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AAA Rejects Coffee Beanery Franchisees Request for Arbitration Expenses

BALTIMORE – In a letter to attorney Harry M. Rifkin, Franchise and Business Law Group, the American Arbitration Association explains why his clients cannot be reimbursed for fees and arbitrator compensation even though the AAA award to Coffee Beanery has been vacated by the Sixth Circuit. It reads,

“Regarding your request for a return of the arbitrator’s compensation, it is important to note that compensation is an independent obligation between the parties and the arbitrator. The AAA’s role is limited to collecting deposits on behalf of the arbitrator and making payments based on submitted invoices. Similarly, we are unable to provide reimbursement of your clients' attorneys’ fees and expenses.”

Supervisor Karen E. Smith prefaces that decision by stating that AAA strives to provide an arbitration process that is fair and effective, and which results in an award that is final and binding. She explains,

“As such, it is always of great concern when an arbitration award is vacated. However, the AAA is unable to guarantee a particular outcome in an arbitration related litigation arising out of an AAA administered proceeding, and therefore we are unable to provide a refund . . . “

Smith further expounds that when parties agree to arbitrate pursuant to AAA rules, which necessarily provide for a limitation of liability and reflect that fees paid in connection with an arbitration are not dependent on the outcome of a case, whether it is settled, withdrawn, awarded or otherwise impacted by a court proceeding.

But in defense of his clients Richard Welshans and Deborah Williams, Rifkin shot back in his response stating that there are several fundamental factual errors and omissions in Smith’s letter. He asserts,  “First, my clients did not agree to arbitrate.  We contended that arbitration was not mandated for the disputes at issue.  The arbitration only occurred when the U.S. District Court for the Eastern District of Michigan said we had to go to the AAA to determine whether we had to arbitrate.” Rifkin further challenges, “Can you think of a single case in which the AAA sent a case back to court?  I don’t know of any, but since proceedings are private, I may be wrong.”  The Sixth Circuit opinion now says that we were not required to arbitrate. 

He continues saying,

“Second, there are some serious anomalies in the AAA’s process of appointing the arbitrator.  In February, 2006, we received a list of arbitrators.  When I responded I was told the arbitrator was appointed in August, 2005, before the list was even sent.  The records show that Joanne Barron had disclosed her relationship with Yeo & Yeo, at least in part, to the AAA before her appointment, but that was not disclosed to us until after she was appointed.  When we objected due to conflict of interest, the AAA, not Ms. Barron, told us, she would not be recused from the matter.  Yeo & Yeo was also The Coffee Beanery’s accounting firm and Jane Johnson was both Ms. Barron’s accountant and the accountant who prepared the audited financial statements of the Coffee Beanery which were alleged to be fraudulent. 

“You also imply that the Sixth Circuit is wrong.  Well, that is not your call, is it?  The Sixth Circuit opinion makes it clear that my clients should not have been in arbitration in the first place.  It was the AAA that ultimately determined the dispute was arbitrable which decision has now been wrong.  You cannot shift the blame for everything to Ms. Barron although she is certainly also blameworthy.  It would seem that legally we should be able to collect from the AAA which then can try to recoup monies from Ms. Barron.  I would suggest that the AAA consult counsel before sending such a nonsensical letter like yours.”

Rifkin doesn’t end it there. He further reprimands, “Everything the AAA does in this case is being watched by many in the legal community, by the press and by Congress.  The AAA seems intent on digging its own grave in this matter.  You can keep shoveling or you can respond appropriately and intelligently.”

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