What Does It Cost for AAA, JAMS, or CPR to Administer an Arbitration Case and How Do the Initial Filings Vary?
Author’s Note: In the article I wrote for The Florida Bar Journal, I miscalculated the filing fees for two of the three examples for the American Arbitration Association (AAA). The proper formula to determine an AAA filing fee for a claim above $10 million is a base fee of $12,800, plus. 01 percent of the amount above $10 million. For the example given for a $20 million claim, the base AAA fee would be calculated as follows:
Base AAA filing fee for claim above $10 million: $12,800
Plus. 01% of amount above $10million (+$10 million): $1,000
Total AAA filing fee for a $20 million claim: $13,800
Plus $6,000 final fee which totals $19,800
1. While I miscalculated the filing fee for the $20 million claim in the original article, the calculation of the administrative fee for the $5 million counterclaim would remain the same. Thus the AAA Administrative fee for the $20 million claim and $5 million counterclaim is a total of $31,250 and not $40,250 as was erroneously stated in the article.
2. I also erroneously calculated the total amount for the $5,000,100 claim as $20,250, which amount should have been $18,250.
I regret my error and hope this correction clears up any confusion I may have created.
Coincidentally, the AAA rolled out new rules on June 15, 2014 (months after my article was written and submitted to The Florida Bar Journal), the “Supplementary Rules for Fixed Time and Cost Construction Arbitration.” These new rules allow parties to significantly reduce both the administrative fees and the arbitrator fees if they agree to use them.
Domestic arbitration organizations such as AAA,1 J AMS,2 and CPR3 p ublish rules that the arbitration organizations use in administering construction arbitration proceedings. Arbitration organizations charge fees for arbitration administration to compensate the organization for the services provided. This article is limited to commercial and construction cases. The organizations offer different pricing for services and procedures when using expedited rules, consumer rules, employment rules, or rules for cases to be decided on documents only.
The arbitration organizations have spent considerable time to make it easy to proceed under their rules, which are fairly comprehensive. However, it is amazing how many parties and attorneys have only a foggy concept of what the administrative costs for a case will be. This is partly because of honest ignorance about the administrative fees. As the old saying goes, knowledge is what you get when you read the contracts; experience is what you get when you don’t.
CPR has published rules for a nonadministered, or ad hoc, arbitration. The CPR nonadministered case rules suggest that there are services that CPR can provide to aid with the arbitration (for a fee per service requested) without full CPR administration. In July 2013, CPR published an additional set of rules for arbitration in which the case is to be fully administered by CPR. A fully administered case has administration or case management fees, as would be expected when administrative case management services are being provided.
Some lawyers may choose to have their arbitration administered by an arbitration organization and utilize the case management services the organization provides. However, some lawyers choose to administer their case themselves, without an arbitration organization providing administration services. In the ad hoc (nonadministered) arbitration, the lawyers and parties provide — or to some extent the court upon motion provides — the administrative services that the arbitration organization would provide in an administered case ( e.g. , clerk/repository of filings and administrative papers, provider of list of vetted potential arbitrators, collector of arbitrator fees (which can be a sensitive issue), decisionmaker on certain administrative issues that may come up during the case, provider of hearing room, etc.), and perhaps provide a decision on consolidation of arbitrations.
The primary reason that lawyers may choose nonadministered arbitration is to save the fees charged for the administration services. Without arbitration organization, administration judicial intervention may be invoked to address some of the services otherwise provided by an administering organization. Ad hoc administration, however, risks the expense and delay of such court intervention for tasks that would typically be within the scope of the administrative services provided by the arbitration organization. Also, it is typically faster to obtain such decisions by the arbitration organization rather than having to file suit in the midst of the arbitration process with a motion, effect service, have a judge assigned, and obtain a hearing date on the issue needing administrative decision.
One of the major publishers of form construction contract documents, ConsensusDocs, has made a change to its contract documents to allow the parties to choose among the AAA, JAMS, or another arbitration organization’s rules. The new document also requires an affirmative choice by the parties as to whether one of those arbitration organizations will administer the case. Providing these choices makes the contract drafters consider these decisions. Kudos to ConsensusDocs for noting the differences.
