Arbitration Nation is seven years old, and has 330 posts under its belt (and no seven year itch).  Hip hip hooray!  One of those posts is a perennial favorite, coming up over and over in search results: When Should You Choose JAMS, AAA or CPR Rules?  Because that comparison is five years old, we give you an update.  Here is a chart comparing the three sets of commercial rules on important topics.  Fair warning: the rules are very similar.  So, we added an asterisk in the first column to indicate an issue where there is some difference among the administrators.

Comparison of Popular Arbitration Rules in U.S.

Rule/Topic

Commercial Arbitration Rules – AAA

(Oct. 1, 2013)

JAMS Comprehensive Rules & Procedures

(July 1, 2014)

CPR Administered Arbitration Rules (July 1, 2013)
Filing Fee for $1,000,000 Claim * $8,475 For a two-party matter: $1,500 initial filing fee paid by the party initiating the arbitration and $1,500 for counterclaims. For matters involving three or more parties: $2,000. After that, a case management fee of 12% is assessed against all professional fees charged by arbitrator(s).

Non-refundable filing fee: $1,750

Admin Fee: $7,250

Deadline for Filing Answer/Response to Claim Within fourteen days after respondent receives notice of claim. Within fourteen days after respondent receives notice of claim. Within twenty days after the Respondent receives notice of claim from CPR.
Time to Hearing * None specified None specified The dispute should in most circumstances be submitted to the tribunal within six months after the initial pre-conference.

Number of Arbitrators *

(if not specified in arbitration agreement or agreed upon by parties)

If claim or counterclaim is under $1,000,000, the dispute will be heard by one arbitrator. If it is above that, then three arbitrators shall determine the case. The dispute will be heard by one arbitrator. The dispute will be heard by three arbitrators.
Mediation “Required” * In all cases where a claim or counterclaim exceeds $75,000, during the time that the arbitration is pending, the parties shall mediate their dispute, unless one or both parties opts out.

Not required; however, the Parties may agree, at any stage of the Arbitration process, to submit the case to JAMS for mediation.

 

Not required, however, the arbitrator may request CPR to arrange for mediation by a mediator acceptable to the parties.
Modification of Rules Parties may modify rules or procedures by written agreement. However, after appointing an arbitrator, such modifications require the consent of the arbitrator. Parties may modify rules as long as modification is legal and consistent with JAMS policies. Parties must notify JAMS and shall confirm the modifications in writing. Modifications are allowed; however, the parties must agree in writing to such modifications during the course of the arbitral proceeding.

 

 

Authority to Determine Jurisdiction

The arbitrator has the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim. The arbitrator has the authority to determine jurisdiction and arbitrability issues, including the existence, scope, and validity of an arbitration agreement, as a preliminary matter. The tribunal has the power to hear and determine challenges to its jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.
Discovery * For cases of all sizes, the arbitrator manages the exchange of information “with a view to achieving an efficient and economic resolution of the dispute, while … safeguarding each party’s opportunity to fairly present its claims and defenses.” Cases with claims under $1,000,000 contemplate just document exchange, while those with claims exceeding $1,000,000 clarify that the arbitrator has discretion to order depositions “upon good cause shown.” For cases of all size, the parties are expected to exchange all relevant ESI and documents within 21 days after pleadings are filed.   In addition, each party may take one deposition of an opposing party. Empowers the tribunal to facilitate “such discovery as it shall determine is appropriate,” but must take into account the needs of the party and the desirability of making discovery efficient and cost effective.
Dispositive Motions The moving party must show that the motion is likely to succeed and dispose of or narrow the issues in the case. The arbitrator may permit summary disposition of a particular claim or issue, either by agreement of all interested parties or at the request of one party, provided such other interested parties are given reasonable notice to respond.

There is no specific rule regarding summary disposition.

However, the CPR has provided guidelines outlining principles & procedures that note dispositive motions are appropriate when a requesting party can demonstrate that early disposition of any factual or legal issue may be accomplished efficiently and fairly, or when all parties agree that early disposition of a particular issue would be desirable.

