As others are reflecting on notable events in the past year, I think about the American Arbitration Association’s 2013 revisions to its arbitration rules, and what those revisions mean to arbitration.
First, effective October 1, the AAA’s revised Commercial Arbitration Rules make several important changes to the arbitration process. All of the changes are summarized on the AAA’s website, but a few notable ones include:
- R-9: All arbitration claims exceeding $75,000 must be mediated concurrently with the arbitration, unless any party opts out. Notable for one of the original arbitration service providers to recognize the value of mediation as a critical ADR step in most cases.
- R-21: Arbitrators should schedule a preliminary hearing “as soon as practicable” after their appointment and related procedural rule P-1 provides a checklist of 19 items the arbitrators should cover during the preliminary hearing. Notable for how explicit the directions are to the panel as to how to conduct the hearing, but cautions the panel and parties not to “import” court-like procedures into the arbitration.
- R-22 now addresses discovery in more detail, and provides additional tools to the panel to manage the discovery process. Notable for its explicit reference to e-discovery.
- R-33 now expressly mentions the authority of the panel to decide pre-hearing motions. Notable because the old rules were silent as to pre-hearing motions.
- Revised Rule 58 (and rule 23) authorizes the arbitrators to impose sanctions for failure of a party to comply with an order of the panel or any of the AAA rules. Notable, just notable.
Second, as of November 1, AAA adopted Optional Appellate Arbitration Rules. Those rules allow for a “high-level review” of arbitral awards in large, complex cases on grounds not available in court for review of arbitral awards (i.e., errors of law) by consent of all parties. The AAA will supply former federal or state judges, or “neturals with strong appellate backgrounds” as the appellate reviewers. These rules are a direct response to disputants’ concerns that there are very limited grounds on which a court can vacate an arbitration award, and the Supreme Court ruled in 2008 that parties cannot contractually expand those grounds. In large, complex cases, parties simply have too much at stake to yield that much authority and finality to the arbitration panel. Notable as the AAA attempts to maintain arbitration as an attractive ADR mechanism for parties, yet offer court-like features to respond to criticism that arbitrators lack accountability.
I look forward to assessing ADR developments in 2014!
The new AAA rules, as currently drafted, are deserving of criticism, not praise. As expressed by the AAA in its overview, the new rules are designed to avoid the constraints of Hall Street Associates LLC v. Mattel, Inc., 552 U.S. 575 (2008). In Hall Street, the court held that parties cannot negotiate a scope of judicial review that goes beyond that permitted by the FAA. The new rules trump this constraint. Instead, the rules authorize a broad scope of appellate review for material and prejudicial errors of law and clearly erroneous factual findings. The rules exempt individual consumer cases arising out of mandatory plans, but say nothing about other kinds of mandatory cases, including employment disputes. Here are two examples of problems with the rules, in practice.
First, there is the issue of an appeal through arbitration as a substitute for judicial review. In mandatory employment arbitration we are dealing in significant measure with matters of civil rights and public law for which the courts are well-suited in terms of precedent, staffing, and the deliberative process. Forcing these appellate rules on individual employees is but another means of foreclosing the prospect of real appellate judicial review in cases involving public policy issues, particularly since, under the new rules, the arbitrators are charged with determining their own jurisdiction. A related problem is that the AAA’s appellate rules establish an entirely confidential process. Under Hall Street, there remains the prospect that federal courts will be understanding of these issues in mandatory cases, even under the limitations of the FAA, perhaps drawing a parallel to judicial review in California, as in Pearson Dental Supplies v. Superior Court, 48 Cal.4th 665 (2010)(award vacated for incorrectly applying statute of limitations to bar age discrimination claim).
Second, since the new rules only require “agreement” of the parties, there is nothing that would bar including them in the underlying mandatory plan. Does this mean that a losing claimant will have to pay substantial appellate administrtive fees – $6,000 non-refundable just to initiate the appeal – even if the employer’s plan was a condition of employment? The same fee applies if a cross-appeal is taken on an appeal initiated by an employer. The rules also state that the arbitration panel’s fees are to be paid by both parties in the event each appeals, but also that the fees can be shifted depending on the outcome, and, if the agreement so provides, a potential shift of attorneys’ fees to the non-prevailing party. As another example, what if an employer seeks interlocutory appellate review to reverse the trial level arbitrator who denied summary judgment?
If the AAA does not intend to have the rules apply to mandatory employment arbitration, it should say so by amending the rules and by announcing such a change with the same publicity that accompanied the release in November.
Barry Winograd