Case Administration: Differences Between AAA, JAMS, and CPR
• AAA Rules — Rule R-2 of the AAA Construction Industry Arbitration Rules (2009) provides that the parties authorize the AAA to administer the arbitration.
• JAMS Rules — The JAMS Engineering and Construction Arbitration Rules (2009) do not require that JAMS be the administrator of the arbitration.
• CPR Rules — The CPR Rules for Expedited Arbitration of Construction Disputes do not provide that CPR will administer the arbitration.
Any agreement may be modified by subsequent agreement among the parties, so long as it does not violate any statutory prohibition. If the parties have agreed to use rules that require case administration by an arbitration organization, they may choose to modify that agreement and either change the case administrator organization, or eliminate the case administration so that they may proceed ad hoc without administration by any arbitration organization. In a case in which arbitration is not in the underlying contract, but the parties/lawyers choose to arbitrate once the dispute arises in order to have control in selecting decisionmakers who have knowledge of the subject matter, arbitration may be agreed to be administered or ad hoc at that time.
The filing and administrative fees and expenses of the arbitration organizations differ. Note that the arbitration organization filing and/or case management fees are in addition to the compensation paid the arbitrators. The arbitrator compensation is set by the arbitrator regardless of whether an arbitration organization administers the case.
Which organization is more economical or more expensive when AAA, JAMS, or CPR is providing case administration? For comparison, I will use three examples:
• Case A — A claim for $100,000 expected to be heard in three days of hearing time with one arbitrator.
• Case B — A claim for $5,000,100, with a counterclaim of $200,000, expected to be heard within 10 days of hearing time by three arbitrators.
• Case C — A larger case with $20,000,000 claimed by the claimant, and a counterclaim of $5,000,000 sought by the respondent. It is expected to take 15 days of hearing.
In all three examples there is only one claimant and one set of respondents/counterclaimants with concurrent interests represented by the same counsel. The following comparisons are based on published data by the three organizations as of February 1, 2014. The organizations have changed filing and case management fee schedules from time to time over the years.
AAA Construction Industry Rules
Under the AAA construction industry arbitration rules,4 the filing fee and a final fee is based on the amount of the claim or counterclaim, not on the length of time that it takes to hear the case. AAA has a standard fee schedule and a flexible fee schedule, each available by choice of the parties. The flexible fee schedule is advantageous with a lower initial filing fee if the parties expect to resolve the case within 90 days of filing, but it is more expensive if the case goes past 90 days. Because the flexible fee schedule is more expensive if the case goes to final hearing, I will only use the AAA standard fee schedule for the bottom line comparison of administrative costs.
• Case A — Standard fee schedule for one arbitrator: $1,850 filing fee and $750 final fee;5 flexible fee schedule for one arbitrator: $850 initial filing fee, $1,250 proceed fee to be paid within 90 days of filing, and $750 final fee.6
Thus, for the $100,000 claim with a single arbitrator, the total standard administrative fees to the AAA is $2,600. In addition, there are the daily or hourly fees for the arbitrator and any room rental cost.
• Case B — Standard fee schedule:
$10,200 filing fee and a $4,000 final fee; plus filing fee for the $200,000 counterclaim of $2,800, and final fee of $1,250. Flexible fee schedule: $3,500 initial filing fee, $8,200 proceed fee to be paid within 90 days of filing or the case will be closed, and $4,000 final fee. For the counterclaim there is a filing fee of $1,000, a proceed fee to be paid within 90 days of filing of $2,125, and a final fee of $1,250.
Thus, for the $5,000,100 claim and $200,000 counterclaim, the standard administrative fees for both the claim and counterclaim would total $20,250. In addition there would be the daily or hourly fees for the three arbitrators, and the cost of room rental.
• Case C — Standard fee schedule:
filing fee for the claim is $22,800; the final fee is $6,000. The filing fee for the counterclaim is $8,200; the final fee is $3,250. Flexible fee schedule:
filing fee is $4,500; the proceed fee is $20,300; and the final fee is $6,000.
Thus, for the $20,000,000 claim and $5,000,000 counterclaim, the total administrative and case management fees to the AAA under the standard fee schedule is $40,250. In addition, there is the hearing room rental and the daily or hourly fees of the arbitrators.
