The American Arbitration Association and its related International Centre for Dispute Resolution announced on November 1, 2013 the adoption of new Optional Appellate Arbitration Rules. These new rules provide detailed procedures for obtaining review of an arbitration award by a panel of arbitrators. However, the parties must agree in their contract or by stipulation to invoke the rules since they are “optional.”
Traditionally arbitration awards were not subject to appeal and parties could seek to vacate the award only on very limited grounds. With respect to awards governed by the Federal Arbitration Act (“FAA”) the United States Supreme Court in Hall St. Assocs v. Mattel, Inc. held that parties to an arbitration agreement could not even agree to additional grounds or methods for review that were beyond those contained in the FAA. Texas courts have taken a more expansive view of the power of parties to increase the grounds for review of an award, Nafta Traders, Inc. v. Quinn, but the outer limits of that power have yet to be established.
The new Appellate Rules attempt to address the limits on reviewability of arbitration awards that have concerned contracting parties, particularly since the Hall St. decision. Assuming the parties have incorporated the new Appellate Rules, two grounds for appeal are permitted – for an “error of law that is material and prejudicial” and for “determinations of fact that are clearly erroneous.” These grounds are similar, but not identical, to the standard of review applied by federal courts of appeal in reviewing non-jury decisions of federal district judges. However, these two standards substantially differ from the grounds for vacating an arbitration award under the FAA.
Much is left to be determined as to how these Appellate Rules will operate in practice and the resulting interplay between them, the FAA and state arbitration acts. A number of issues will no doubt arise as to the scope, application and enforceability of these Appellate Rules. Careful consideration should be given to the issues raised by this new avenue of review before a business decides to include or to deliberately forego adopting the Appellate Rules in an arbitration agreement.