LITIGATION ALERT: New and Amended AAA Commercial Arbitration Rules

New and Amended AAA Commercial Arbitration Rules

October, 2013

Authors:
Michael A. Logan
Joseph A. Hummel

Effective October 1, 2013, revisions to the American Arbitration Association’s (“AAA”) Commercial Arbitration Rules (the “Commercial Rules”) will take effect for all cases filed on or after that date.  The revisions reflect an effort to clarify rights of both the parties and the arbitrator(s) to manage and conduct the arbitration process.  While there are myriad changes to the rules, this alert is intended to provide a synopsis of significant changes and amendments to the Commercial Rules.  A full text of the revised rules may be viewed online at http://go.adr.org/commercialrules.

Mediation

Among the more notable additions to the Commercial Rules is Rule R-9 – Mediation.  The rule provides that for all cases where a claim or counterclaim exceeds $75,000, the parties shall mediate their dispute pursuant to the AAA’s Commercial Mediation Procedures.  This new mediation requirement may be more form over substance, as Rule R-9 also provides that “any party to an arbitration may unilaterally opt out of this rule upon notification to the AAA and the other parties to the arbitration.”

Preliminary Hearing and Arbitration Management

The revised rules provide clarification on the procedures for the arbitration’s preliminary hearing and other arbitration management.  Rules R-21, P-1, and P-2, revising former Rule R-20, provide guidance for the parties and arbitrator with respect to the preliminary hearing.  The new rule encourages and gives the arbitrators the discretion to schedule a preliminary hearing “as soon as practicable after the arbitrator has been appointed.”  The checklist found in Rule P-2 provides a list of subjects the parties and the arbitrator should address at the preliminary hearing.  These include, among others, whether a party will seek a more detailed statement of claims, counterclaims, or defenses (P-2(a)(iii)); which arbitration rules, procedural rules, and substantive law govern the arbitration (P-2(a)(v)); whether there are any dispositive issues that can be efficiently decided without considering the entire case (P-2(a)(vi)); how the parties will bear costs of searches for documents and requested information (P-2(a)(ix)); whether any measures are required to protect confidential information (P-2(a)(x)); the date, time and place of the arbitration hearing (P-2(a)(xiii)); the form of the arbitration award (P-2(a)(xvii)); and any other matter the arbitrator considers appropriate or that a party wishes to raise (P-2(a)(xix)).  The arbitrator is required to issue a written order memorializing the decisions and agreements the parties reached during the preliminary hearing.

Pre-Hearing Exchange and Production of Information

In conjunction with the new rules’ focus on effective arbitration management, Rule R-22 has been added to clarify the procedure for exchange of documents and other information.  The Rule provides that the arbitrator may, on application of a party, or on the arbitrator’s own initiative, require the parties to exchange documents in the possession or custody on which they intend to rely.  Rule R-22 also requires that in response to “reasonable document requests,” the parties shall make available to one another documents in their possession and also update their production as new documents and information becomes known or available.   Importantly, with respect to the production of electronically stored information, the parties are “to make such documents available in the form most convenient and economical for the party in possession of such documents (emphasis added),” unless the arbitrator determines that good cause exists to produce the information in another form.  Of course, new Rule R-22(b) clarifies that the parties should attempt in advance to agree on search parameters to alleviate cost.

To further provide for effective presentation of evidence and to streamline the arbitration proceeding, certain rules have been added to alleviate the cost and burden of presenting evidence.  For instance, Rule R-32(c) provides the arbitrator with discretion to allow for the presentation of evidence through “video-conferencing, internet communication, telephonic conferences and means other than an in-person presentation.”  However, the rules dictate that there must still be an opportunity for cross examination.

As to disputes regarding the exchange of information, new Rule R-44(b) provides that in a three-arbitrator panel, absent an objection of a party or another member of the panel, the chairperson is “authorized to resolve any disputes related to the exchange of information or procedural matters without the need to consult the full panel.”

Dispositive Motions

While dispositive motions were previously available to parties arbitrating under the AAA, Rule R-33 now makes clear that the arbitrator has the authority to allow the filing of and make rulings upon a dispositive motion “only 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.”  Rule R-33 does not specify how the moving party can or should make that showing, suggesting the matter may rest entirely within the arbitrator’s discretion.