Emergency Relief and

Interim Protection

Before an arbitrator is appointed, a party may seek emergency relief and an emergency arbitrator will be appointed within one business day, and a schedule established within two business days.

The (regular) arbitrator may take whatever interim measures he or she deems necessary for the protection or conservation of property.

Before an arbitrator is appointed, a party can seek emergency relief and an Emergency Arbitrator will be appointed within 24 hours, and a schedule established within two days.

The (regular) arbitrator may grant whatever interim measures are deemed necessary, including injunctive relief and measures for the protection or conservation of property.

Before the tribunal is constituted, any party can request that an interim/emergency measure of protection be granted by a special arbitrator. The arbitrator will be appointed within one business day and shall conduct the proceedings “as expeditiously as possible.”

The (regular) panel may take any interim measures as the tribunal deems necessary to preserve assets or property.

 

Default Award Does not allow the arbitrator to render an award solely on the basis of default or absence of a party. Does not allow the arbitrator to render an award solely on the basis of default or absence of a party. The arbitration will proceed even if the Respondent fails to file a timely notice of defense. The tribunal is empowered to make an award on default; however, such award may only be made after the production of evidence and supporting legal arguments by the non-defaulting party.
Confidentiality * None JAMS and the Arbitrator are required to maintain the confidential nature of the Arbitration proceeding and the award, including the hearing, unless disclosure is necessary e.g. in connection with a judicial challenge or otherwise required by law. Unless otherwise agreed, the parties and the arbitrators shall treat the proceedings and related discovery as confidential, unless disclosure is necessary i.e. a judicial challenge or if required by law or to protect the legal right of a party.
Authority to Grant Relief

The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable, and within the specific scope of the agreement of parties (e.g. specific performance of a contract).

The arbitrator may apportion the arbitration fees and expenses among the parties, and may award attorneys’ fees if all parties requested such an award or it is authorized by the arbitration agreement or law.

In determining the relief to be granted, the arbitrator should be guided by the rules of law agreed upon by the parties and the rules of law and equity that he or she deems most appropriate.

The arbitrator may allocate arbitration fees and arbitrator compensation, unless the parties’ agreement precludes that. The arbitrator also may award attorneys’ fees if provided by the parties’ agreement or applicable law.

The Tribunal may grant any remedy or relief, including but not limited to specific performance of a contract, which is within the scope of the agreement of the parties and permissible under the law(s) or rules of law applicable to the dispute.

Unless the parties’ agreement precludes it, the Tribunal may also allocate the costs of arbitration, including attorneys’ fees, in such manner as it deems reasonable.

Award Deadline Thirty days after the end of hearings, or if hearings are waived thirty days after arbitrator receives all of materials by the parties. Thirty days after the end of hearings, or if hearings are waived thirty days after arbitrator receives all of materials by the parties. Thirty days after the end of hearings; however, as long as the tribunal must only use “best efforts” to comply with this requirement.

Arbitration Nation thanks Haaris Pasha, a law student at the University of Minnesota, for contributing to this post.

Albert Einstein supposedly once said “you have to learn the rules of the game. And then you have to play better than anyone else.” In arbitration, that means figuring out which organizations’ rules are best suited for your arbitration clause. This post is designed to help drafters make that decision by giving a quick and dirty overview of the similarities and differences between the administered rules for commercial disputes at the three most common arbitration providers: AAA, JAMS, and CPR.

