On September 9, the American Arbitration Association ("AAA") issued revisions to the AAA's Commercial Arbitration Rules, which (unless otherwise agreed to by the parties) will apply to any AAA-administered arbitration that is filed on or after October 1. Several of these amendments are significant and worth the attention of companies who are, or may become, parties to an arbitration agreement governed by the AAA rules.
Arbitration is touted (sometimes too reflexively) as a cheaper and faster alternative to in-court litigation. But the promised benefits of arbitration can be largely illusory unless the arbitrator actively manages the pre-hearing process and controls discovery. The new rules appear designed to empower and encourage the arbitrator to do just that, although their impact will continue to depend on the judgment and practices of the arbitrator. The new rules also take the overdue step of clarifying that the arbitrator has the authority to consider and decide dispositive motions that may streamline or dispose of a case long before any hearing.
New Rule 9 provides that in all cases where a claim or counterclaim exceeds $75,000, the parties "shall" mediate their dispute. This mediation shall take place concurrently with the arbitration "and shall not serve to delay the arbitration proceedings." The mediator shall not serve as an arbitrator in the dispute unless the parties all agree otherwise.
Of course, parties to an arbitration have always been free to conduct mediation even as they pursue their arbitration rights. The AAA's commentary to the new rule suggests that parties are often hesitant to be the first to suggest mediation for fear that the suggestion will be viewed as weakness or lack of confidence in their claims or defenses. Nevertheless, Rule 9 permits parties to opt out of the "mandatory" mediation simply by notifying AAA and the other parties to the arbitration. We suspect the impact of this rule, especially in cases involving sophisticated parties and counsel, will be minimal.
Several of the recent amendments appear aimed at focusing on limiting discovery to key issues and avoiding the kind of burdensome and expensive discovery common in litigation.
First, Rule 21 states that the arbitrator "should" schedule a preliminary hearing "as soon as practicable after the arbitrator has been appointed." At this hearing, which can be in person or telephonic, the parties and the arbitrator should establish a procedure for the conduct of the arbitration that will achieve a fair, efficient, and economical resolution of the dispute. Rule 21 incorporates Rule P-1, which specifically cautions the arbitrator and the parties not to "import procedures from court systems that will add to the costs and delay arbitration." See id. (incorporating Rule P-1). At the preliminary hearing, the parties and the arbitrator also are instructed to discuss, among other things, whether all necessary and appropriate parties are included in the arbitration; whether a party will seek a more detailed statement of claims, counterclaims, or defenses; and whether there are any threshold or dispositive issues that can be decided without considering the entire case. The arbitrator must issue a written order memorializing decisions made or agreements reached during the hearing.
Rule 22 emphasizes that the arbitrator shall manage discovery "with a view to achieving an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party's opportunity to fairly present its claims and defenses." In addition to requiring the parties to produce any documents on which they intend to rely, Rule 22 permits the arbitrator to require parties to respond to "reasonable" document requests from the other side as long as those documents are (i) not otherwise readily available to the party seeking the documents, (ii) reasonably believed by the party seeking the documents to exist, and (iii) relevant and material to the outcome of a disputed issue.
With regard to electronically stored information ("ESI"), Rule 22 makes clear that the producing party only need make that information available "in the form most convenient and economical for" the producing party unless the arbitrator finds good cause exists for requiring otherwise. The arbitrator also is empowered to determine reasonable search parameters for ESI and should weigh the need for ESI against the cost of locating and producing it.
In the "Procedures for Large, Complex Commercial Disputes" section of the new AAA rules, Rule L-3 (formerly L-4) removes the prior reference to the arbitrator's power to authorize the propounding of interrogatories. Rule L-3 continues to empower the arbitrator to permit depositions and document requests.
Finally, Rule 58 expressly authorizes the arbitrator to impose sanctions "where a party fails to comply with its obligations under these rules or with an order of the arbitrator." Sanctions can include limiting a party's participation in the arbitration or an adverse determination of an issue or issues. The arbitrator may not enter a default award as a sanction. Although not specifically mentioned, Rule 58 also seems to contemplate an award of fees for abusive discovery tactics. Indeed, even under the current rules, arbitrators regularly hear and resolve requests for fees incurred in bringing discovery motions.
Taken together, it is clear from these new provisions that the AAA intends for arbitrators to more closely control discovery and the costs associated with it. Nevertheless, nothing in these rules limits the arbitrator's ability to permit wide-ranging and expansive discovery in any individual case.
Rule 33 authorizes the arbitrator to hear and decide dispositive motions "if the arbitrator determines that the moving party has shown that the motion is likely to succeed and dispose of or narrow the issues in the case."
The prior version of the AAA rules was silent on the question of whether the arbitrator could hear summary judgment-type motions, and many argued that the arbitrator had no such authority. The new rule is a welcome change, even if it was a long time coming. Indeed, the rules governing arbitration administered by JAMS have for some time clearly empowered the arbitrator to decide dispositive motions. See JAMS Rule 18. One of the biggest downsides to arbitration is the lack of early "off ramps" to dispose of claims that are clearly not meritorious. Under Rule 33, respondents can dispose of claims to which they have defenses as a matter of law (for example, a defense under the statute of limitations), as well as claims for which claimants are unable to come forward with any evidence necessary to support required elements. Rule 33 motions can also be used to summarily adjudicate disputes concerning arbitrability. The arbitrator's authority and willingness to decide meritorious motions will save time and money for all involved.
The prior version of the rules permitted the arbitrator to order emergency measures, but only if the parties agreed to those provisions or their arbitration agreement specifically permitted such relief. Under the new rules, the arbitrator has those powers unless the parties' agreement provides otherwise.
A party may seek emergency relief prior to appointment of an arbitrator. If such a request is made, the AAA must appoint a single emergency arbitrator within one day. The parties then have one day to challenge appointment of that emergency arbitrator. Within two days of appointment, the emergency arbitrator must establish a schedule for consideration of the application for emergency relief. That schedule must provide a reasonable opportunity for all parties to be heard. Upon a showing that immediate and irreparable loss or damage shall result in the absence of emergency relief, and that the moving party is entitled to such relief, the emergency arbitrator may enter an interim order or award granting the relief. The emergency arbitrator may not serve as a member of the merits arbitration panel unless the parties otherwise agree, but the emergency arbitrator's decision may not be modified absent a showing of changed circumstances.