As agreements containing arbitration clauses become more widely used in transactions involving the sale of goods and services, understanding the process and rules governing consumer arbitrations have become an extremely important skill. Here’s a summary of what solos and attorneys in small firms should know.
What Is a Consumer Arbitration?
The American Arbitration Association (AAA) administers most arbitration disputes in the United States.1 The AAA applies its consumer rules to
arbitration clauses in agreements between individual consumers and businesses where the business has a standardized, systematic application of arbitration clauses with customers and where the terms and conditions of the purchase of standardized, consumable goods or services are non-negotiable or primarily non-negotiable in most or all of its terms, conditions, features, or choices. The product or service must be for personal or household use.2
Starting the Process
The party seeking to invoke the arbitration is called the “claimant,” and the non-moving party is called the “respondent.” The process begins when a party files a statement of claim form with the AAA. It may be filed online (adr.org/consumer), by mail, or at any AAA office. The statement of claim generally contains the basis of the dispute, the names and addresses of the parties, the amount of the claim, the location for the hearing, and what the claimant is seeking. A small claims court may still adjudicate agreements that contain arbitration clauses if the amount in controversy falls within the jurisdictional limits of the small claims court where the dispute arises.
Rules That Apply and Costs
In AAA consumer arbitration proceedings, the Consumer Arbitration Rules, American Arbitration Association, effective January 1, 2016, apply. The consumer’s administrative fee is capped at $200. The business pays the arbitrator’s compensation unless the consumer—post dispute—voluntarily elects to pay a portion of the arbitrator’s compensation.
Selecting an Arbitrator
The AAA maintains a National Roster of arbitrators who have been approved to handle consumer disputes. If the parties have not appointed an arbitrator, the AAA will make an administrative appointment from its National Roster. Many consumer cases require only one arbitrator, but up to three panel members may be appointed. If the parties do not specify, then only one arbitrator is appointed. After selection, the arbitrator must file a disclosure of any personal, financial, and professional interests that potentially or actually create a conflict, and disclose any bias he or she may have. The AAA may disqualify an arbitrator if the arbitrator demonstrates a lack of partiality or an inability to exercise his or her duties with diligence and good faith.
The process begins with an important preliminary management hearing, scheduled and conducted by the arbitrator. Generally, only counsel for the parties participate, but parties may be present as well. During the hearing, the arbitrator discusses the conduct of the case and a clarification of the issues and claims to be adjudicated. The arbitrator selects a final hearing date and a place for the hearing, and sets deadlines on all other matters (e.g., exchange of documents). The final hearing may be done telephonically or by submission of documents only (called a “desk arbitration”). A documents-only arbitration is limited to cases in which the amount in controversy is no more than $25,000.
The Final Hearing
The proceedings are confidential, except to the extent that the applicable law requires disclosure. The arbitrator holds wide discretion in conducting the final hearing. He or she is empowered to determine what evidence to allow or exclude, how such evidence may be presented, the order of proceedings, and the overall conduct of the final hearing. Generally, a one-day hearing is conducted but may be extended within the discretion of the arbitrator. Each party has the right to be heard and be given a fair opportunity to present its case. At the conclusion of the hearing and after all evidence has been presented, the arbitrator declares the hearing to be closed. No further evidence is permitted.3
Post-Hearing and Award
The arbitrator and counsel for the parties generally discuss post-hearing briefs (whether or not to allow, deadline for submission, and the length of the brief). The arbitrator must submit the final award within 30 days from the date that the hearing is closed. The award provides general, concise reasons for the decision, the scope of the award (including remedies, relief, and outcome), and also provisions concerning the allocation of costs of the arbitration as well as fees, other expenses, and compensation.
The consumer arbitration process is generally less expensive, quicker, and more flexible than litigation in court proceedings. The arbitrator has a duty not only to adjudicate the issues and claims, but also to manage the proceeding in a timely, expedient, and cost-efficient manner. The AAA requires that its panel members receive annual continuing education and offers numerous online and in-person courses to ensure that its arbitrators are up to date on handling consumer arbitrations.
1. A nonprofit organization founded in 1926, the AAA provides services to individuals and organizations that wish to resolve conflicts out of court. The AAA provides administrative services in the United States, as well as abroad through its International Centre for Dispute Resolution (ICDR).
2. Consumer Arbitration Rules, American Arbitration Association, effective January 1, 2016 (adr.org/consumer).
3. For an excellent description of the conduct of the arbitration itself and the roles of the attorneys and parties, see “I Am Your Arbitrator. Here Is What to Expect from Me . . . And Here Is What I Expect from You,” William H. Lemons and John K. Boyce III, Handling Your First (Or Next) Arbitration, State Bar of Texas, December 6, 2013.