Generally speaking, the rules of the three organizations are very similar. That said, attorneys and clients should consider the following:

  • FEES:  In addition to hourly arbitrator rates, all three organizations have some kind of administrative/filing fee.  JAMS charges this administrative fee as a function of the arbitrator’s time and thus may be the most cost-effective for short arbitrations. On the other hand, AAA and CPR charge on claim value.  Between those two organizations, AAA is more cost-effective for claims under $5,000,000, while CPR becomes cheaper for claims above that figure.
  • DEFAULT AWARD: JAMS and AAA do not allow arbitrators to render an award solely on the basis of default or absence of a party. CPR, on the other hand, does provide for a default award.  However, all three organizations require an arbitrator to consider substantive evidence before ruling against an absent party.
  • DISCOVERY: JAMS has a detailed set of Expedited Procedures parties can adopt that limit discovery (for example, to one deposition per party) and preclude dispositive motions.  The AAA also allows parties to adopt its Expedited Procedures (those procedures apply automatically to disputes under $75,000), but the procedures do not expressly limit discovery and instead generally adopt shorter timelines for the arbitration.  If speed and efficiency of arbitration is your number one goal, the Expedited Procedure under JAMS are a great choice. On the other hand, for parties anticipating a more complex dispute, or needing more flexibility in discovery, the general commercial rules of these organizations all allow the arbitrator(s) to tailor the discovery to the needs of the case.
  • ARBITRATORS: The three organizations all have similar, and complicated, methods for selecting arbitrations if (okay, when) the parties cannot agree on their own.  The number of available arbitrators varies, though.  Our best research indicates there are over 3,600 on the AAA roster, 500-600 on the CPR roster, and approximately 150-300 on the JAMS roster.
  • AWARD DEADLINES: JAMS and AAA explicitly require 30 days’ time in which arbitrators must render a final award. However, the CPR’s 30-day requirement is more of a “best efforts” suggestion than a hard and fast rule.  Thus, parties looking to get to the final award as quickly as possible may want to choose JAMS or AAA.
  • MOTION PRACTICE: AAA and CPR do not explicitly provide for summary disposition, but the JAMS Comprehensive Arbitration rules do (the Comprehensive rules are for claims over $250,000. JAMS has a Streamlined set of rules for claims under $250,000).  Thus, drafting parties who want to ensure the possibility of summary disposition are better off looking to JAMS’ Comprehensive rules.

Of course, there are many more rules for each organization and other important issues to consider.  However, this list should give drafters a good starting point for analyzing which arbitral forum (and specific rules in that forum) are best for their arbitration agreement.

**ArbitrationNation thanks Max Corey, a student at the University of Virginia School of Law, for his work on this post.

Let’s say your arbitration agreement calls for arbitration administered by JAMS under JAMS rules, but the arbitrator is independent and applies AAA rules, over one party’s objection.  A new decision from the Fifth Circuit says that is enough to vacate the resulting award.

In Poolre Insurance Corp. v. Organizational Strategies, Inc., __ F.3d__, 2015 WL 1566633 (5th Cir. April 7, 2015), there was a dispute between a self-insured company, the consultants that set up its insurance program (Capstone), and its reinsurer.  The arbitration agreement between the company and Capstone called for arbitration under the Commercial Arbitration Rules of the AAA, with venue in Delaware.  The arbitration agreement between the company and the reinsurer, on the other hand, called for arbitration by the International Chamber of Commerce (ICC), in Anguilla, with the arbitrator chosen by “the Anguilla [] Director of Insurance.” (Anguilla is in the British West Indies.  Why don’t I ever get to arbitrate somewhere exotic?  Maybe that’s the reward for being a reinsurance lawyer…)

Capstone started arbitration with the company at “Conflict Resolution Systems, PLLC” (CRS) in Houston, and Dion Ramos was named the arbitrator.  When the reinsurer inquired whether the Anguilla Director of Insurance could select the arbitrator, as required in the reinsurance contract, an Anguillan official explained that “no such official existed.”  (Sounds reminiscent of these cases...)  However, the Anguillan official designated CRS to select an independent arbitrator and administer the proceedings.  The company objected to the arbitrator’s authority, and the reinsurer intervened to request an arbitrator based in Anguilla.  Ramos found he had jurisdiction over all parties, and found the reinsurer waived its right to arbitrate in Anguilla by intervening.  The company continued to object, arguing that the arbitrator did not have the power to apply AAA rules to the reinsurance dispute.