The above fees are for case administration based on the sums in dispute, and are not related to how many hearing days are required or what study time is charged by the arbitrator(s).
JAMS Construction Industry Rules
For any of the examples under JAMS administration, there is a filing fee to start the case of $400 per each party, or group of parties represented by the same counsel, which is nonrefundable but is applicable to the case management fee. If there is a recalcitrant respondent, the claimant may advance the $400 filing fee for the respondent to get the case moving. A case management fee is assessed based on the time the arbitrator spent hearing the claims rather than on the amount in controversy.
• Case A — There is a case management fee of $400 per party (represented by the same counsel), per hearing day, based on the three days to hear the case. If there is study time performed by the arbitrator in excess of 30 total hours, including the two days of hearing time, there is an administrative fee of 10 percent of the arbitrator(s)’ fee for the administrative time in excess of 30 hours. The JAMS rules give the parties incentive to expedite the final hearing of their case and save administrative fees. Thus, under the JAMS rules there is a filing fee and case administration fee of $1,200 per party, $2,400 total, plus 10 percent of any study time or time spent on motions or otherwise outside the hearing days that would exceed 30 hours total. In addition, there are the daily or hourly fees for each of the three arbitrators. The cost of facilities usage at a JAMS resolution center is included in the case management fee.
• Case B — There is a nonrefundable filing fee of $400 per party to be applied to the case management fee. The case management fee for the 10 days of hearing involving three arbitrators would be $800 per party, per day, including use of the JAMS Resolution Center for hearing the case. There is no administrative fee charged for filing a counterclaim. Thus, the total administrative fees for a 10-day hearing is $8,000 per party, $16,000 total, including the use of the JAMS facilities for the hearings. In addition, there are the daily or hourly fees for the three arbitrators.
• Case C — There is a $400 per party filing fee. The case management fee for the 15 days of hearing would be $800 per party, per day. There is no administrative fee charged for filing a counterclaim. Thus, the total administrative fees for a 15-day hearing is $12,000 per party, $24,000 total, including the use of the JAMS facilities for the hearings. In addition, there would be the daily or hourly fees for the three arbitrators.
If a case becomes time intensive with the use of motions or significant amounts of study time outside of the hearing days, there could be additional administrative fees to the extent that the total fees exceed the number of hearing days times 10 hours. If we assume that a typical hearing day is eight hours, that would leave two hours per hearing day for motions, study time, and the award drafting without any additional case management fees. If the total of the arbitrator time exceeds 15 days x 10 hours, then there is an additional case management fee of 10 percent of the arbitrator fees for that additional time.
For nonadministered cases, there are no filing, processing, or case management fees. If services are requested for arbitrator selection, challenge, or replacement, or hearing room rental, there are specific fees for such services when requested.
For administered cases, the CPR Rules are based on the amount of the claims and counterclaims (aggregate), and getting the case decided within 12 months of the prehearing conference.
• Case A — For the $100,000 case, there is a $1,750 filing fee and $8,250 administrative fee if delivery of the final award by the tribunal to CPR for review is done within 12 months after the prehearing conference. Thereafter, CPR may charge an additional administrative fee of $2,000 for each additional six-month period. In addition there would be the daily or hourly fees for the arbitrator, and the cost of hearing room rental.
• Case B — For the $5,000,100 case with $200,000 counterclaim, there is a $1,750 filing fee, and a $10,250 administrative fee for the claim and counterclaim. If delivery of the final award by the tribunal to CPR for review is done within 12 months after the pre-hearing conference, the total administrative fees are $12,000. Thereafter, CPR may charge an additional administrative fee of $2,000 for each additional six-month period. In addition, there is the daily or hourly fees for the three arbitrators and the cost of hearing room rental.
• Case C — For the $20,000,000 case, there is a $1,750 filing fee and $14,250 administrative fee for the claim and counterclaim ($16,000 total) if delivery of the final award by the tribunal to CPR for review is done within 12 months after the prehearing conference. Thereafter, CPR may charge an additional administrative fee of $2,000 for each additional six-month period. There is the additional daily or hourly fees for the three arbitrators and the cost of hearing room rental.
