Guest Commentary

Opinion: A Shifting Tide Under Revised AAA Commercial Rules

, The Connecticut Law Tribune

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The tide of arbitration is shifting toward a less expensive, more efficient process. That wave has been building for a while, as users increasingly have lamented the fact that arbitration had become a clone of litigation, with extensive discovery and motion practice, combative advocacy and cases that dragged on while costs and contentious mounted. Providers of arbitration services and commentators have been aware of the predicament for years. Their entreaties to simplify the process and return to the original purpose of arbitration, in order to offer an expedited alternative to resolve disputes, went largely unheeded by counsel, who are litigators at heart running the process by agreement with like-minded opponents.

In its commentary accompanying the adoption of its "2010 Protocols for Expeditious, Cost???Effective Commercial Arbitration," the College of Commercial Arbitrators observed: "Arbitrators, intent upon striking a balance between fundamental fairness and efficiency, may be reluctant to push parties to limit such practices or to keep to schedule, especially when all parties have agreed to wide???ranging discovery. These tendencies are likely to be reinforced by the reality that arbitration is founded on an agreement between the parties, leading to the common and reasonable perception that arbitrators have no business second???guessing

agreements between counsel regarding the conduct of discovery and other procedures."

The CCA Protocols are carefully crafted guidelines developed by the preeminent national body composed of practicing, highly experienced arbitrators. They are designed to respond to the "litigization" and accompanying high cost of arbitration, which had fallen into increasing disuse among businesses and other users with negative experiences. These Protocols, given their source and direct recognition of the problem, were one important step toward restoring arbitration to its intended purpose and use.

In my practice as an arbitrator following adoption of the Protocols, I have seen recognition of the need for change, although there has been no appreciable shift in the attitudes and behavior of counsel. By and large (although not always) counsel in cases with any complexity or substantial amount in controversy have continued to see themselves as presumptive controllers of the process, expecting arbitrator compliance. Pushback to limit the scope of discovery and to schedule early final hearings is cordially acknowledged but oftentimes resisted by all counsel whose interest is exhaustive prehearing discovery and motion practice to make sure no stone remains unturned. As with regular litigation, this problem is compounded by discovery of electronic records.

This should be about to change in a real way. The American Arbitration Association, which is the largest provider of private arbitration services in the U.S. has adopted, effective as of October 1, 2013, an overhaul of its Commercial Arbitration Rules. Briefly, some key changes are as follows (drawn from a notice AAA neutrals have received describing the changes; quoted language is from the new rules):

Mediation: Subject to a right to opt out, in cases where a claim or counterclaim exceeds $75,000, "the parties shall mediate their dispute pursuant to the applicable provisions of the AAA's Commercial Mediation Procedures, or as otherwise agreed by the parties. Absent an agreement of the parties to the contrary, the mediation shall take place concurrently with the arbitration and shall not serve to delay the arbitration proceedings."

Preliminary Hearings: A new "P" subset of the rules gives specific guidance for the conduct of case management hearings, including topics to be addressed. Rule P-1(b) notably provides: "Care 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."

Dispositive Motions: "The arbitrator may allow the filing of and make rulings upon a dispositive motion only 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" (emphasis added).

Discovery: "Authority of arbitrator. The arbitrator shall manage any necessary exchange of information among the parties 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." This mandate encourages imposition of boundaries on discovery, including e-discovery. Under the subset of the Rules entitled "Procedures for Large, Complex Commercial Disputes" which apply when a claim or counterclaim exceeds $500,000, the arbitrator "may order" depositions "[i]n exceptional cases, at the discretion of the arbitrator, upon good cause shown and consistent with the expedited nature of arbitration…" (emphasis added). Confining depositions to exceptional cases within the rules pertaining to large, complex cases suggests an even more rigorous limitation on depositions for smaller cases.

The overarching purpose of the revisions is to accomplish more expeditious and efficient proceedings, with greater control and responsibility afforded to arbitrators to ensure this result, while permitting parties access to information necessary for the arbitrator to understand and fairly decide the case. So we have the leading provider of arbitration services standing firmly behind the principle that, in order to retain its value, arbitration should return to its roots.

A few comments on how this may work in practice and can be optimally implemented: (Note: While I am a member of the Commercial Panel, I am not speaking for AAA).

First, arbitrators have to apply the rules as an imperative to focus the dispute, enforcing rigorous case management. Parties and counsel must realize that, providing by contract that the AAA Commercial Rules govern mandatory arbitration, or in submitting a case for administration by AAA, the arbitrator controls the process. While case management remains a shared responsibility, the arbitrator is in charge and has broad management and enforcement authority under the rules.

There is an issue here that is acknowledged but not often expressly addressed. Arbitrators are hired by the parties and counsel, who pay their bills. Arbitrators allowing counsel to take control of a case can be motivated by concern that word of an arbitrator's strict case administration will "get around" and result in fewer appointments. The new rules should trump this concern, although the discovery provision for "safeguarding each party's opportunity to fairly present its claims and defenses" may provide some wiggle room. The mandate for streamlining, however, is clear, and rigorous, sensible administration, together with considered and reasonable decisions applying the facts and following the law, should put an arbitrator in greater demand.

Second, while the "opt out" loophole may swallow the rule in some cases, requiring that "the parties shall mediate their dispute" concurrently is a tremendous addition. Mediation is now actively on the table, allowing the parties to pursue mediated negotiations without the all too common fear of appearing "weak" for suggesting it. Time will tell the extent to which this provision will lead to earlier consensual resolution of cases that otherwise would settle on the eve of or during the arbitration hearing, but the new rule surely is a positive step.

There are certain to be articles and programs addressing practice under the new rules over the months to come. The proof will be in the application of the rules by arbitrators and counsel alike to implement the directive to shift commercial arbitration to a more efficient process, enabling businesses to achieve a reasonable result without the substantial burden and cost of conventional litigation.•

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