Ramos found the reinsurer was properly joined in the arbitration.  On the merits, Ramos found the company breached its contracts with Capstone and the reinsurer and granted attorneys’ fees and expenses to Capstone and the reinsurer of about a half a million dollars.  Ramos denied all the company’s claims.

The reinsurer and Capstone moved to confirm the award and the company moved to vacate.  The Texas district court found Ramos exceeded his authority by exercising jurisdiction over the reinsurer and applying AAA rules to the reinsurance dispute. Because the inclusion of the reinsurer “tainted the entire process,” the district court vacated the award.

On appeal, the Fifth Circuit affirmed the district court’s decision to vacate the award.  The court noted that arbitration awards may be vacated when arbitrators “exceed[] the express limitations” of the contractual mandate, or act contrary to express contractual provisions.  Here, the Fifth Circuit found two separate bases for vacating the award.  First, the arbitrator-selection mechanism in the reinsurance contracts was not followed.  (In a footnote, the court acknowledged that the selection mechanism provided in the contract was not actually available, since there was no official with that title, but that the parties could have come to the court under Section 5 of the FAA and asked the court to appoint an arbitrator.)  Second, Ramos “acted contrary” to the requirement that the reinsurance disputes be arbitrated by the ICC under ICC rules.  The court found that was a “forum selection clause integral to the agreement” and therefore the arbitrator exceeded his power by applying AAA rules.  (Interestingly, the Fifth Circuit did not analyze the third basis that the district court used to support vacatur: the arbitrator’s decision to join all the parties to a single arbitration, although the company had not consented to consolidation.)

What are the lessons here for parties?  Here are at least two.  First, do not try to consolidate arbitrations that call for different administrators or different rules unless all parties agree.  And second, if you are going to specify an unusual arbitrator-selection process, make sure to put a “Plan B” in the contract.

Two other bits of arbitration news:

First, SCOTUS denied cert in one of the cases that refused to enforce an arbitration clause calling for arbitration before a Native American tribe.

Second, Delaware’s Rapid Arbitration Act officially became a law on April 3 and will go into effect in May.  Will Delaware businesses see the promise of speedy dispute resolution (max resolution time is 180 days by law) as enough of a benefit to give it a try? We may never know, as the process will be confidential…

I can’t believe we’re more than a week into August!  I don’t know about you, but I feel like I’m going to have to say goodbye to summer too soon.   I love fall, so maybe that’s not so bad?

Anyway, speaking of farewells, this week we get a back-to-the-basics refresher from the Eleventh Circuit on waving bye-bye to the right to arbitrate.  Although the particulars involved a consumer arbitration agreement, the key reasoning applies more broadly to all arbitrations.

In Freeman v. SmartPay Leasing, LLC, 771 Fed.Appx. 926 (11th Cir. 2019), SmartPay and Freeman entered into an agreement providing that the party initiating arbitration could choose either the AAA or JAMS rules and administrative services.

Freeman had a beef with SmartPay.  So, she sued SmartPay in federal district court. Shortly thereafter, the parties filed a joint motion to stay and to refer the dispute to binding arbitration. Freeman selected JAMS as the arbitration forum, she filled out the required form, and she paid a $250 initial filing fee.

This is where things went off the rails. SmartPay alleged that there were important procedural differences between the parties’ arbitration agreement and the JAMS rules. The details aren’t overly important, but the gist is that SmartPay argued those differences meant that this wasn’t truly a “consumer arbitration” under JAMS rules. (Basically, SmartPay didn’t want to have to pay all of the costs of the arbitration, other than the initial $250 that Freeman paid.)

JAMS didn’t buy it. It said that it wouldn’t administer the “consumer arbitration” unless and until SmartPay finished paying $950 in filing fees and waived any provisions in the parties’ agreement contrary to JAMS’s Consumer Minimum Standards. SmartPay stood firm by its position that this wasn’t a “consumer arbitration.” So it refused to pay the balance of the filing fee. It ultimately took the position that if JAMS wouldn’t administer the arbitration the case would have to be dismissed and refiled with the AAA.

