The industry often claims that arbitration is cheaper than litigation for consumers. Well, not so much any more–if that was ever true–after the AAA’s new mass arbitration rules that Adam Pulver reported about on January 29. Adam mentioned the $3,125 initiation fee. In addition, under the new rules, for cases that proceed beyond the initiation stage, AAA also will charge consumers an individual per case fee of $125 for the first 500 cases and an individual per case fee of $75 for each case after that (the fees are linked to The Lever’s coverage here). If I understand the rules correctly, AAA charges the individual per case fee for every consumer who files as part of such a mass arbitration (and if I don’t understand the rules correctly, I hope someone will let me know). Imagine a mass arbitration of, say, 10,000 consumers. The first 500 pay $125 each, for a total of $62,500. The remaining 9,500 pay $75 each, meaning they pay collectively $712,500, and the full 10,000 pay $775,000 (the $3,125 initiation fee gets credited towards that sum so we can ignore it). That doesn’t include any other costs the consumers bear. A pretty steep price just to get past the preliminaries.
And what happens if the individual claims are worth less than $75? If the consumers win, do they get the per case fee back from the business? If not, why would anyone bring a mass arbitration if their damages were for less than the per case fee? The rules say that “administrative fees are not subject to reallocation by the arbitrator(s) except as may be required by applicable law or upon the arbitrator’s determination that a claim or counterclaim was filed for purposes of harassment or is patently frivolous.” Is the per case fee an administrative fee? If so, are there any applicable laws that require that the per case fee be shifted to a losing business? I would say that the new rules would discourage consumers from asserting claims for small amounts in arbitration, except that the old rules already did such an effective job of that that such claims were already not being brought.
Now compare that to class actions. I’ve never heard of a class action that obliges individual class members to pay $75 or more just to get their recovery.