To Pay or Not to Pay: That is the (Arbitral) Question

by Lionel M. Schooler, FCIArb
Jackson Walker LLP¹

Introduction. In Frazier v. X Corporation, _____ F.4th ____, 2025 WL 2502133 (2d Cir. 2025), the United States Court of Appeals for the Second Circuit addressed the issue of payment of arbitral service provider fees, specifically whether that issue is decided by a court or the Arbitrator. The decision sheds light upon the dividing line between arbitral and judicial issues in a matter governed by an arbitration agreement.

Background. The company previously known (and referred to herein) as “Twitter” laid off a bunch of its employees. When commencing employment with Twitter, these individuals signed “dispute resolution agreements (“DRA”) requiring arbitration of any employment-related disputes. The DRAs specified that such arbitral proceedings would be administered by JAMS.

Layoffs thereafter followed, and the individual employees accordingly initiated arbitration with JAMS to pursue their employment-related claims. Thereafter, Twitter challenged the manner in which JAMS was allocating arbitration fees: Twitter claimed that the DRAs required that all such fees be split pro-rata between Twitter and the claimants; on the other hand, JAMS replied that its own rules, which had been incorporated into the DRAs, required Twitter to pay all the fees other than a “case initiation fee.”

This dispute brought the entire arbitration process to a halt. Twitter refused to proceed without JAMS’ collecting pro-rata fee payments from each of the claimants; and JAMS refused to proceed with arbitrator appointment unless Twitter paid what JAMS contended was Twitter’s share of the arbitration fees.

Lawsuit Claim. Naturally displeased with this bureaucratic turn of events, the claimants declined to pay the pro-rata portion advocated by Twitter and, instead, filed suit to compel arbitration. The claimants grounded their claim on Section 4 of the Federal Arbitration Act (9 U.S.C. §4), contending that Twitter was failing or refusing to arbitrate.

Issues Presented. Whether Twitter’s actions violated the commands of FAA Section 4 and, if so, the judicial remedy available to the claimants to rectify this issue.

Judicial Analysis. The Court took one look at the ongoing impasse on the “arbitration playing field,” and then decided to punt the issue to JAMS. It determined that the failure of a party to pay arbitration fees in an ongoing arbitral proceeding is “is a procedural issue entrusted to the arbitrator or arbitral body — not the court — for resolution within that proceeding. Thus, once the parties are before their chosen arbitral body, refusal to pay ongoing fees alone is not a ‘failure, neglect, or refusal . . . to arbitrate’ that a district court is empowered to remedy under 9 U.S.C. §4.”

In reaching this decision, the Court evaluated guidance from cases such as Dealer Computer Services, Inc. v. Old Colony Motors, Inc., 588 F.3d 884 (5th Cir. 2009), and determined courts cannot become involved in such matters so as to order one side or the other to pay arbitration fees. It held that “forum-specific procedural gateway matters” as well as arbitral rules are presumptively procedural issues left to an arbitrator for resolution and, accordingly, not subject to judicial review. The Court also noted that the parties’ adoption of JAMS Rules in this case governed the resolution of such procedural matters, and that the procedural enclosure created by such Rules likewise resides exclusively with the arbitration provider. As such, according to the Court, JAMS was free to use tools available to it to resolve the issue of fee payment.

Conclusion. The Frazier decision highlights both the exclusive “jurisdiction” an arbitral service provider exercises when interpreting and applying its own arbitration rules, as well as the impasse that can occur over a failure or refusal to submit fee payments to the arbitral provider. The impasse created in this situation potentially stymies claimants’ right to pursue their claims, if the arbitral service provider declines to require compliance by a respondent.

---

¹ Mr. Schooler is a former member of the Board of the CIArb North America Branch, and the immediate Past Chair of the Texas Chapter.