JAMS did dismiss, but Freeman opted not to refile with the AAA. Instead, she went back to the district court and asked that the stay be lifted. She argued that SmartPay had waived its right to demand arbitration by refusing to pay the remaining initial filing fee. The district court agreed.

On appeal, the Eleventh Circuit noted that under FAA § 3, a district court should stay the litigation “until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” Default includes waiver. Waiver, in turn, hinges on whether a party has acted inconsistently with the right to arbitrate and that inconsistent behavior has prejudiced the other party.

The Eleventh Circuit agreed that SmartPay had waived its rights by failing to pay the filing fee. In so doing, it said the issue of whether the alleged conflicts between the arbitration agreement and the JAMS rules could be reconciled was one for the arbitrator. By refusing to pay the balance of the initial filing fee, SmartPay acted inconsistently with its right to demand arbitration. In turn, that prejudiced Freeman because it precluded her from seeking relief through her chosen arbitral forum.

I’m sympathetic to SmartPay in one sense: JAMS seemingly required SmartPay to waive its procedural arguments before it even got into arbitration. That’s problematic. But the lesson of the case is that arbitral institutions aren’t arbitrators. SmartPay could have and should have made its procedural arguments to the arbitrator. It agreed to JAMS as a forum. Once it did, couldn’t escape that forum on the grounds that the forum was applying arguably the wrong rules. That should have been taken up with the arbitrator herself.

This post is aimed at drafters of arbitration clauses. Because if you don’t insert an administrator for your arbitration, and don’t anticipate that the administrator may just stop providing services, your arbitration clause is dead in the water. At least, that’s the holding of two new state court cases.

In A-1 Premium Acceptance, Inc. v. Hunter, 2018 WL 4998256 (Mo. Oct. 16, 2018), the Supreme Court of Missouri affirmed the lower court’s decision to deny a defendant’s motion to compel arbitration. The reason was that the arbitration agreement within the 2006 loan documents provided “any claim or dispute related to this agreement…shall be resolved by binding arbitration by the National Arbitration Forum [NAF], under the Code of Procedure then in effect.” As regular readers are aware, the NAF stopped administering consumer arbitration in 2009. Although many courts have enforced arbitration agreements, despite their inclusion of NAF, Missouri did not. It found that the language of this clause showed that the parties intended to arbitrate before the NAF and only the NAF. Therefore, the court refused to use Section 5 of the FAA to appoint a replacement administrator.

In Flanzman v. Jenny Craig, Inc., Docket No. A-2580-17T1 (N.J. Super. Ct. App. Div. Oct. 17, 2018), New Jersey’s appellate division was faced with a slightly different problem: the parties’ arbitration clause did not provide what rules would govern the arbitration nor which entity would administer it.  As a result, the court found the arbitration clause was never formed, because the employee could not give informed assent. It reasoned:

Selecting an arbitral institution informs the parties, at a minimum, about that institution’s arbitration rules and procedures.  Without knowing this basic information, parties to an arbitration agreement will be unfamiliar with the rights that replaced judicial adjudication.  That is, the parties will not reach a “meeting of the minds.”

While clarifying that no magic words were required, the New Jersey court noted that if the parties don’t identify an “arbitral institution (such as AAA or JAMS)” they should at least identify the process for selecting a forum.  Otherwise, arbitration agreements will not be enforced under New Jersey law. (Unlike Missouri, the New Jersey court did not discuss Section 5 of the FAA and the statutory authority for courts to appoint arbitrators.)

Usually the plaintiffs in a class action want to stay out of arbitration, but in the recent case of JPAY v. Kobel, 2018 WL 4472207 (11th Cir. Sept. 19, 2018), it was the class representatives who were fighting for arbitration.  In particular, they wanted the arbitrator to decide whether they could have a class action.  And they won.

