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A Fresh Take

Insights on M&A, litigation, and corporate governance in the US.

| 5 minutes read

The AAA Updates its Mass Arbitration Rules

The American Arbitration Association (AAA) recently published new amendments to its Mass Arbitration Supplementary Rules (Mass Arbitration Rules), and its Consumer and Employment Mass Arbitration Fee Schedules (Fee Schedules), which apply to mass arbitrations filed after January 15, 2024 under the AAA’s Consumer or Employment Arbitration Rules. 

Mass arbitration is the coordinated filing of tens, hundreds, or even thousands of individual arbitration claims. The number of mass arbitrations has spiked over the last several years, and in response, arbitral institutions have issued specialized rules to facilitate management of these cases. The AAA’s Mass Arbitration Rules apply to filings involving twenty-five or more similar demands for arbitration filed against the same party or related parties, where representation of the parties is consistent or coordinated across the cases. Since their inception in 2021, the Rules have provided for consolidation of qualifying individual claims into a single arbitration, among other provisions. The AAA’s Fee Schedules, in turn, set out the cost of initiating a mass arbitration, per-case fees, and arbitrator appointments.

The 2024 amendments to the Mass Arbitration Rules aim to address common mass arbitration abuses, including preventing the filing of large numbers of poorly vetted arbitration claims to leverage a settlement through the threat of arbitration filing fees. The three main ways in which the amendments address these issues are: (i) implementing attestation requirements for counsel; (ii) modifying the fee structure to enable vetting of individual claims for a flat initiation fee before the AAA charges a per-case fee; and (iii) expanding the powers of the process arbitrator to vet claims before the AAA charges these per-case fees and submits the claims to a merits arbitrator. 

The amendments do much to address some aspects of the old Rules that were susceptible to abuse by claimants’ counsel, though mass arbitration proceedings will remain a logistical and financial challenge for many companies. 

Common Problems in Mass Arbitrations

Mass arbitrations are susceptible to abuse in several ways. First, a major challenge in a mass arbitration is sorting through the sheer number of claims and determining whether claimants meet the basic criteria for filing a claim, including whether an arbitration agreement exists between the claimant and respondent company. It has become common for plaintiffs’ firms to use social media to find claimants by running ad campaigns asking potential claimants to self-report their claim, which can result in the filing of poorly vetted claims. This leads to a second problem: filing fees for arbitrations are customarily due at filing, and given the high number of claims in a mass arbitration, respondent companies may be forced to pay thousands of dollars in these fees (or more) before even having a chance to vet or challenge claimants’ compliance with the Mass Arbitration Rules’ filing requirements. A respondent that wishes to challenge whether some claims in a mass arbitration are improper—for example, because no agreement to arbitrate exists—is often unable to do so until tens or hundreds of thousands of dollars (or more) in fees have been paid. This high up-front cost makes the threat of any mass arbitration menacing for a respondent company, and this dynamic has led to the use of mass arbitrations that are designed to extort settlements, rather than succeed on the merits. 

The updated Rules are designed, in part, to address these problems.

New Attestation Requirements to Vet Claims

First, the new Rules include attestation requirements for both filings and pleadings that may encourage claimants’ counsel to be more cautious about ensuring that their clients’ claims meet the Mass Arbitration Rules’ standards for filing a claim, including the existence of an arbitration agreement between the claimant and the respondent company. The AAA requires parties to “include an affirmation that the information provided for each individual case is true and correct to the best of the representative’s knowledge.” Although the revised Rules do not contain a sanctions provision if the attestation requirement is violated, the inclusion of this requirement will make it easier for respondents to seek sanctions and/or costs or otherwise deter frivolous claims. 

Opportunity to Vet Claims Before Payment of Filing Fees

As noted above, a significant problem in mass arbitrations was that the filing fees were due immediately upon filing of the claims, making the mere threat of filing even unmeritorious claims daunting to a respondent company. Under the amended Mass Arbitration Rules and Fee Schedules, the AAA has restructured its fees so that parties need only pay a single initiation fee—$3,125 for individuals and $8,125 for businesses—when the claims are filed that covers the administrative review of the entire case regardless of the number of claim. For that fee, the parties may appoint a process arbitrator to examine procedural issues with the filings, including whether each claimant has met any conditions precedent to filing an arbitration, before paying the more voluminous per-case fees. This allows parties to vet claims before the per-case fees are due and cut down on the overall cost of the mass arbitration since some claims may be dismissed during the procedural review. 

Expanded Role of the Process Arbitrator

As noted above, the amended Mass Arbitration Rules also expand the role of the process arbitrator. The prior Rules stated only that a process arbitrator could decide whether claimants had satisfied the AAA filing requirements, allocation of fees, the applicable rules, and other issues “arising out of the nature of” mass arbitrations. The new Rules now specifically provide that the process arbitrator can decide certain key issues common to mass arbitrations, including whether the parties have met filing requirements and how to correct deficiencies, how to resolve disputes over conditions precedent to arbitration (for example, whether the parties have complied with a mandatory negotiation period), what fees are due, whether the claims should be referred to small claims court, and the procedure for selecting a merits arbitrator. By enabling a process arbitrator to deal with these common problems at the outset of a dispute, before the majority of fees are due, the Rules permit respondents to avoid paying substantial fees for claims with procedural deficiencies.

Other Notable Changes

In addition to the amendments discussed above, there are several other changes designed to improve mass arbitrations:

  • Review of procedural rulings by a process arbitrator. Under the old version of the Mass Arbitration Rules, a process arbitrator could issue a decision on a procedural issue without stating their reasoning. The amended Rules now require the process arbitrator to state their reasoning, and if the decision is challenged, the decision is reviewed by the merits arbitrator under an “abuse of discretion” standard.
  • Virtual hearings. The amended Rules state that there is a preference for virtual hearings; however, if an in-person hearing is required, the AAA may identify one or more locales where the hearing can take place. 
  • AAA Appointed Global Mediator. The amended Rules now permit the AAA to appoint a global mediator in all cases. The previous Rules provided the option for a global mediation, but the updated Rules allow the institution to appoint a mediator to facilitate discussions even if the parties have opted out of the formal mediation process. Although it is unclear whether parties will use a global mediator if they have already opted out of mediation, the AAA has provided an avenue to facilitate discussions amongst the parties.

The increase in mass arbitrations has created new issues—including rising administrative costs and large case volumes—that create challenges for many respondent companies. The AAA’s most recent amendments to its Mass Arbitration Rules address some of these challenges.