A Few Things About AAA Arbitration of RIA (and Other) Claims

At a recent webinar, representatives of the American Arbitration Association ("AAA") provided several comments about the arbitration process as applied to claims involving registered investment advisors ("RIAs"):

Do the consumer or commercial AAA Rules apply?

Where the operative arbitration clause determines the applicable rules, that controls.  Otherwise, AAA's case team reviews the claim to determine whether the claim falls under the consumer or commercial rules.  On motion, the appointed arbitrator may also be asked to review which rules apply.

What's the number one difference between the Rules from the consumer perspective?

The AAA identified the fee structure as a primary difference between commercial and consumer AAA rules. The fees for consumer cases are much easier on the wallet; fees are capped at $2,500 per hearing day. The consumer's filing fee is $225 and no other fee is charged to the consumer. Under the commercial rules, AAA fees are charged at the arbitrators' standard hourly rates.

How are arbitrators assigned under the Commercial Rules?

• The strike-and-rank method.
• AAA will provide the parties with a link to arbitrators and they can then pick from the list. The parties may also limit the list based on the parties' requests regarding arbitrator fees or qualifications.
• AAA will discuss with the parties desired arbitrator qualifications, often industry experts are desired
• AAA will look at the contract and assess arbitrator qualifications best suited for the case. 

How are arbitrators assigned under the Consumer Rules?

• the arbitrator is directly appointed by AAA, the parties are provided the selected arbitrator's resume and allowed to object
• the parties may also agree to a panel of three; selection via strike-and-rank method (the AAA charge is $250 for five names)

What if the arbitration clause is unclear about the size/composition of an arbitration panel?

AAA will make a judgment regarding the size and composition of an arbitration panel upfront. Where there is an ambiguity in the arbitration clause, AAA will first seek agreement from the parties.  If there is no agreement, AAA will make judgment.  AAA generally will take into account that multi-arbitrator proceedings are much more expensive (in AAA's experience 5x more costly) and slower (on average requiring months of additional time).

How are conflicts vetted?  

AAA arbitrators are instructed to disclose, disclose, disclose; if in doubt, disclose.  

The parties can also request enhanced arbitrator selection, which makes particular sense on high-stakes cases. This typically involves getting on a ZOOM call and have a discussion with the arbitrators and pose questions related to any conflict-of-interest questions or concerns.

A party may make a bias or similar serious challenge to an arbitrator to AAA's Administrative Review Council.  The Council hears about 300 challenges per year.  The challenges result in a "yea" or nay" decision, not an explained decision about whether an arbitrator should stay or be removed.

What if a party wishes to object to hearing location, even where that is defined by agreement?

The AAA will make an initial determination, and a request can be made for review by AAA's Administrative Review Council.  The arbitrator can also be asked to make a ruling.