AAA’s Revised Construction Industry Arbitration Rules and Mediation Procedures

by Spilman Thomas & Battle, PLLC
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as published in The Change Order, a publication of the North Carolina Bar Association's Construction Law Section

The American Arbitration Association (“AAA”) recently revised its Construction Industry Arbitration Rules and Mediation Procedures. The revised rules became effective on July 1, 2015 and include a host of changes, large and small. Here is what you need to know:
 
Increased Thresholds for Regular and Fast Track Proceedings (Rules R-1 and F-1)
 
AAA provides different procedures for “regular track” and “fast track” proceedings. Actions are designated for different tracks depending on the value of the disclosed claims and counterclaims. Revised Rule R-1 increases the default threshold for regular track proceedings to $100,000, up $25,000 from the old rule. Rule F-1 has also been revised to require fast track procedures for all two-party cases in which no disclosed claim or counterclaim exceeds $100,000 (formerly $75,000) and to provide for the default resolution of disputes by submission of documents where no claim or counterclaim exceeds $25,000 (formerly $10,000).
 
Earlier Consolidation and Joinder (Rule R-7)
 
Rule R-7 governs joinder of parties and consolidation of arbitration proceedings. Previously, the rule provided no direction as to the timing of requests to join or consolidate. The rule now provides that a party must submit requests to join or consolidate to AAA either (1) “prior to the appointment of an arbitrator under Rules R-14 through 16 (the Merits Arbitrator),” or (2) within ninety (90) days “of the date the AAA determined that all administrative filing requirements were satisfied, whichever is later.” The revisions should make the arbitration process more efficient by ensuring joinder and consolidation are addressed early in the arbitration process.
 
Mediation as the Default (Rule R-10)
 
Rule R-10 now requires mediation in all cases where a claim or counterclaim exceeds $100,000, even where the parties’ contract does not provide for arbitration and neither party has requested it. Unless the parties’ agreement mandates mediation, however, any party to the proceeding may unilaterally opt out of this requirement upon notice to AAA and the other parties. The old Rule R-10 allowed for mediation, but only where both parties jointly agreed to it. The revised Rule R-10 strikes a balance between encouraging mediation on the one hand, since parties must now affirmatively opt out, while on the other hand still allowing the parties freedom to avoid the expense and forge ahead with arbitration where they prefer to do so.
 
New Preliminary Management Hearing Procedures (Rule R-23 and new Rules P-1 and P-2)
 
Rule R-23 is re-written in its entirety. The new Rule R-23 provides greater flexibility to the arbitrator in scheduling the preliminary management hearing and now leaves the decision of whether and when to hold the hearing to the arbitrator’s discretion in light of the size and complexity of the proceeding. The old rule mandated that the hearing be held “[a]s promptly as practicable” after selection of the arbitrator. The old rule’s list of matters to be discussed has been deleted in favor of new Rules P-1 and P-2. Rule P-2 sets forth a significantly expanded list of 20 topics that the parties and arbitrator should address at the preliminary hearing depending on the size, subject matter, and complexity of the dispute. New topics include threshold or dispositive issues that can be efficiently decided without considering the entire case, the production of electronically stored documents, responsibility for discovery costs related to searches for requested information or documents, and the need for and timing of site visits. Despite this new expanded list of topics, new Rule P-1 specifically counsels that “[c]are must be taken to avoid importing procedures from court systems, as such procedures may not be appropriate to the conduct of arbitrations as an alternative form of dispute resolution that is designed to be simpler, less expensive and more expeditious.”
 
Pre-Hearing Exchange and Production of Information (Rule R-24)
 
Revised Rule R-24 affords the arbitrator more authority to manage any necessary exchange of information among the parties with a view to balancing considerations of efficiency with fairness to the parties. The arbitrator can now require the parties to (i) produce documents on which they intend to rely, (ii) supplement their productions, (iii) respond to reasonable document requests, and (iv) produce electronically stored documents in the form most convenient and economical for the producing party or in a different form upon good cause shown. The arbitrator is also empowered to set reasonable search parameters for electronically stored documents to balance the requesting party’s need against the producing party’s cost of locating and producing them. Notably, former Rule R-24’s prohibition against further discovery except with leave of the arbitrator in exceptional cases is removed. Despite requiring the arbitrator to balance competing interests in managing the exchange of information, the revised Rule R-24 opens the possibility of similar discovery burdens (particularly e-discovery) as the parties might otherwise experience in litigation before a court. As seen below, however, Rule R-25 empowers the arbitrator to re-allocate these burdens through discovery orders.
 
