Erin M. Bosman, Julie Y. Park, Ashley E. Quinn & Rachel A. Kaiser | Morrison & Foerster
Finally addressing costly mass arbitration concerns, the American Arbitration Association (AAA) and Judicial Arbitration and Mediation Services (JAMS) announced major changes to their arbitration rules. The updates aim to curb abusive mass filing costs in arbitration.
Arbitration is a form of alternative dispute resolution that allows parties an opportunity to resolve their disputes through a private, out-of-court process. The growing popularity of arbitration agreements and mass actions has given rise to mass arbitration—an arbitration with more than 75 demands filed against or on behalf of the same parties, in which representation is either consistent or coordinated. Because each arbitration demand comes with administrative fees that were typically paid by the corporate defendant, when plaintiffs filed hundreds—or potentially even thousands—of demands, the company often faced millions of dollars in filing fees before the merits of the claims were even assessed.
In recent years, plaintiffs’ firms have used the threat of mass arbitration to force early settlements. Companies often faced situations where settling a meritless claim was far less expensive than paying filing fees.
These practices have prompted AAA and JAMS to change their rules. AAA amended its rules at the start of 2024, and JAMS recently followed suit. JAMS adopted rules containing new procedures aimed at rectifying common issues in mass arbitration. Although AAA and JAMS implemented slightly different rules, their aim is the same: to prevent abuse of the mass arbitration process.
Most importantly, both AAA’s and JAMS’s amended rules propose a new fee schedule. A single filing fee, paid at the outset, replaces the old per-case filing fee. The new rules also seek to correct several other typical concerns in mass arbitration.
First, JAMS and AAA now require claimants to include their first and last name, physical address, and email address in the initial filing. Counsel for the claimant must also issue a declaration averring that the information in the demand is true and correct. Prior to the new rules, claimant pools would often include improper claimants, such as fictitious or duplicative individuals, or people who were never exposed to the alleged improper conduct.
Second, the new rules make it feasible for companies to challenge arbitration filings at the outset. A business can request the appointment of a Process Arbitrator for a mass arbitration, who can decide threshold administrative disputes. Previously, companies lacked meaningful challenges to the arbitrability of a claim because the question of arbitrability was delegated to the arbitrator.
Practically, the new JAMS rules only apply if the parties agree in writing to follow the updated JAMS mass arbitration procedures. Unless a business updates its terms, the prior rules and fee structure will remain in effect. By contrast, under the AAA rules, AAA alone decides whether its updated rules apply. Businesses with arbitration agreements incorporating either JAMS or AAA rules should evaluate and update their arbitration agreements to incorporate these new rules. Our team is happy to assist in reviewing current terms to ensure your company’s arbitration agreements are receiving the benefit of these updates.
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