Is Arbitration Costly?
Is Cost an Impediment to Arbitration Cases?
A frequent challenge to the enforceability of arbitration agreements is the assertion that the expenses attendant to this form of alternative dispute resolution are cost prohibitive. For example, the American Arbitration Association has a host of fee schedules depending on the type of claim involved and fees where up to $1,000,000.00 in damages are sought can easily exceed $10,000.00. See, www.adr.org. Because access to the public judicial system requires only a nominal filing fee, many Plaintiffs will argue arbitration favors corporate entities who are the only ones that can afford arbitration, thereby discouraging would-be plaintiffs from prosecuting their claims.
AM. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304
The “cost prohibitive” challenge to arbitration agreements was conclusively resolved by the United States Supreme Court with its decision in Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013). That case involved an attempt by a group of merchants to bring a class action lawsuit against American Express. When American Express sought to force the merchants to arbitrate their claims individually against the credit card company pursuant to their binding arbitration agreements, the merchants submitted a declaration from an economist who estimated that the cost of an expert analysis necessary to prove the underlying antitrust claims would be “at least several hundred thousand dollars, and might exceed $1 million,” while the maximum recovery for an individual plaintiff would be $12,850, or $38,549 when trebled. Am. Express. Co., supra. Even with this evidence of a staggering disproportionate expense, the Supreme Court issued a relatively short opinion quickly dismantling the merchants’ claims in favor of binding arbitration. Ultimately, and consistent with the Court’s prior precedent, Italian Colors Rest. reaffirmed yet again the strong judicial mandate behind enforcement of the Federal Arbitration Act to compel arbitration when agreed upon by the parties.
Should I Choose Arbitration?
Cost, and whether that should be an impediment to selecting arbitration, is nonetheless an important consideration. In light of the Supreme Court’s clear precedent that potentially high costs do not warrant invalidating such agreements, it is now crucial that such considerations be contemplated before entering into binding arbitration agreements. Far too often, individuals or small businesses simply copy arbitration agreements found on the internet, with no appreciation that using an agreement drafted by another organization often forces them to use that organization, and pay its fees, in any future disputes. In some cases it makes more sense to avoid national groups, and their attendant fees, altogether and this can be accomplished with a properly drafted binding arbitration agreement. For this reason, among many others, seeking competent legal advice before drafting or entering into a binding arbitration agreement is crucial.
Professional Arbitration Attorneys
For more information on arbitration agreements in general, or how costs should factor into your decision about whether or not to enter into a binding arbitration agreement, contact the attorneys at Walker, Murphy & Nelson, LLP, LLP today.
Disclaimer: This article is for general informational purposes only. Nothing contained herein constitutes legal advice, nor does it create an attorney-client relationship. All persons reviewing this should consult counsel for advice regarding any specific legal questions and any unauthorized use of this information is expressly prohibited.