Respondent May Not Stay Arbitration Indefinitely by Refusing to Pay Fees
posted by Michael R. Fortney | Jun 23, 2015 07:29 AM in Arbitration and Mediation
If a respondent in an arbitration proceeding refuses to pay their share of the costs of arbitration the claimant typically is faced with a conundrum -- pay the respondent's costs, or delay the proceedings. However, in a recent federal case, Pre-Paid Legal Servs., Inc. v. Cahill, the court held that a stay of a court proceeding pending the outcome of arbitration can be lifted if the arbitration proceedings are suspended due to lack of payment of fees.
After having the case removed to federal court, Cahill moved for a stay pending arbitration. The court granted the stay. Cahill then refused to pay his share of fees to the American Arbitration Association. The AAA warned Cahill that it would suspend the arbitration if the fees were not paid. Cahill did not heed the warning and the AAA suspended the arbitration. Pre-Paid then moved the district court to lift the stay, which it did.
The argument in this case concerned language found in § 3 of the Federal Arbitration Act calling for courts to stay proceedings "until such arbitration has been had in accordance with the terms of the agreement." Cahill argued that since the arbitrator had not yet heard the case, albeit due to his failure to pay the required fee, the arbitration had not "been had." The court disagreed and found that the AAA's dismissal of the action for failure to pay meant the case had gone as far as it could with the AAA, and it declared that lifting the stay was proper.
This case closes any loophole that may have existed to allow respondents in arbitration actions to indefinitely stay arbitration and avoid fighting a legal battle altogether. Instead, if a party does not pay their share of the fees, the other party can simply take the battle to a courtroom.
However, the case does give some unintended power to parties who wish to get out of the arbitration venue and have their case heard in front of a judge or jury. If one party feels that that it would benefit by having the case heard in court instead of in front of an arbitrator, they now have a way to circumvent the arbitration, even in the face of an agreement calling for arbitration. But the claimant still has a check on this power of the respondent and can pay their fees if the claimant feels that proceeding with arbitration is its best option.
Parties to arbitration agreements should be aware of this new case and the outcomes it may have on their agreement should a party decide not to pay its fees. If you would like more information on arbitration issues or would like to speak to an attorney about arbitration or other labor and employment issues, please visit our website.