A s can be seen from the above claim examples, the administrative costs vary among the arbitration organizations that provide case administration services. Figure 1 compares the administrative fees for the claim examples.
If parties could reach agreement on selecting the arbitrator(s) and wanted to minimize the administrative and case management fees, believing they can have the dispute heard without need for administrative services there are two choices: a) Handle the arbitration ad hoc with no administrative services provided by an arbitration organization; or b) agree to the voluntary arbitration or trial resolution judge procedure under F.S. §44.104. With the trial resolution judge procedure, the chosen private judge must be a Florida lawyer with at least five years experience. The trial resolution judge procedure differs from arbitration with respect to the rules of evidence being applicable and the decision being subject to full right of appeal. Appellate review would require the use of a court reporter during the proceedings, which is another cost.
If parties instead wish to utilize the services of an arbitration organization for case administration, there is a wide range among what the three primary arbitration providers charge for the case administration services. While the cost of case administration is not the most important decision in choosing an organization to administer the case, it is a factor.
Note also that arbitrators may choose to award all or a different proportion of costs from what was paid, in favor of one party and against the other.
Detail Required in the Initial Demand or Notice for Arbitration
• AAA Rules — The demand for arbitration shall include a statement setting forth the nature of the claim, including the relief sought and the amount involved.7 A more detailed statement of the claims can be addressed at a preliminary hearing.
• JAMS Rules — Claimant shall submit notice of its claim and remedies sought, together with a statement of their factual basis.8 Also, under the JAMS rules (while this disclosure is not required with the initial demand), there is the duty to disclose initial information and a duty to supplement that information, which is addressed in the information exchange segment of the case.
• CPR Rules — CPR has the most information required to be included in the initial demand for arbitration based on a goal of expediting the case. Under the CPR rules,9 a statement of claim shall include a) a detailed statement of the claimant’s claim, including all facts to be proved; b) the legal authorities relied upon by claimant; c) copies of all documents that the claimant intends to rely upon in the arbitration; d) the names of the expert witnesses claimant intends to present, together with curricula vitae and a summary of the opinion testimony to be offered; and e) the names of the percipient witnesses claimant intends to present together with a summary of the proposed testimony of each.
While each of the published rules seeks to provide a disciplined path toward expeditious dispute resolution, there are differences among those rules, only two of which are described above. Those who draft the contracts should be aware of those differences. Rules may be already chosen in the agreement to arbitrate and the parties/lawyers may choose not to change anything when a dispute arises. Then again, when a dispute arises, the parties/lawyers may see a benefit from choosing one set of rules over another, modifying the rules, choosing to have the case administered by a particular arbitration organization, or choosing not to have the case administered by an organization.
1 American Arbitration Association, http://www.adr.org.
2 JAMS ADR, The Resolution Experts, http://www.jamsadr.com.
3 International Institute for Conflict Prevention & Resolution, http://www.cpradr.org/default.aspx.
4 Dated October 1, 2009.
5 If there are three arbitrators, however, the fees increase to a $2,800 filing fee and a $1,250 final fee.
6 If there are three arbitrators, the administrative fees increase to a $1,000 filing fee, $2,125 proceed fee, and $1,250 final fee.
7 AAA Construction Industry Arbitration R. R-4 (2009).
8 JAMS Engineering and Construction Arbitration R. 9 (2009).
9 CPR R. for Expedited Arbitration of Construction Disputes 3.4.
Larry R. Leiby founded and was the first chair of the Construction Law Committee of The Florida Bar Real Property Section. He was a member of the original Florida Bar Construction Law Certification Committee appointed in 2004, later chaired that committee, and was in the first class of Florida Bar board certified construction lawyers in 2005. Leiby is the author of the Florida Construction Law Manual , and has also written the chapters on construction liens, construction bonds, and contracts in The Contractors Manual . He is active as a mediator and arbitrator, special master, adjunct professor at Florida International University College of Law, and is of counsel to Malka & Kravitz, P.A.
This column is submitted on behalf of the Real Property, Probate and Trust Law Section, Michael Allen Dribin, chair, and Kristen Lynch and David Brittain, editors.