Why Do I Have to Arbitrate and How Much Will it Cost?

Many standard commercial contracts include a requirement to arbitrate. This means that the parties must adjudicate disputes through a third-party dispute resolution provider. Typically, commercial contracts will specify the provider, as well. The cost of arbitrating typically varies depending on the amount of the claim, but, in all cases, exceeds the cost of filing a lawsuit. As a result, less-moneyed parties may see themselves at a disadvantage.

The American Arbitration Association (AAA) provides both a “Standard Fee Schedule” and a “Flexible Fee Schedule.” Pursuant to the Standard Fee Schedule, in order to sue another party for a damages worth $500,000, a claimant will be responsible to pay a $5,000 initial filing fee, and a $6,200 “final fee” in advance of the time the first hearing is scheduled. The AAA fee schedules are accessible, here: adr.org. Additionally, parties are responsible for splitting the cost of the arbitrator’s time, which is generally charged at the arbitrator’s hourly rate, and varies. Other dispute resolution providers may calculate their initial filing fees differently, but all will require parties to pay for the arbitrator’s time.

What if I Can’t Afford the Fees?

You may be entitled to reimbursement, if you are successful. Carefully review the contract that requires arbitration to see if there are fee-sharing or prevailing-party provisions. These may specify that either party to the commercial contract who prevails in arbitration, is entitled to reimbursement from the losing party. Additionally, as referenced above, certain dispute resolution providers calculate fees based on the arbitrator’s time, and may specify that parties split those costs. If the agreement requiring arbitration does not specify which dispute resolution provider you are to use, then you may be free to shop around to find service with the lowest costs.

What if My Claim is Minimal? Isn’t there a Simpler Procedure? Should I just Give Up?

In many jurisdictions (including New York), agreements to arbitrate are enforced, regardless of the amount in dispute. This may lead certain parties to abandon claims for certain amounts of money. For example, a $10,000 claim may not justify, to some, the expense of arbitration.

However, it is worth researching your dispute resolution provider’s web site to determine if there are options for claimants seeking low damage amounts. For example, AAA provides for an expedited procedure in commercial cases. The expedited procedure is available for claimants seeking $75,000 or less exclusive of interest, costs and arbitration fees. The expediatd procedures do not allow for more than 1 day of hearing, extensive discovery, or the filing of motions or briefs, although arbitrators may make exceptions. Where no party’s claim exceeds $25,000, it is assumed that the case will be heard upon document submission, with no hearing, unless specifically requested by a party and granted by the arbitrator. Typically, these cases are fast-tracked, and will render a final judgment far faster than a ‘regular track’ arbitration.