Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Class action lawsuit challenges AAA’s alleged monopoly in consumer arbitration market, (May 16, 2025)

By George Basharis, J.D.

Plaintiff alleges American Arbitration Association controls 94 percent of market through predatory pricing and restrictive rules that harm consumers.

A class action lawsuit filed in the United States District Court for the District of Arizona on May 15, 2025, accuses the American Arbitration Association (AAA) of maintaining an illegal monopoly in the consumer arbitration market. The complaint alleges that AAA has created a “monopolistic second-tiered justice system” through anticompetitive practices that ultimately harm consumers (Stephens v. American Arbitration Association, Inc., No. 2:25-cv-01650-JJT (D. Ariz. May 15, 2025)).

Allegations of market domination. According to the complaint, AAA dominates approximately 94 percent of private consumer arbitrations in America, significantly outpacing its competitors. The second-largest provider, JAMS, represents only about 5 percent of consumer arbitrations, while the National Arbitration and Mediation accounts for a mere 0.0003 percent of the market.

The lawsuit claims AAA has achieved this market dominance by implementing what it describes as cut-rate pricing on arbitrations and creating restrictive rules that limit consumer rights. The plaintiff asserts that AAA has established itself as the sole forum available to consumers in 63 percent of the consumer agreements reviewed by counsel before filing the complaint.

The filing specifically points out that AAA is the only forum available in all five of the top cell phone companies in the United States by subscriber volume, in eight of the nine largest telecoms in West Virginia and North Carolina, and in all three major credit reporting agencies. Additionally, the complaint states that four of the five most popular payment apps exclusively use AAA for dispute resolution.

Consumer outcomes and arbitrator compensation. A central argument in the lawsuit is that consumers fare poorly in AAA arbitrations. The complaint alleges that consumers who file claims with AAA lose 73 percent of the time nationally and in North Carolina, and 89 percent of the time in West Virginia. By comparison, the filing claims consumers win 40 percent of arbitrations at JAMS nationally.

The lawsuit also takes aim at AAA’s arbitrator compensation structure. Until January 2024, the complaint alleges AAA capped arbitrator compensation at $2,500 for consumer arbitrations, including one day of hearings, the final award, and a preliminary scheduling conference. For settled cases, arbitrators received only $1,250. Recently, AAA replaced this system with a $300 per hour rate, which the plaintiff argues is still significantly below market rates that average around $600 per hour.

By contrast, the complaint states that JAMS arbitrators handling consumer cases earn an average of $5,572 for cases that settle before a hearing and $27,315 for cases that go to a final hearing. The plaintiff alleges that AAA’s compensation structure discourages experienced and competent legal professionals from serving as arbitrators in consumer cases and incentivizes them to minimize time spent on case preparation.

Arbitrator selection and rules disparities. The lawsuit highlights several procedural aspects that allegedly disadvantage consumers in AAA arbitrations. These include:

1. No strike list for arbitrator selection. Consumers in AAA arbitrations cannot select or strike potential arbitrators and are assigned arbitrators without input, unlike in JAMS where consumers receive a strike list of at least five arbitrators.

2. No discovery rights. AAA consumer rules do not allow for discovery or depositions, whereas JAMS rules permit both.

3. Proposed rule changes. AAA has proposed new consumer rules that would eliminate the right to a hearing for cases valued under $50,000, requiring them to be decided on paper submissions only.

4. Demographics of arbitrators. The lawsuit claims 75.1 percent of AAA arbitrators are male, 96.7 percent have no disability, and 85 percent are white, suggesting a lack of diversity.

The complaint alleges that while AAA maintains these restrictive rules for consumer arbitrations, it does not impose similar limitations on other types of arbitration, such as employment, construction, corporate, healthcare, and labor disputes. In these other categories, AAA allows arbitrator strikes, discovery, and pays arbitrators their standard hourly rates without caps.

Claims and class action structure. The lawsuit brings claims under both federal and Arizona state law, including alleged violations of the Sherman Act, Clayton Act, Arizona Antitrust Act, and the Arizona Constitution, which explicitly prohibits monopolies in Article 14, Section 15.

The plaintiff seeks to represent two classes:

• A national class of all United States residents with contracts providing AAA as the only available forum for legal relief

• An Arizona subclass of residents subject to the same conditions

The plaintiff is not seeking damages related to the handling of any specific arbitration but is focused on the lack of choice in the arbitration marketplace. The complaint argues that AAA’s practices harm competition by preventing other forums from offering comparable arbitration services while maintaining neutrality.

Market analysis and industry context. The complaint includes a detailed analysis of AAA’s market position, arguing that the organization has achieved monopoly power through anticompetitive means rather than through “superior product, business acumen, or historic accident.” The plaintiff alleges that AAA’s pricing practices stifle competition and create an artificial price floor that prevents competitors from entering the market.

The lawsuit cites AAA’s own Consumer Due Process Protocol, which establishes principles for fair arbitration, and argues that AAA violates these standards through its practices. According to the complaint, the Protocol warns against underfunding arbitrators and emphasizes the importance of neutral forums, especially in contexts where consumers have limited choice.

The case represents a significant challenge to the structure of consumer arbitration in the U.S., potentially affecting millions of consumers who have signed contracts requiring AAA arbitration. Given the prevalence of mandatory arbitration clauses in consumer agreements across telecommunications, financial services, and other industries, this lawsuit could have far-reaching implications for how consumer disputes are resolved in the future.

The Case is No. 2:25-cv-01650-JJT.

Attorneys: David Ali Chami (Consumer Justice Law Firm, PLC) for Stephanie Stephens.

Companies: American Arbitration Association Inc.

News: Antitrust ArizonaNews