In a case that reads as if it is charting significant new ground, even though the court reached almost the same conclusion just a few weeks ago, the Eleventh Circuit clarified a few holdings.  First, the availability of class arbitration is a “gateway issue” that is presumptively for courts to decide.  [To be fair, in the earlier decision, it had assumed that result without actually reaching that holding.]  Second, the availability of class arbitration can be delegated to arbitrators just as easily as other gateway questions.  In other words, the 11th Circuit reaffirmed its opposition to the rule adopted by three other circuits: that the question of class arbitrability takes special delegation language, and incorporating JAMS or AAA rules is not enough.

In this case, the court found that the parties had delegated the question of whether the action could proceed on a class basis in arbitration in two independent ways.  First, they had agreed to arbitrate under AAA rules (the agreement mentions both consumer and commercial rules).  Because the AAA rules authorize arbitrators to determine their own jurisdiction, the 11th Circuit found this was sufficient to authorize the arbitrator to decide whether a class action was available under the language of the parties’ arbitration agreement.  It disagreed that the parties needed to have adopted or referenced the AAA Supplementary Rules for Class Arbitrations.

Second, the parties had included this language in the arbitration clause: “the ability to arbitrate the dispute, claim or controversy shall likewise be determined in the arbitration.”  The court found that was sufficient, even without the incorporation of AAA rules, to take the class arbitrability decision out of the court’s ambit.

The court also took on some of the public policy arguments made in favor of keeping class arbitrability in the courts.  It said “[t]he arbitrator’s decision whether a class is available will be more efficient and more confidential than a court’s would be.  The determination of class availability has the same stakes and involves the same parties whether it is decided in a court or in arbitration.”  And while the arbitrator’s decision is “somewhat less reviewable than a court’s,….it will be no less reviewable than any other decision made in arbitration, and the law generally favors arbitration of many high-stakes questions.”  This is one of the most respectful, positive statements I have seen about arbitration in a court decision in a long time.  Curious though that the court did not address the frequent rebuttal to these arguments: that there could be financial incentive for an arbitrator or administrator to find a class can proceed.

The decision was not unanimous.  The lone dissenter from the panel wrote that “without a specific reference to class arbitration the court should presume that the parties did not intend to delegate to an arbitrator an issue of such great consequence.”

I am taking bets on how quickly SCOTUS grants cert to decide this circuit split.

Today’s post continues our series of arbitration refreshers, to combat the Summer Slide.  It was researched and written by Anne Marie Buethe from the University of Iowa Law School.

Despite clear grounds for authority, arbitrators remain wary of hearing and granting dispositive motions.* While arbitrators posit reasons for their reluctance—the risk of vacatur being of primary concern—courts’ consistent affirmance of arbitrators’ summary awards demonstrates that these reasons are overstated. As long as an arbitrator provides parties a fair opportunity to present their case, he or she can grant a dispositive motion without violating the right to a fundamentally fair hearing—the touchstone for whether or not a court will vacate an arbitral award.

Arbitrators have long had the implicit authority to grant dispositive motions. The AAA made that authority explicit for its arbitrators when it amended it rules in 2013. Rule 33 of the AAA Commercial Rules states, “[t]he arbitrator may allow the filing of and make rulings upon a dispositive motion only if the arbitrator determines that the moving party shows that the motion is likely to succeed and dispose of or narrow the issues in the case.” JAMS, FINRA, and CPR rules also allow for summary judgment.

