High Arbitration Fees Prove Costly to Defendant


A recent decision by the Arizona Court of Appeals underscores the importance of keeping consumer arbitration agreements consumer friendly. In Clark v. Renaissance West, LLC, the court affirmed the trial court’s denial of a motion to compel arbitration because the plaintiff demonstrated that it would cost approximately $22,800 in arbitrator’s fees to arbitrate the case. The court held that the arbitration agreement was substantively unconscionable because it prevented the plaintiff, an 88-year-old veteran who lived on a fixed income, from prosecuting his negligence claims against the nursing home defendant.

Most consumer arbitration agreements in use today provide that a nationwide organization, such as the American Arbitration Association or JAMS, will administer the arbitration. Those administrators have adopted special consumer fee schedules that cap the consumer’s share of the administrative and arbitrator’s fees at a few hundred dollars. The company pays the remainder of the fees. However, in Clark, the arbitration agreement was not subject to any administrator rules, and it required the parties to contribute equally to payment of the arbitrator’s fees. 

Companies might be emboldened after the U.S. Supreme Court rulings in American Express Co. v. Italian Colors Restaurants and AT&T Mobility v. Concepcion to cut back on the consumer friendliness of their arbitration agreements. We counsel our clients not to do so. For example, in Italian Colors, the Supreme Court left open the possibility that an arbitration agreement that made “filing and administrative fees attached to arbitration… so high as to make access to the forum impracticable” might not pass muster.

Although a plaintiff faces a rigorous evidentiary burden to prove that arbitration costs are “too expensive,” Clark shows that such an argument can succeed. Therefore, companies should continue to keep their arbitration agreements as consumer friendly as possible.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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