Santa Barbara Business Litigation Alert-What the New AAA Consumer Rules Mean for Your Business

In previous Alerts we have discussed the wisdom of whether or not to include a mandatory arbitration provision in your company’s contracts. Let’s assume you have decided that mandatory arbitration is the way to go. Let’s further assume that you have chosen the American Arbitration Association (AAA) as your preferred provider.

If both of these are the case, you need to be aware of recent changes to the Consumer Arbitration Rules of the AAA. They represent AAA’s first independent set of rules developed specifically for consumer arbitration, and they set forth in far greater detail than prior rules exactly what rules and procedures will govern your AAA arbitration.

The most significant change is Rule 12’s requirement that a business providing for AAA in a consumer contract register its arbitration agreement with the newly created Consumer Clause Registry, which will be a publicly available online database of preapproved arbitration agreements. It will contain the name and address of the business, the consumer arbitration clause, and additional documents that may be related to the clause.

In order to comply with this registration requirement, businesses designating the AAA’s rules in a consumer arbitration agreement must submit a copy of the arbitration agreement to the AAA and pay a $650 fee to be reviewed and registered in 2014. The fee drops to $500 for clauses submitted in 2015. AAA will charge an annual renewal fee of $500 per clause per year starting in 2016.  Once the AAA deems the clause compliant with their rules, it will be included in the Consumer Clause Registry.  Any “subsequent changes, additions, deletions, or amendments” to the agreement must be resubmitted with a new fee.

If a business has registered its clause at the time a consumer case is filed, the AAA will conduct an expedited review. There will be an additional $250 fee for the expedited review. Additionally, the AAA may decline to administer a case if a business does not comply with the Due Process Protocol and/or registration and fee requirement.

The new Rules also reflect several changes to prior rules governing how your hearing will be conducted and how long it will take to get resolved. The common theme of these changes is that claims will get resolved faster and—hopefully—for less money.

For example, Rule 21 starts the resolution process by providing, at the request of a party or the arbitrator, for a preliminary management hearing conducted by phone. In other words, parties can prevent cases from sitting around far too long after the filing of a complaint.

Rule 24 provides that the parties and arbitrator must first conduct a teleconference to resolve disputes before any party is permitted to file a written motion for the dispute resolution.  According to the AAA, “[t]his Rule will limit the filing of expensive and time-consuming motions exclusively to situations deemed necessary by the arbitrator.”  Under Rule 24, an arbitrator may consider written motions “only after the parties and arbitrator conduct a conference call to attempt to resolve the issue.”  The prior universe of motion upon motion upon motion has now been all but eliminated.

Rule 33 states that the arbitrator “may allow the filing of a dispositive motion if the arbitrator determines that the moving party has shown substantial cause that the motion is likely to succeed.” This is a major change from the sometimes multiple dispositive motions that add so much time and expense to the typical case. Businesses who are faced with what they perceive to be a meritless case may not take too kindly to this Rule, since the likelihood of even the most doubtful claims “having their day in Court” has now likely increased.

Rule 22 provides that the arbitrator directs the exchange of documents and other information between the parties, and no other information exchange beyond this is contemplated by the Rule – unless the arbitrator determines that further information exchange is needed to provide for fundamentally fair process.  This marks a profound departure from the typical expansive and expensive discovery process businesses often find themselves in. Lest there be no doubt as to the AAA’s intent here, Rule 22 expressly states that “arbitration must remain a fast and economical process.”

Finally, Rule 32 states that arbitrations generally will not exceed a day of hearing, except for “good cause” shown.  Again, this is a noteworthy departure from the usual litigation practice; this will operate to shorten the time to resolution and cut costs associated with trial time.  Also consistent with the theme of faster resolution, the new Rule 42 provides that an arbitrator shall issue the award no later than 30 calendar days following an in-person or telephonic hearing (which is cut to 14 days if it is a documents-only arbitration). 

Businesses who face consumer-related disputes, and who have chosen AAA as their service provider, need to carefully evaluate the new Consumer Rules to determine how as a practical matter they will impact the dispute resolution process. While businesses are usually fans of faster and cheaper resolution, the new Rules also make it somewhat easier for an aggrieved consumer to pursue his or her case. The new Rules present a mix of opportunities and challenges for businesses that require careful evaluation and sound professional legal advise.