On September 9, the American Arbitration Association
("AAA") issued revisions to the AAA's Commercial
Arbitration Rules, which (unless otherwise agreed to by the
parties) will apply to any AAA-administered arbitration that is
filed on or after October 1. Several of these amendments are
significant and worth the attention of companies who are, or may
become, parties to an arbitration agreement governed by the AAA
rules.
Arbitration is touted (sometimes too reflexively) as a cheaper and
faster alternative to in-court litigation.1 But the
promised benefits of arbitration can be largely illusory unless the
arbitrator actively manages the pre-hearing process and controls
discovery. The new rules appear designed to empower and encourage
the arbitrator to do just that, although their impact will continue
to depend on the judgment and practices of the arbitrator. The new
rules also take the overdue step of clarifying that the arbitrator
has the authority to consider and decide dispositive motions that
may streamline or dispose of a case long before any hearing.
Mediation
New Rule 9 provides that in all cases where a claim or
counterclaim exceeds $75,000, the parties "shall" mediate
their dispute. This mediation shall take place concurrently with
the arbitration "and shall not serve to delay the arbitration
proceedings." The mediator shall not serve as an arbitrator in
the dispute unless the parties all agree otherwise.
Of course, parties to an arbitration have always been free to
conduct mediation even as they pursue their arbitration rights. The
AAA's commentary to the new rule suggests that parties are
often hesitant to be the first to suggest mediation for fear that
the suggestion will be viewed as weakness or lack of confidence in
their claims or defenses. Nevertheless, Rule 9 permits parties to
opt out of the "mandatory" mediation simply by notifying
AAA and the other parties to the arbitration. We suspect the impact
of this rule, especially in cases involving sophisticated parties
and counsel, will be minimal.
Discovery
Several of the recent amendments appear aimed at focusing on
limiting discovery to key issues and avoiding the kind of
burdensome and expensive discovery common in litigation.
First, Rule 21 states that the arbitrator "should"
schedule a preliminary hearing "as soon as practicable after
the arbitrator has been appointed." At this hearing, which can
be in person or telephonic, the parties and the arbitrator should
establish a procedure for the conduct of the arbitration that will
achieve a fair, efficient, and economical resolution of the
dispute. Rule 21 incorporates Rule P-1, which specifically cautions
the arbitrator and the parties not to "import procedures from
court systems that will add to the costs and delay
arbitration." See id. (incorporating Rule P-1). At
the preliminary hearing, the parties and the arbitrator also are
instructed to discuss, among other things, whether all necessary
and appropriate parties are included in the arbitration; whether a
party will seek a more detailed statement of claims, counterclaims,
or defenses; and whether there are any threshold or dispositive
issues that can be decided without considering the entire case. The
arbitrator must issue a written order memorializing decisions made
or agreements reached during the hearing.
Rule 22 emphasizes that the arbitrator shall manage discovery
"with a view to achieving an efficient and economical
resolution of the dispute, while at the same time promoting
equality of treatment and safeguarding each party's opportunity
to fairly present its claims and defenses." In addition to
requiring the parties to produce any documents on which they intend
to rely, Rule 22 permits the arbitrator to require parties to
respond to "reasonable" document requests from the other
side as long as those documents are (i) not otherwise readily
available to the party seeking the documents, (ii) reasonably
believed by the party seeking the documents to exist, and (iii)
relevant and material to the outcome of a disputed issue.
With regard to electronically stored information ("ESI"),
Rule 22 makes clear that the producing party only need make that
information available "in the form most convenient and
economical for" the producing party unless the arbitrator
finds good cause exists for requiring otherwise. The arbitrator
also is empowered to determine reasonable search parameters for ESI
and should weigh the need for ESI against the cost of locating and
producing it.
In the "Procedures for Large, Complex Commercial
Disputes" section of the new AAA rules, Rule L-3 (formerly
L-4) removes the prior reference to the arbitrator's power to
authorize the propounding of interrogatories. Rule L-3 continues to
empower the arbitrator to permit depositions and document
requests.
Finally, Rule 58 expressly authorizes the arbitrator to impose
sanctions "where a party fails to comply with its obligations
under these rules or with an order of the arbitrator."
Sanctions can include limiting a party's participation in the
arbitration or an adverse determination of an issue or issues. The
arbitrator may not enter a default award as a sanction. Although
not specifically mentioned, Rule 58 also seems to contemplate an
award of fees for abusive discovery tactics. Indeed, even under the
current rules, arbitrators regularly hear and resolve requests for
fees incurred in bringing discovery motions.
Taken together, it is clear from these new provisions that the AAA
intends for arbitrators to more closely control discovery and the
costs associated with it. Nevertheless, nothing in these rules
limits the arbitrator's ability to permit wide-ranging and
expansive discovery in any individual case.
Dispositive Motions
Rule 33 authorizes the arbitrator to hear and decide dispositive
motions "if the arbitrator determines that the moving party
has shown that the motion is likely to succeed and dispose of or
narrow the issues in the case."
The prior version of the AAA rules was silent on the question of
whether the arbitrator could hear summary judgment-type motions,
and many argued that the arbitrator had no such authority. The new
rule is a welcome change, even if it was a long time coming.
Indeed, the rules governing arbitration administered by JAMS have
for some time clearly empowered the arbitrator to decide
dispositive motions. See JAMS Rule 18. One of the biggest
downsides to arbitration is the lack of early "off ramps"
to dispose of claims that are clearly not meritorious. Under Rule
33, respondents can dispose of claims to which they have defenses
as a matter of law (for example, a defense under the statute of
limitations), as well as claims for which claimants are unable to
come forward with any evidence necessary to support required
elements. Rule 33 motions can also be used to summarily adjudicate
disputes concerning arbitrability. The arbitrator's authority
and willingness to decide meritorious motions will save time and
money for all involved.
Emergency Measures/Injunctions
The prior version of the rules permitted the arbitrator to order
emergency measures, but only if the parties agreed to those
provisions or their arbitration agreement specifically permitted
such relief. Under the new rules, the arbitrator has those powers
unless the parties' agreement provides otherwise.
A party may seek emergency relief prior to appointment of an
arbitrator. If such a request is made, the AAA must appoint a
single emergency arbitrator within one day. The parties then have
one day to challenge appointment of that emergency arbitrator.
Within two days of appointment, the emergency arbitrator must
establish a schedule for consideration of the application for
emergency relief. That schedule must provide a reasonable
opportunity for all parties to be heard. Upon a showing that
immediate and irreparable loss or damage shall result in the
absence of emergency relief, and that the moving party is entitled
to such relief, the emergency arbitrator may enter an interim order
or award granting the relief. The emergency arbitrator may not
serve as a member of the merits arbitration panel unless the
parties otherwise agree, but the emergency arbitrator's
decision may not be modified absent a showing of changed
circumstances.
Footnote
1. For one critique of the common arguments made in favor of arbitration, see Christopher Lovrien et al., Thinking Critically About Arbitration for Complex Civil Cases, 2 Bloomberg Law Reports - Corporate Counsel, 11 (2011).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
