The Evolution of Mass Arbitration: Understanding Changes to the Arbitration Rubric

AAA’s New Mass Arbitration Rules

The AAA recently issued Mass Arbitration Supplementary Rules, which apply to any mass arbitrations filed after January 2024. The rules apply when twenty-five or more similar arbitration demands are filed, regardless of whether the cases are filed simultaneously. A notable feature of these rules is aimed at requiring claimants’ counsel to more thoroughly vet clients and their claims before filing a mass arbitration. Lawyers have sometimes filed cases on behalf of claimants without sufficient proof that the claimants entered into an arbitration agreement. And observers have reported that claimants are sometimes fictitious, and their claims are duplicative.

Affirmation of Truthful Information and Appointment of Process Arbitrators

The AAA’s new rules impose barriers to these practices. First, claimants’ counsel filing a mass arbitration must “include an affirmation that the information provided for each individual case is true and correct to the best of the [lawyer’s] knowledge.” Lawyers who violate this duty could be subject to Rule 11–type sanctions. Second, the new rules allow the AAA to appoint a “process arbitrator” to resolve administrative issues after the payment of an initiation fee of $11,250. As discussed more below, under the new rules, no matter how many arbitrations are filed, the initiation fee is the only up-front fee. The claimant’s share of the fee is $3,125, and the business’s share is $8,125.

The administrative matters that process arbitrators are authorized to decide include the following:

• whether the claimants complied with the AAA’s filing requirements, any contractually imposed filing requirements, or any conditions precedent under the parties’ contract;
• disputes regarding payment of administrative fees, arbitrator compensation, and expenses;
• whether particular cases should be excluded from the mass arbitration;
• the “merits arbitrator” selection process for the individual arbitrations;
• if the cases should proceed in small claims court instead of arbitration;
• whether the merits arbitrators should hold a hearing or decide the disputes based on written submissions (called a “documents-only proceeding”);
• what rules should apply in the arbitration;
• the location of hearings by the merits arbitrators; and
• other nonmerits issues affecting case administration, such as the way arbitration should proceed to a hearing.

Process arbitrators are also empowered to decide fact-specific disputes for individual arbitrations, such as whether the allegations in a demand fall within the scope of an arbitration agreement. A process arbitrator deciding these issues is required to issue a reasoned decision, which binds the merits arbitrators absent an abuse of discretion by the process arbitrator. The business must compensate the process arbitrators at their published hourly rates.

Mediation

The AAA’s new rules require that the parties initiate a global mediation of the mass arbitration under the AAA mediation rules within 120 days after the AAA’s confirmation that the claimants meet the AAA filing requirements. The AAA administratively appoints the mediator unless the parties agree on one. While the rules allow any party to unilaterally opt out of mediation, the AAA may still appoint a mediator to facilitate discussions between the parties on processes to resolve the cases more efficiently. Indeed, the applicability section of the new rules encourages parties to agree to “processes for the efficient resolution of those cases.” As we discuss below, one option is the use of a “bellwether” process like multidistrict litigation (“MDL”), and a mediation after a resolution of the “test” arbitrations.

New Fee Schedule

As noted above, the AAA replaced filing fees with a flat $11,250 initiation fee. This fee remains constant regardless of how many cases are included in a mass arbitration (see table 2 below).

Table 2. New AAA Mass Arbitration Rules: Distribution of Initiation Fee

The AAA also eliminated the case management fee. Instead, the parties are now responsible for what the AAA calls a “per case fee” for any case that proceeds past the process arbitrator’s review or otherwise survives the initiation stage. As shown in table 3 below, the per case fee starts at $125 for claimants and $325 for businesses; the fees decrease as the number of arbitrations increases. The initiation fee is credited toward the per case fees.

Table 3. New AAA Mass Arbitration Rules: Per Case Fees

The AAA also charges an “arbitrator appointment fee” for any case that proceeds to appointing a merits arbitrator. The fee is $50 per case for the claimants and $450 per case for the business if the AAA appoints the arbitrator, or $75 per case for the claimants and $600 per case for the business if a list-and-rank process is used by the parties to select the arbitrator.

The merits arbitrators are paid $300 per hour in consumer cases, and they are compensated at their normal hourly rates in employment cases. In prior fee schedules, merits arbitrators received a flat fee of $2,500 per day for a hearing and $1,500 for documents-only cases. The AAA typically charges the arbitrator compensation to the business based on the merits arbitrator’s estimated study and hearing hours after the arbitrator holds a scheduling conference.

The last fee that the AAA charges is what it calls a “final fee.” The AAA bills this fee to the business when an evidentiary hearing is scheduled or the final submission date for a documents-only proceeding is set. This fee is $600 per case in consumer cases and $750 per case in employment cases.

The fees for each case are shown in table 4 below.

