How Final Do You Want It To Be?: Recent Change To American Arbitration Association Rules Allows For Appeals In Certain Cases

by Polsinelli
Contact

In a prior e-Alert, the Commercial Litigation practice outlined the issues confronting your business when deciding whether to enter into a contractual arbitration agreement. The alert noted that an important issue to consider is the typically non-appealable nature of an arbitration award. It has become increasingly apparent that there can be a downside to the finality of arbitration that does not necessarily exist in litigation. An arbitrator may misinterpret or misapply the operative law, and, in some cases, may manifestly disregard the law. Even so, parties rarely succeed on motions to vacate an arbitration award. Under the Federal Arbitration Act (FAA), a court may only review an arbitration award under very limited circumstances, such as to ensure there was no fraud in procuring the award and no bias, corruption or misconduct by the arbitrator. Courts will generally defer to an arbitrator's findings of fact and application of law. Many businesses sacrifice litigation's robust appellate review for the efficiency and finality associated with arbitration. However, the New American Arbitration Association (AAA) rules, adopted November 1, 2013, now provide a mechanism for appealing arbitration rulings within the confines of the AAA, before taking the issues to court.

The new AAA Optional Appellate Arbitration Rules present a process for appealing an underlying award to an appellate arbitration panel when there is "an error of law that is material and prejudicial," or "determinations of fact that are clearly erroneous." To be effective, the AAA Appellate Rules must be agreed upon by both parties in the arbitration agreement. Thus, for the AAA Appellate Rules to apply the rules must be reflected in the contractual arbitration provision or both parties must stipulate to the use of the new rules.

While the new AAA Appellate Rules allow for appeals, some types of contracts are omitted in the new provision. The majority of commercial disputes involving arbitration clauses contained in consumer contracts (i.e., "primarily non-negotiable" contracts) between individual consumers and businesses concerning the purchase of goods or services are excluded under the new AAA Appellate Rules.

If your contract falls within the New AAA Appellate Rules, before agreeing to include these rules in your contract, you must first note that the AAA Appellate Rules require certain fees be borne by the appellant, in addition to legal fees for preparation of appellate briefs and paperwork. The party seeking to appeal the arbitration award must pay a non-refundable $6,000 administrative fee, which presumably does not include the actual filing fee for the appeal. An additional $6,000 administrative fee must be paid by any party filing a cross-appeal. The AAA Appellate Rules expressly provide that these fees do not include the fees and costs of the Appellate Tribunal. Additionally, the Appellant may be responsible for a host of other fees and costs associated with the proceeding.

The AAA Appellate Rules maintain the entire appeal process can be completed within 30 calendar days. While this tight schedule promotes reaching a final decision quickly, depending on the complexity of your dispute, your counsel may have little time to prepare an effective briefing or an oral argument. The appeal tribunal may proceed with the appeal process without the presence of the parties or may rule on its own un-defined "jurisdiction," including any objections with respect to the "existence, scope or validity of the arbitration agreement." Alternatively, the tribunal may dismiss an appeal in its entirety if it determines the appeal has no jurisdiction, thereby rendering the underlying award final and frustrating an appellant's efforts. Finally, the AAA Appellate Rules provide no option for remand. Under the rules, the tribunal may either adopt the original award, or issue a new award.

The new AAA Appellate Rules have already raised many questions, including:

  • Whether the parties can contract to accept or reject certain rules;
  • What is the interplay between the FAA, state law, and the AAA Appellate Rules;
  • Is there judicial review of the AAA appellate tribunal's decision;
  • Can the parties contract to alter deadlines set within the thirty-day track for the process; and
  • If the parties agree to not have the appellate tribunal issue a written decision, what "record" would be presented to a court?

Before including the AAA Appellate Rules in arbitration provisions, businesses should consider that parties have been including private, appellate review of arbitration decisions for years governed by mutually agreed upon rules. If appellate review of a decision is a must, you still consider the substantive and cost advantages appellate review in litigation can provide as an alternative.

As we advised in our prior e-Alert, counsel crafting the language of your arbitration agreement should be sure to consult your litigation counsel on whether the litigation option, the AAA Appellate option or arbitration without appeal is the preferred approach.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Polsinelli | Attorney Advertising

Written by:

Polsinelli
Contact
more
less

Polsinelli on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!