Rules Update: Improved AAA Commercial Rules; NAF Rules Not An Obstacle To Enforcing Arbitration

by Stinson Leonard Street - Arbitration Nation

On October 1, new Commercial Arbitration Rules became effective at the American Arbitration Association (AAA).  These rules are likely to apply to all commercial arbitrations filed on and after October 1 (unless an arbitration agreement specifically provides for old rules).  The AAA posted its own summary of the changes.  Four of the most notable include:

  • Greater specificity about allowable discovery, as well as clear authority for arbitrators to enforce discovery orders or sanction those who do not comply;
  • Specific authority for arbitrators to hear dispositive motions if “the moving party has shown that the motion is likely to succeed and dispose of or narrow the issues in the case”;
  • Authority for parties to seek emergency relief (even without having provided for it separately in the arbitration agreement) from an emergency arbitrator within specific timelines; and
  • The parties and their counsel now have a separate duty to disclose “any circumstance likely to give rise to justifiable doubt as to the arbitrator’s impartiality or independence” including past dealings with the parties and their representatives.

In my view, these are all very positive changes.

Speaking of rules, two recent courts compelled arbitration when the arbitration agreement provided for administration by the defunct NAF.  (Previous posts on that topic here and here.)  The definite trend now is to enforce arbitration agreements calling for administration by the NAF, albeit with some procedural “fixes” to the agreement.

In one case, the Seventh Circuit compelled arbitration even though the parties’ loan agreement provided for “binding arbitration by one arbitrator by and under the Code of Procedure of the National Arbitration Forum [NAF]“ and the NAF had not accepted consumer cases since July of 2009.  Green v. U.S. Cash Advance Illinois, LLC, __ F.3d ___, 2013 WL 3880219 (7th Cir. July 30, 2013).  (Curiously, the agreement was signed in 2012, so there was plenty of time to revise it after the NAF stopped taking cases.)  The district court had refused to compel arbitration, finding the NAF was an “integral part of the agreement” and without it the arbitration agreement was void.  Noting a circuit split in which the 3d and 11th Circuits have compelled arbitration, despite selection of the NAF, while the 5th Circuit has declared agreements calling for the NAF unenforceable, the 7th Circuit sided with those compelling arbitration.  The decision engaged in a lengthy analysis suggesting that the line of cases finding one aspect of an arbitration clause “integral” contradicts Section 5 of the FAA and does not come from a general state law principle allowable under Section 2.  The Green decision has a dissent from Judge Hamilton, largely relying on the fact that the NAF Code itself “provides for arbitration by the Forum or by nobody.  Since the Forum made itself unavailable, that should mean arbitration by nobody.”

In a less contentious case, the Sixth Circuit also enforced an arbitration clause that referenced the NAF.  In that arbitration clause, however, the drafters had inserted a Plan B: “The National Arbitration Forum will be the Administrator unless…” the lender chose the AAA under certain circumstances.  The court concluded that even though the NAF was the preferred forum, that language could be excised pursuant to the note’s severability clause, which left the language authorizing arbitration before the AAA.   Smith v., Inc., 2013 WL 4406999 (6th Cir. Aug. 16, 2013).

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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