Litigation Update: Appellate Arbitration


Taking yet another step to perfect the privatization of the judiciary, the American Arbitration Association has just announced that it has promulgated rules to govern the appellate review of an arbitrator’s “final” decision. The extension of this business model by the AAA is somewhat curious given that it has perpetually promoted arbitration as a cost-effective and efficient means to resolve disputes, frequently highlighting the “final and non-appealable” nature of arbitration. Indeed, there are only very narrow bases for one to appeal the final award of an arbitrator.

The new AAA appellate rules actually circumvent state and federal law. In fact, the AAA flaunts this very fact in promoting its new service: “Traditionally, courts use narrowly-defined statutory grounds to set aside an arbitration award.” As explained by the AAA in its Introduction, the new AAA appellate rules “provide for an appeal to an appellate arbitral panel that would apply a standard of review greater than that allowed by existing federal and state statutes.”

To avail oneself of this “high-level” arbitral review, all parties must agree in their arbitral contract, or otherwise expressly stipulate, to be bound explicitly by the AAA Appellate Arbitration Awards. If there is such an agreement, the appellate review is limited to: (1) an error of law that is material and prejudicial; or (2) determinations of fact that are clearly erroneous. A-9. If there is no such agreement, the AAA has no appellate jurisdiction.

AAA appellate review has certain unique features built within its rules. One is the fact that the underlying arbitration award is not to be deemed “final” until the conclusion of the appeal. A-2(a). Thus, there is a built-in, de facto stay of the award pending final appeal, and no bond is required. The prevailing party cannot confirm the award until the conclusion of the appellate review. Another component of the arbitral appeal is the tight time constraints imposed by the Rules. The initial brief is due twenty-one (21) days after the Notice of Appeal is filed; the Answer Brief is due 21 days after service of the Initial Brief, and the Reply Brief is due ten (10) days later. Extensions of time are limited to seven days. Generally, the arbitration panel must issue its decision within thirty (30) days of service of the last brief. While the arbitral panel is empowered to affirm the award, provide a substitute award, or even request additional information to render its decision, the arbitration panel is strictly prohibited from remanding the case back for a new arbitration hearing.

Succinctly, one of the main criticisms of arbitration is the lack of any colorable checks and balances on an arbitrator’s clearly erroneous understanding of the law. The AAA has now enacted a new procedure to remedy that problem. Businesses that desire the additional checks and balances should consult with counsel to ensure their arbitration provisions contain clear arbitration agreements that include the Appellate Arbitration Rules, as well as commonly referenced rules, such as the Commercial Arbitration Rules. Conversely, if the business does not want to have the added checks and balances, careful consideration should be given to ensure the Appellate Rules are not made a part of the arbitration agreement. Either way, the AAA has taken a huge step to mirror the judiciary’s procedures.

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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.

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