Table 4. New AAA Mass Arbitration Rules: Arbitrator Appointment Fee, Final Fee, and Merits and Process Arbitrator Fees

While the AAA’s new rules mitigate a business’s exposure, its changes do not entirely eliminate the significant costs to litigate mass arbitrations. Assume, for example, that a process arbitrator’s fee is $500 per hour and that it will take twenty hours to administer the mass arbitration. Also assume that the process arbitrator determines that 500 arbitrations should proceed past initiation stage, the parties agree that the mass arbitration will proceed with the AAA appointing merits arbitrators in batches of fifty arbitrations, and that each merits arbitrator estimates after the scheduling conference that it will take thirty hours to handle each case. For starters, the costs that the business incurs before any of the first fifty cases go to hearing could reach nearly $50,000: the initiation fee is $8,125, so the per case fee for the fifty cases is $8,125 (when accounting for the credit from the initiation fee); the arbitrator appointment fee for fifty cases is $22,500; and the process arbitrator fee is $10,000. The price to administer all 500 cases in this scenario if all of them go to hearing (adding in the final fees and the total arbitrator compensation) could be over $5 million. This amount, of course, does not include attorneys’ fees.

Other Arbitration Administrators’ Rules

Shortly after the AAA adopted its new rules, JAMS issued its new Mass Arbitration Procedures and Guidelines and fee schedule, effective May 2024. The JAMS rules apply when seventy-five or more individual claimants file against the same party or related parties and if those claimants are represented by either the same law firm or law firms acting in coordination. Unlike the AAA rules, the JAMS rules only apply where the procedures are expressly adopted in a pre- or post-dispute agreement.

However, like the AAA rules, the JAMS rules contain procedures that appear directed at lawyers filing inappropriate demands. Particularly, the JAMS rules require that claimants’ counsel submit an arbitration agreement for each claimant; that the demand include the first and last name, the physical address, and the email address of each claimant; and that each demand “be accompanied by a sworn declaration from counsel averring that the information in the [d]emand is true and correct to the best of the representative’s knowledge.”

The JAMS rules also authorize the provider to designate a “process administrator” to hear and determine preliminary and administrative matters, making it possible for businesses to challenge baseless demands at the outset of the arbitration. The only fee that the parties must pay at the outset, no matter how many cases are filed, is a single, nonrefundable filing fee of $7,500, up to $2,500 of which the claimant may be required to pay. Before this change, JAMS charged filing fees on a per-case basis, which allowed claimants’ counsel the potential to leverage the fees.

Process administrators are empowered to decide the following:

• whether the parties have met the applicable filing requirements;
• whether any conditions precedent have been met and, if not, how they can be met;
• which demands should be included in the mass arbitration;
• which rules apply to the proceedings;
• whether to batch, consolidate, or otherwise group the arbitrations or claims—whether for purposes of discovery, arbitrator appointments, merits hearings, or otherwise;
• the location of the merits hearings; and
• any other nonmerits issues affecting case administration.

The process administrator, as with the AAA, may also make administrative determinations based on the specific facts of an arbitration. Such administrative determinations must be included in a decision containing the reasoning for the determination.

In addition to the filing fee discussed above, the business must pay the process administrator’s hourly rate. The business is also responsible for paying an “appointment fee” for any arbitration that survives the process administrator’s review or is otherwise deemed administratively appropriate. The appointment fee is $2,000 for two-party cases and $3,500 for cases with three or more parties. Notably different from the AAA fee schedule, the JAMS appointment fee is per appointment, not per case. This distinction is important from a cost-savings perspective because merits arbitrators often decide a group of cases.

Finally, the business must pay a “case management fee” equal to 13 percent of the arbitrator’s estimated professional fees. The JAMS fees are shown in table 5 below.

Table 5. New JAMS Mass Arbitration Rules: Fees

In sum, while JAMS’s new fee schedule significantly reduces fees assessed up front, the fees for a mass arbitration can still be substantial because the business must pay professional fees for the process administrator and merits arbitrator, as well as case management fees assessed at a percentage of the overall professional fees. Also, unlike the AAA rules, the JAMS rules do not include a mediation requirement.

Notably, the AAA rules and the JAMS rules do not include bellwether procedures like some of the other arbitration providers, such as FedArb, New Era ADR, and CPR. For this process, the parties arbitrate a batch of test cases that they jointly select, with the other cases suspended and tolled by agreement. While certain arbitration providers include this process, AAA and JAMS anticipate that the parties will agree upon an efficient method to resolve the arbitrations post-dispute.

What Should Businesses Do?

Businesses should revisit their arbitration agreements, given these revisions to the providers’ mass arbitration–focused rules. If JAMS is the arbitration provider, the business needs to revise the arbitration agreement to expressly incorporate the Mass Arbitration Procedures and Guidelines as the procedures that govern any mass arbitration.

The business may also consider adding other procedures to the arbitration agreement to facilitate a mass arbitration’s fair and efficient resolution. For instance, a provision in the arbitration agreement requiring that claimants provide notice of a dispute and participate in an informal settlement conference before filing an arbitration could aid in resolving disputes quickly. The business may also consider bellwether procedures. As noted above, some arbitration providers have inserted similar processes into their mass arbitration procedures.

It is crucial, however, to consult counsel when making changes to an arbitration agreement as this is a complex task that requires a deep understanding of the constantly evolving law regarding the enforceability of arbitration agreements.