaintiffs’ lawyer business model. ILR has written previously about the problems associated with mass arbitrations and proposed various solutions to address the problem.
