AAA Reduces Fees in Pilot Program

“Arbitration is about having alternatives and options, and we believe that this new fee structure is one way to give people more options for getting what they want,” said Johnson. “Arbitration fees have been front-loaded because we assumed that when people filed for arbitration, they wanted to arbitrate. But this program recognizes that, in some situations, they do not necessarily intend to arbitrate; they really want to negotiate with the other party, but the filing is needed to get a response from the other party and to see where they stand.”

The Fee Structure

The two-part fee structure enables a party to begin the process with minimal cost and, hopefully, to resolve the dispute before going to an arbitration hearing. When a party pays the Initial Fee, the other party has a limited time to respond, usually 15 days. The file will remain open for 90 days, during which the parties can try to resolve the conflict. If they resolve it, then the file is closed.

If instead the parties decide to proceed with arbitration, a Proceed Fee will be charged. This fee will vary based on the size of the claim and whether AAA is asked to furnish a list of arbitrators. If the parties agree on an arbitrator without seeking AAA's input, the fee is halved. “Some outside counsel conduct a lot of arbitrations,” said Johnson. “We recognize that they are familiar with arbitrators, and often with opposing counsel as well, and they can agree on their choice of arbitrator without us. So we do not need to charge the full fee.”

Attorneys' Reactions Mixed

Franchise attorneys said that, while they support the new fee program, they have additional concerns. “I welcome fee reductions, but remember that it does come with a lot less service,” said Harry M. Rifkin, practice leader for the Franchise & Business Law Group (Lutherville, MD). “It could work if you know what you are doing, such as in selecting an arbitrator.”

Carl Zwisler, a principal with Gray Plant Mooty in Washington, DC, cautioned that the majority arbitration costs are incurred through fees paid to layers, arbitrators, and expert witnesses, none of which are reduced by the new fee structure. “No one with experience in litigation dares to make the decision to file based upon the initial filing fee,” he said. “Once an arbitration or litigation begins, the parties have relatively little control over what the total cost will be.”

Zwisler also questioned whether the new fee structure would induce an increase in arbitration filings aimed at negotiating a settlement. “In my experience, most franchise arbitration demands are drafted like complaints filed in court, and the claimant/plaintiff usually expects the case to proceed,” he said. “Most clients and lawyers I know have already tried to negotiate resolutions of problems before they file, so I doubt that a lower initial filing fee will increase the number of filings. I also doubt that a reduced filing fee will result in a settlement. The current filing fee required for a counterclaim actually may expedite settlements because defendants realize they must spend money out-of-pocket to proceed.”

Furthermore, some of the objections that attorneys have to arbitration, especially attorneys working on behalf of franchisees, cannot be addressed through fees, said Rifkin. He cited the secrecy of the process and the inherent interest of an arbitrator in getting cases to arbitrate. “Fees are only one of many problems with arbitration that have arisen over the last 20 years,” said Rifkin. “The whole system is based on attracting repeat customers, which you can achieve by making them believe they will get a favorable outcome ' . [In a franchising context], an arbitrator who starts ruling consistently against franchisors will not get more work from franchisors. This isn't to suggest that there aren't excellent arbitrators out there.”

Yet, arbitration surely has a role in resolving franchise disputes, regardless of whether the new fee structure proves to be popular. “Franchising is a relationship business in which the parties intend to continue to work together after their issues are resolved,” said Johnson. “Arbitration and mediation work very well in those situations.”

Conclusion

The pilot fee program will be offered through May 30, 2010, and it is one of several innovations recently developed or in the process of being developed by AAA. In 2009, AAA began to offer non-binding arbitration. In first-quarter 2010, it will roll out a program in which retired judges will provide judicial settlement services that Johnson said would be similar to mediation but with procedures closer to those of a courtroom.

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The American Arbitration Association (“AAA”) is reporting that its pilot program to reduce commercial arbitration fees has been popularly received, and AAA is increasing its promotion of the new fee structure. The program began in July 2009 and has been utilized in 1,000 to 2,000 disputes to date, reflecting claims totaling nearly $3 billion, according to India Johnson, an AAA senior vice president. The number of those disputes related to franchising is unknown.