Emergency Measures of Protection

New rule R-38 provides that in all arbitrations conducted under arbitration clauses or agreements entered into on or after October 1, 2013, a party may apply for emergency relief prior to the constitution of the panel.  Within one business day of receipt of the notice, the AAA will appoint a single emergency arbitrator to rule on emergency applications.  The emergency arbitrator must disclose potential conflicts with the parties and any challenge to the appointment of the emergency arbitrator must be made within one business day of appointment.

No later than two business days after appointment, the emergency arbitrator is to establish a schedule for the parties to the request for emergency relief to be heard.  If the emergency arbitrator believes the party seeking emergency relief has shown that “immediate and irreparable loss shall result in the absence of emergency relief” and that the party is entitled to such relief, then the emergency arbitrator may enter “an interim order or award” granting that relief and stating the reasons for the relief.  Once the arbitration panel is constituted, the emergency arbitrator shall have no power to act, unless the parties agree the emergency arbitrator should be named as a member of the panel.

Remedies for Nonpayment of Fees

To address the situation where a party to an arbitration proceeding fails to pay all or part of the administrative fees or the arbitrator’s compensation, the AAA included Rule R-57 to outline the procedure and remedies upon nonpayment.  The rule provides that upon notification from the AAA of nonpayment of fees, a party may request that the arbitrator limit a party’s ability to assert or pursue their claim, but the rule does not allow the arbitrator to preclude a party from defending a claim or counterclaim.   Paragraph (e) provides that if full payments have not been made, the arbitrator, on his own or at a party’s request, may order that the proceeding be suspended.  Under Paragraph (f), if full payment is not made within the time specified after suspension of the proceedings, the AAA or the arbitrator may terminate the proceedings.  The rule makes no mention of any consequences to a party in the event that the AAA or the arbitrator terminates the proceedings for nonpayment.  Rule R-48 does contain an amendment providing that unless the parties have paid all administrative fees and arbitrator compensation, the arbitrator shall not release to the parties any “consent award” upon settlement.  As to nonpayment of fees, the Commercial Rules now provide that sanctions are available in certain instances.

Sanctions

To remedy abusive conduct during the arbitration process, the AAA included Rule R-58, which allows the arbitrator, upon request by a party, to “order appropriate sanctions where a party fails to comply with its obligations under [the Commercial Rules] or with an order of the arbitrator.”  If an arbitrator’s sanction limits a party’s participation in the proceeding or “results in an adverse determination of an issue or issues,” the arbitrator must make a written order explaining the sanction and order the submission of “evidence and legal argument prior to making an award.”  Thus, although the rule does explicitly provide that the arbitrator may not enter a default award as a sanction, new Rule R-58 does appear to provide the arbitrator latitude to provide sanctions regarding ultimate issues.

Deadlines

The revisions to the Commercial Rules also include changes to a number of deadlines, primarily from 15 days to 14 calendar days.  Among the deadlines that are now amended to require a response in 14 calendar days include: deadline for filing an answer to a demand (Rule R-5); deadline for the respondent to respond to a new or different claim or counterclaim (Rule R-6); deadline for filing any objection to the locale of the arbitration that is to be decided by the AAA (Rule R-11); deadline to strike objectionable arbitrators and return arbitrator selection lists to the AAA (Rule R-12); deadline for party to respond to a notice from the AAA to appoint an arbitrator (Rule R-13); the time period in which the party’s appointed arbitrators must notify the AAA about their selection of the arbitration chairperson (Rule R-14).

Conclusion

The new and amended Commercial Rules contain a number of changes that help clarify a number of procedural issues that have previously been handled on an ad hoc basis.  These changes should make the arbitration process less cumbersome as it relates to procedural matters.

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This Litigation Alert is a summary of recent developments in the law and is provided for informational purposes only.  It is not intended to constitute legal advice or to create an attorney-client relationship.  Readers should obtain legal advice specific to their situation in connection with topics discussed.

Copyright © 2013 Kane Russell Coleman & Logan PC.  All rights reserved.  Unless otherwise indicated, the authors are not certified by the Texas Board of Legal Specialization.

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