Expanded Enforcement Powers of the Arbitrator (Rule R-25)
 
Rule R-25 is entirely new and empowers the arbitrator to issue any orders necessary to enforce Rules R-23 and R-24 and “to otherwise achieve a fair, efficient, and economical resolution of the case.” For example, the arbitrator can require protective orders to protect confidentiality, impose reasonable search parameters for electronic and other documents, allocate costs of producing documents, and, most notably, issue sanctions against a party for willful non-compliance with any order. Rule R-25 specifically authorizes drawing adverse inferences, excluding evidence and other submissions, and awarding costs as sanctions. Rule R-25 affords the arbitrator significant new authority to ensure that all parties engage meaningfully in the arbitration and discovery processes throughout the proceeding.
 
Allowance of Dispositive Motions (Rule R-34)
 
Rule R-34 is another entirely new rule that now explicitly affords the arbitrator the right, upon written application, to permit motions that dispose of all or part of a claim or narrow the issues in a case. Rule R-34 does not state what standards govern motions to dismiss or for summary judgment brought under this rule, although it is likely the arbitrator and parties would adopt the relevant civil procedure standards of the federal or state rules.
 
Exclusion of Non-Appearing Witnesses (Rule R-36)
 
Rule R-36 (formerly R-34) now authorizes the arbitrator to disregard written witness statements and expert reports if those witnesses fail to appear at the final hearing. If an essential witness is unable or unwilling to testify at the hearing, either live or through other means, parties may now request an order for the witness to appear for examination before the arbitrator in a place where the witness is willing to appear in person or can be legally compelled to do so.
 
New Emergency Measures of Protection (Rule R-39)
 
Rule R-39 is another important new addition and AAA’s answer to Rule 65 of the Federal Rules of Civil Procedure. The new rule applies to proceedings under arbitration agreements entered into on or after July 1, 2015. Rule R-39 permits parties to apply to AAA for an emergency arbitrator to grant emergency relief before the panel is constituted. The AAA must appoint a single emergency arbitrator within one business day after receipt of the application, and the arbitrator must establish a schedule to consider the application for emergency relief within two business days after appointment. If, after hearing from the parties, the emergency arbitrator is “satisfied that the party seeking the emergency relief has shown that immediate and irreparable loss or damage shall result in the absence of emergency relief,” the emergency arbitrator can enter an interim order or award granting the relief and may condition the award on the movant’s provision of a bond or other security. Thereafter, applications to modify the interim award of emergency relief must be based on changed circumstances. The emergency arbitrator’s power to act ends once the panel is constituted, unless the emergency arbitrator is named as a member of the panel. Before Rule R-39, AAA’s Construction Rules offered no procedure for seeking emergency relief on an expedited basis, essentially forcing parties to initiate a court action to obtain a TRO and then stay that action to institute a separate arbitration proceeding. While Rule R-39 provides an important alternative to Federal Rule 65, however, it does not preclude parties from still seeking relief from a court if they prefer to do so. The rule specifically notes that a request for “interim measures” from a judicial authority “shall not be deemed incompatible with this rule, the agreement to arbitrate or waiver of the right to arbitrate.”
 
Sanctions (Rule R-60)
 
New Rule R-60 continues the theme of affording greater control to the arbitrator and authorizes the award of “appropriate sanctions” where a party fails to comply with obligations under the arbitration rules or an order of the arbitrator. Of some note, the arbitrator cannot enter sanctions sua sponte; a party must request them and the offending party must be provided an opportunity to respond before the award. If the sanctions limit a party’s participation in the arbitration or result in an adverse determination of any issues, the arbitrator must require the prior submission of evidence and legal argument and must explain the decision in writing. Entry of default as a sanction is prohibited.
 
The discussion of changes identified in this article is not exhaustive. AAA has made other revisions to the Construction Industry Arbitration Rules and Mediation Procedures, which you can download at www.adr.org/construction. A number of the changes significantly alter the AAA arbitration experience, and construction clients and their attorneys are well advised to review the new rules in light of their own preferences and dispute resolution goals.

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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