What the Program Entails

The pilot program includes a low Initial Filing Fee to start an arbitration procedure, and then a Proceed Fee if either party wishes to pursue selection of an arbitrator. Under the Standard Fee Schedule for commercial arbitration, filing for a claim of up to $10,000 would incur a fee of $775, plus $200 if the case is heard. Under the pilot program, that same claim would incur a $300 Initial Filing Fee; if the parties moved forward to pursue arbitration, they would be charged a $550 Proceed Fee, as well as $200 if the case is heard (see table below).

“Arbitration is about having alternatives and options, and we believe that this new fee structure is one way to give people more options for getting what they want,” said Johnson. “Arbitration fees have been front-loaded because we assumed that when people filed for arbitration, they wanted to arbitrate. But this program recognizes that, in some situations, they do not necessarily intend to arbitrate; they really want to negotiate with the other party, but the filing is needed to get a response from the other party and to see where they stand.”

The Fee Structure

The two-part fee structure enables a party to begin the process with minimal cost and, hopefully, to resolve the dispute before going to an arbitration hearing. When a party pays the Initial Fee, the other party has a limited time to respond, usually 15 days. The file will remain open for 90 days, during which the parties can try to resolve the conflict. If they resolve it, then the file is closed.

If instead the parties decide to proceed with arbitration, a Proceed Fee will be charged. This fee will vary based on the size of the claim and whether AAA is asked to furnish a list of arbitrators. If the parties agree on an arbitrator without seeking AAA's input, the fee is halved. “Some outside counsel conduct a lot of arbitrations,” said Johnson. “We recognize that they are familiar with arbitrators, and often with opposing counsel as well, and they can agree on their choice of arbitrator without us. So we do not need to charge the full fee.”

Attorneys' Reactions Mixed

Franchise attorneys said that, while they support the new fee program, they have additional concerns. “I welcome fee reductions, but remember that it does come with a lot less service,” said Harry M. Rifkin, practice leader for the Franchise & Business Law Group (Lutherville, MD). “It could work if you know what you are doing, such as in selecting an arbitrator.”

Carl Zwisler, a principal with Gray Plant Mooty in Washington, DC, cautioned that the majority arbitration costs are incurred through fees paid to layers, arbitrators, and expert witnesses, none of which are reduced by the new fee structure. “No one with experience in litigation dares to make the decision to file based upon the initial filing fee,” he said. “Once an arbitration or litigation begins, the parties have relatively little control over what the total cost will be.”

Zwisler also questioned whether the new fee structure would induce an increase in arbitration filings aimed at negotiating a settlement. “In my experience, most franchise arbitration demands are drafted like complaints filed in court, and the claimant/plaintiff usually expects the case to proceed,” he said. “Most clients and lawyers I know have already tried to negotiate resolutions of problems before they file, so I doubt that a lower initial filing fee will increase the number of filings. I also doubt that a reduced filing fee will result in a settlement. The current filing fee required for a counterclaim actually may expedite settlements because defendants realize they must spend money out-of-pocket to proceed.”

Furthermore, some of the objections that attorneys have to arbitration, especially attorneys working on behalf of franchisees, cannot be addressed through fees, said Rifkin. He cited the secrecy of the process and the inherent interest of an arbitrator in getting cases to arbitrate. “Fees are only one of many problems with arbitration that have arisen over the last 20 years,” said Rifkin. “The whole system is based on attracting repeat customers, which you can achieve by making them believe they will get a favorable outcome ' . [In a franchising context], an arbitrator who starts ruling consistently against franchisors will not get more work from franchisors. This isn't to suggest that there aren't excellent arbitrators out there.”

Yet, arbitration surely has a role in resolving franchise disputes, regardless of whether the new fee structure proves to be popular. “Franchising is a relationship business in which the parties intend to continue to work together after their issues are resolved,” said Johnson. “Arbitration and mediation work very well in those situations.”

Conclusion

The pilot fee program will be offered through May 30, 2010, and it is one of several innovations recently developed or in the process of being developed by AAA. In 2009, AAA began to offer non-binding arbitration. In first-quarter 2010, it will roll out a program in which retired judges will provide judicial settlement services that Johnson said would be similar to mediation but with procedures closer to those of a courtroom.

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