New Year, New Mass Arbitration Rules From the AAA
On January 15, 2024, the American Arbitration Association ("AAA") published updates to its Mass Arbitration Supplementary Rules and Fee Schedule, aimed at streamlining the mass arbitration process and reducing costs.
To counter corporate use of arbitration agreements, the plaintiffs' bar has started to turn more frequently to mass arbitration. The AAA defines mass arbitration as (i) more than 25 demands filed against/on behalf of the same or related parties, and (ii) where representation is "consistent or coordinated." Because each demand is accompanied by administrative fees, when hundreds or thousands of demands are made, a company could be required to pay millions of dollars, even before the claims' merits are assessed. Consequently, arbitration has become a potentially costly and complicated endeavor for companies.
With mass arbitration becoming a growing trend, the AAA recently updated its Mass Arbitration Supplementary Rules ("Rules") and Fee Schedule, effective January 15, 2024. According to the AAA, the Rules "are crafted to save time, reduce costs and foster constructive dialogue right from the start." Notable updates include:
- Updated Fee Schedule. Pursuant to the updated Fee Schedule, there is a flat initiation fee that "must be paid upon the filing of a mass arbitration by the individuals." The fee is $3,125 for individuals and $8,125 for businesses, and covers an administrative review, an administrative conference call, and the appointment of a global mediator and/or process arbitrator. This is significant because, prior to these Rules, initiation fees were assessed on a per-case basis.
- Larger Role for the Process Arbitrator. The process arbitrator will have final authority to decide important preliminary issues, including whether the parties have met the filing requirements, disputes regarding conditions precedent, and which demands to include.
- Signed Affirmations. Claims must be accompanied by a signed affirmation attesting to the truthfulness and correctness of the information.
Although these Rules are a welcome development because of their potential to reduce business costs and streamline arbitrations, companies will want to monitor how these Rules operate in practice. Companies should also continue to rely on the language in their contracts to protect against risks posed by mass arbitration and make appropriate amendments to their Terms of Use to align with AAA's new Rules. Careful contractual drafting is therefore critical to protecting against mass arbitration.
