Costs of Dispute Resolution

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In Pennsylvania, each party pays his or her own attorney fees related to litigation, unless there is a specific contract or statutory provision allowing one party to recover costs and fees, generally.

But what about court costs, such as the filing fees?

In state court, the filing fees are relatively little, ranging from $200 to $400 depending on the county and number of defendants being sued.  The winner at trial in state court gets her court costs paid by the other party but again, the amount of money is not significant, because the County picks up the cost of paying the judge and her staff.

Can costs of litigation ever be significant?  The answer is yes.

In cases where the parties agree in writing to submit all disputes to AAA arbitration, the costs can be substantial.  This amounts to relatively small number of litigation cases generally (given the vast number of cases ranging from personal injury, to construction, to non-compete), overall, but is worth noting, because parties often sign a contract that has an “arbitration clause” without knowing what it means.  In AAA arbitration, each party pays his own attorney fees, plus significant filing fees and arbitrator fees shared between the parties, ranging from 8K to 20K or more, typically, to fully litigate a case.  The arbitrator tracks all of her time when working on the case, and periodically submits bills to the litigants.  Here are the costs for trial, per the AAA website:

  • Arbitrators serving on a case with an in-person or telephonic hearing will receive compensation at a rate of $1,500 per day.

  • Arbitrators serving on a case with a desk arbitration/documents-only hearing will receive compensation at a rate of $750 per case.

Plus, the parties pay their proportionate share of leasing a conference room and other costs for the arbitration to take place, unlike cases handled in state or federal court, where the county or federal government, respectively, pays the administrative costs to make the courts function.

But what if a party is unable to pay the costs of the arbitration? Conversely, what if a party can afford the expense, but refuses to pay? May AAA arbitration dismiss the claim or defense, and upon dismissal, may a court ­consider the dispute on the merits?

This matter was addressed recently by a federal appellate court in the case of Tillman v. Tillman, No. 13-56624, (9th Cir., June 15,2016).  There, Renee Tillman commenced a malpractice ­action against her law firm for work it had done on her case.  The firm responded with a motion to compel arbitration.  The arbitration proceeded with Tillman objecting on her belief that arbitration created “unnecessarily increasing costs” (over the costs of proceeding through the courts). Then, Tillman was unable to deposit the $18,562.50 required by the AAA as a condition of continuing with the arbitration.

The law firm denied the AAA’s inquest into whether it was prepared to cover the required deposit. Tillman, then, asked AAA to require “the firm to pay the deposit going forward under AAA Rules authorizing interim relief.” That said, the arbitrator denied her motion. Instead, a deadline was set for Tillman to submit the requested funds to AAA.  In the end, the arbitrator “terminated the arbitration due to the ­missing deposits.”

Next, the law firm requested that the court: lift the stay on the court proceedings, to be followed by the dismissal of Tillman’s complaint pursuant to Fed. R.C.P. 41(b) which allows dismissal if a party fails to comply with a court order. It asserted that Tillman’s failure to pay the required ­deposit violated the court’s order ­compelling arbitration.

Tillman contended she had not violated the court order but had done “everything in her power” to act in accordance with the order.  Additionally, the law firm could have gone on with the arbitration if the firm had accepted the AAA’s suggestion that it pay the deposit pursuant to AAA rules.

The district court decided to conduct a hearing into Tillman’s financial status.  The court determined that, in fact, she was “unable to pay for her share of the arbitration,” and, therefore, the complaint should not be dismissed on the ground that she had violated a court order.

Nevertheless, the district court dismissed Tillman’s claims.  The court concluded that ­because the AAA rules required that Tillman and the law firm “bear the costs of the ­arbitration equally and allowed the arbitrator to ­suspend the proceedings if such costs were not deposited, the [FAA] deprived the ­district court of authority to hear ‘the claims that would have been subject to the arbitration agreement.'”

The appellate court reversed the trial court, meaning, where a party cannot afford the costs of AAA arbitration, she may proceed in federal court anyway, in certain instances, if the party filing suit in court (regarding a dispute governed by an arbitration clause) can prove an inability to pay the financial costs of arbitration.    

All of that said, the court made it clear that a party may not frustrate the arbitration agreement by simply refusing to pay its costs. In this case, Tillman had satisfied the court that she had given not only given prompt notice of her inability to pay and “made genuine efforts to make alternate payment arrangements,” but was unable to come up with the money.  Had she refused to pay, when she had a capacity to do so, the appellate court’s order to dismiss under Fed. R. Civ. P. 41(b) would have been proper “for failure to comply with the order to arbitrate despite its ability to do so”.

All that said, you should not worry about dealing with an arbitration clause in home improvement contracts, as said clauses are bared by the Pennsylvania Home Improvement and Consumer Protection Act.  Nor should you worry about seeing an arbitration clause in an uninsured or underinsured motorist (UM or UIM, respectively), as insurance companies often opt against using those clauses, realizing the expense of arbitration in full tort and limited tort cases.

You should talk to a lawyer, of course, to understand two tings upfront:  if there is a dispute, in what form will it take place (state court, federal, or AAA)?  And, what will be the costs.

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