Even before Rule 33, courts assumed arbitrators’ summary disposition authority. In Schlessinger v. Rosenfeld, Meyer & Susman, 40 Cal. App. 4th 1096 (Cal. App. Ct. 1995), for example, the California Court of Appeals upheld an award where the arbitrator decided the primary issues through summary adjudication motions. The court held that arbitrators have the implicit authority to rule on dispositive motions even if, at the time, there was no explicit power. There are at least a dozen cases before 2013 that uphold this implicit authority and affirm summary dispositions.**

Post-2013, courts have not changed their approach. For example, in South City Motors, Inc. v. Automotive Industries Pension Trust Fund, 2018 U.S. Dist. LEXIS 88452 (N.D. Cal. May 25, 2018), the Northern District of California affirmed a summary disposition, citing a long line of precedent in stating that “[t]he purpose of arbitration is to permit parties to agree to a more expedited and less costly means to resolve disputes than litigation in the courts. Summary judgment by an arbitrator is consistent with that purpose.” In NFL Management Council v. NFL Players Association, 820 F.3d 527 (2d Cir. 2016), the Second Circuit affirmed a summary award, emphasizing that judicial review of arbitral awards “is narrowly circumscribed and highly deferential—indeed, among the most deferential in law.” There are cases from a majority of federal circuits affirming arbitrators’ authority to grant dispositive motions.***

In the rare instance where courts have vacated a summary award, there is a common thread—fundamentally unfair proceedings. For example, in International Union, United Mine Workers of America v. Marrowbone Development Company, 232 F.3d 383 (4th Cir. 2000), the claimant highlighted the existence of a material factual dispute—seeking to distinguish the present facts from a prior dispute between the parties, to introduce testimony, and to present pertinent evidence. The arbitrator summarily dismissed the complaint, relying on the facts of the prior dispute between the parties without hearing the claimant’s argument, testimony, or evidence distinguishing the two cases. The Fourth Circuit vacated the arbitrator’s summary award, holding that by refusing to hear evidence material to the case’s resolution, the arbitrator denied the claimant a fair opportunity to present their case.

The handful of outlier cases should not dissuade arbitrators from issuing summary dispositions but should help them determine when to grant a dispositive motion. Some important pointers: (1) the arbitrator must apply the appropriate summary judgment standard; (2) the arbitrator should consider requests for discovery carefully to ensure that they do not deny discovery of material evidence; (3) the arbitrator should only consider motions likely to succeed; (4) the arbitrator should engage in a cost-benefit analysis, weighing the benefits of speed and efficiency with the potential risks for delay and improper denial of a fundamentally fair hearing; and (5) in granting a dispositive motion, an arbitrator may benefit by issuing a written decision detailing their reasoning, taking care to articulate why any unheard evidence or unpermitted discovery was immaterial.****

If arbitrators follow this guidance, they should feel confident in granting dispositive motions. Not only is the concern of vacatur overblown, appropriately granting dispositive motions helps streamline the efficiency and speed of arbitrated disputes by providing fair remedies without unnecessary proceedings.

_______________________________________________________

* For example, a 2013 survey found that seventy percent of arbitrators granted dispositive motions fewer than five times. Edna Sussman, The Arbitrator Survey—Practices, Preferences and Changes on the Horizon, 26 Am. Rev. Int’l Arb. 517, 523 (2015).

