Alternative Dispute Resolution I AUGUST 18, 2017

The American Arbitration Association Changes its Three-Arbitrator Panel Rules. Will the Change Reduce Runaway Costs?


For large, complex arbitration, some parties negotiate for and require three arbitrators to hear their dispute.  The problem with this approach, according to the American Arbitration Association (the “AAA”), is that three-arbitrator panels cost the parties on average 5 times as much as a single arbitrator case.  The AAA suggests there may be a more cost efficient way to deliver the same services, as 60% of business disputes filed with the organization resolve before the actual arbitration hearing.  So why not limit the workload of the three arbitrators prior to the arbitration hearing?

The AAA’s solution to this frequent complaint about arbitration being too costly is found in the new Streamlined Three-Arbitrator Panel Option, which allows all pre-hearing matters to be heard by a single arbitrator, with only the final arbitration being heard by the entire panel.  According to the AAA:

The Streamlined Three-Arbitrator Panel Option allows parties to . . . utilizing a single arbitrator to manage the early stages of the case, decide issues related to the exchange of information and resolve other procedural matters without incurring the costs associated with the entire panel . . . By maximizing the use of a single arbitrator, the parties will be able to capitalize on the cost savings provided by a single arbitrator while still preserving their right to have the case ultimately decided by a panel of three arbitrators.

Parties do not have to agree to the streamlined panel method and may have 3 arbitrators hear and decide every matter.  Further, they may at any time withdraw their consent to participate in the streamlined option and will thereafter have all matters heard by a full panel.  This rule change should be applauded by the ADR community as a money-saving method that still gives the litigants the ability to control their arbitration experience through contract.