Failure To Follow AAA Rules Precludes Right To Pursue Arbitration

Two recent decisions have independently held that the failure of a party to advance fees in accordance with American Arbitration Rules will preclude the party from continuing with arbitration.

In one of these matters, the Alabama Supreme Court reversed a lower court’s order compelling arbitration of claims brought by an employee who joined the defendant company as a result of folding in the operations of her human-resources consulting practice. In Fagan v. Warren Averett Companies, LLC, the plaintiff initiated a AAA arbitration but the defendant balked at the AAA’s determination that, under applicable AAA rules, the company was responsible for advancing the arbitrator’s compensation. Consequently, the plaintiff brought suit, to which the company objected, claiming the dispute was subject to arbitration. The Supreme Court disagreed, finding that the company’s initial refusal to arbitrate constituted a default under the arbitration agreement, freeing plaintiff her arbitration obligation.

In Epps v. Rockmo Entrtainment, LLC, the Georgia Court of Appeals affirmed an order denying a motion to compel arbitration, when the movant failed to advance its share of the three arbitrators’ compensation, claiming that the AAA’s characterization of the case as complex was not warranted since the claimant’s damage request was unsupportably high, and that, if properly characterized, only one arbitrator would be required. The movant failed to abide by the AAA’s determination that the issue should be determined by the three arbitrators, and when the movant failed to do so, the AAA suspended the case. The Georgia court determined that movant’s actions constituted a waiver of its right to arbitrate, and thus the claims were properly submitted to the courts for determination.

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