New Rules for Disputes Involving Online Marketplaces and Individuals

Millions of consumer purchases take place each year. During the pandemic, an increasing number of these transactions have been occurring online. A number of widely used online marketplaces or platforms, such as Airbnb and Expedia (VRBO), include an arbitration clause in their terms of service that references the American Arbitration Association’s (AAA) Consumer Arbitration Rules and mentions fee shifting and/or reimbursement for fees. The Consumer Arbitration Rules apply when a dispute arises between a business and individual consumers and the terms and conditions of the purchase of consumable goods and services are standardized and primarily non-negotiable. Examples of contracts that typically meet the criteria for application of the Consumer Rules include credit card agreements, leases, car loans, etc. AAA has the discretion to apply or not to apply the Consumer Arbitration Rules, subject to a final determination by the arbitrator.

Poorly Drafted Arbitration Clauses

Online marketplaces and platforms can be used by both consumers and individuals engaged in commercial transactions, such as someone offering their home for rent. Unfortunately, most of the arbitration clauses seen by AAA do not clearly separate commercial versus non-commercial use of a marketplace or a platform. This has created confusion because an individual utilizing a platform for commercial purposes does not meet the AAA’s definition of a consumer. AAA, therefore, will apply the Commercial Arbitration Rules and the Commercial Fee Schedule unless the clause specifically requires application of the Consumer Rules or another set of AAA rules.

Confusion Arising from Misinterpretation of the Clauses

Applying the Commercial Rules is often met with resistance by an individual, such as a property owner, who believes they are a consumer and do not understand why the Consumer Rules do not apply. They are even more upset after they learn that they must adhere to the Commercial Fee Schedule. Application of the Commercial Fee Schedule results in a much larger filing fee for either a claim or counterclaim than the $200 fee payable by a non-business entity under the Consumer Rules. For example, under the Commercial Rules, the initial filing fee for a non-monetary claim (e.g., account reactivation) is $3,500. In addition, under the Commercial Rules, the compensation paid to an arbitrator is the hourly rate specified on their AAA resume, whereas under the Consumer Rules, it is a flat or daily rate depending on the type of hearing.

AAA Devises a Solution

To remedy this situation, AAA included a footnote to the Commercial Arbitration Rules Rule R-1. The footnote states that beginning June 1, 2021, the AAA will apply the Consumer Arbitration Fee Schedule to any dispute between an online marketplace or platform and an individual user or subscriber (using or subscribed to the service as an individual and not incorporated) when the dispute does not involve work or work-related claims.

Consumer Fee Schedule—Single Case Filing

The Consumer Fee Schedule limits the initial filing fees incurred by the non-business entity and shifts the balance of the fees to the business. A portion of the initial filing fees for both the non-business entity and the business are non-refundable, with the non-refundable portion determined by the number of arbitrators. There is no additional administrative fee for a counterclaim.

Arbitrator compensation is either a set flat rate or a daily rate pending upon the type of hearing. Cases on which arbitrators are to be compensated with a daily rate, the rate includes one preliminary hearing, one day of in-person, virtual or telephonic hearing, and one final award. AAA sets the compensation rate based on hearing days, but for cases with additional procedures, the business will be responsible for additional compensation.

Consumer Fee Schedule for Multiple Consumer Case Filings

The Consumer Fee Schedule includes a different fee schedule for multiple consumer case filings. The multiple case filing fee applies to all cases determined by AAA to meet the multiple case filing requirements. A multiple case filing consists of 25 or more cases with similar claims filed against or on behalf of the same party or parties and counsel for the parties is consistent or coordinated across all cases. The filing fee for the non-business entity and the business are tiered based upon the total number of cases filed, ranging from $100 to $50 per case for the non-business entity and $300 to $75 per case for the business.

Supplementary Rules for Multiple Case Filings

If AAA decides to apply the Consumer Fee Schedule for Multiple Consumer Case Filings, AAA may also decide to apply the Multiple Case Filings Supplementary Rules. In response to the coordinated mass filing of individual arbitrations, the AAA issued Supplementary Rules for Multiple Case Filings effective August 1, 2021. The AAA developed the Supplementary Rules to streamline the administration of large volume filings involving the same or related party, parties, and party representative(s) for disputes where the Employment/Workplace Fee Schedule or the Consumer Fee Schedule apply.