** See, e.g., Sherrock Bros., Inc. v. DaimlerChrysler Motors Co., LLC, 260 Fed. App’x 497, 499 (3d. Cir. 2008) (affirming a summary adjudication issued on res judicata and collateral estoppel grounds); Ozormoor v. T-Mobile USA Inc., 2010 WL 3272620, *4 (E.D. Mich. Aug. 19, 2010) (affirming a summary adjudication issued on statute of limitation grounds); Global Int’l Reinsurance Co. Ltd. v. TIG Ins. Co., 2009 WL 161086, *5 (S.D.N.Y. Jan. 21, 2009) (affirming a summary adjudication issued on plain meaning of contract grounds); LaPine v. Kyocera Corp., 2008 WL 2168914, *10 (N.D. Cal. May 23, 2008) (affirming a summary adjudication issued on waiver and estoppel grounds); Hamilton v. Sirius Satellite Radio Inc., 375 F. Supp. 2d 269, 273, 277 (S.D.N.Y. 2005) (affirming a summary adjudication issued on insufficient evidence grounds); Warran v. Thacher, 114 F. Supp. 2d 600, 602 (W.D. Ky. 2000) (affirming a summary adjudication on failure to state a claim grounds); Max Marx Color & Chem. Co. Employees’ Profit Sharing Plan v. Barnes, 37 F. Supp. 2d 248, 255 (S.D.N.Y. 1999) (affirming a summary adjudication issued on standing and preemption grounds); Intercarbon Bermuda, Ltd. v. Caltex Trading and Transp. Corp., 146 F.R.D. 64 (S.D.N.Y. 1993) (affirming a summary adjudication issued without holding in-person evidentiary hearings); Atreus Cmtys. Grp. of Ariz. v. Stardust Dev., Inc., 229 Ariz. 503, 508 (Ct. App. Ariz. May 1, 2012) (affirming a summary adjudication even though the parties’ arbitration agreement did not expressly allow for such authority); Pegasus Constr. Corp. v. Turner Constr. Co., 84 Wash.App. 744, 750 (Ct. App. Wash. 1997) (affirming a summary adjudication issued on failure to comply with contractual obligations grounds); Goldman Sachs & Co. v. Patel QDS: 224S164, 222 N.Y.L.J. 35 (S. Ct., N.Y. Cty. 1999) (affirming a summary adjudication issued on employment at will grounds).

*** See, e.g., NFL Mgmt. Council v. NFL Players Ass’n, 820 F.3d 527, 547–48 (2d Cir. 2016) (affirming a summary adjudication issued for failure to state a claim); Samaan v. Gen. Dynamics Land Sys., 835 F.3d 593, 603–05 (6th Cir. 2016) (affirming summary adjudication issued without an evidentiary hearing); South City Motors, Inc. v. Auto. Indus. Pension Trust Fund, 2018 U.S. Dist. LEXIS 88452, *8 (N.D. Cal. May 25, 2018) (affirming a summary adjudication issued without full evidentiary hearing); McGee v. Armstrong, 2017 U.S. Dist. LEXIS 129734, *10 (N.D. Ohio Aug. 15, 2017) (affirming a summary adjudication issued on all claims); Weirton Med. Ctr. v. Comm. Health Sys., 2017 LEXIS 203725, *13–14  (N.D. W. Va. Dec. 12, 2017) (upholding a summary award even though the parties’ arbitration agreement did not expressly allow for such authority); Balberdi v. FedEx Ground Package Sys., 209 F. Supp. 3d 1160, 1162, 1168 (D. Haw. 2016) (affirming a summary adjudication issued on statute of limitations grounds); Kuznesoff v. Finish Line, Inc., 2015 U.S. Dist. LEXIS 71388, *4, *11 (M.D. Penn. June 3, 2015) (affirming a summary adjudication issued on statute of limitation and failure to state a claim grounds); Tucker v. Ernst & Young LLP, 159 So. 3d 1263, 1285 (Ala. 2014) (affirming a summary adjudication issued on all claims).

**** See Edna Sussman & Solomon Ebere, Reflections on the Use of Dispositive Motions in Arbitration, 4 N.Y. Disp. Resol. Law., 28, 30 (2011).

Remember when Maria sang “Let’s start at the very beginning, it’s a very good place to start”?  Well, that seems to be what federal circuit courts are doing with their arbitration decisions recently.  This post will run through some Do Re Mis of arbitration law, as articulated by those decisions (and will close with some arbitration cases on SCOTUS’s docket).

  • In most circuits, arbitrators cannot subpoena documents in advance of an in-person hearing.  The 9th Circuit affirmed that applies within its jurisdiction as well.  CVS Health Corp. v. Vividus, __ F.3d __, 2017 WL 6519942 (9th Cir. Dec. 21, 2017).
  • When an arbitration agreement calls for application of arbitral rules, and those rules give the arbitrator power to rule on her own jurisdiction, then the district court should send any dispute over arbitrability to the arbitrator.  The 4th Circuit confirmed that holding applies to JAMS rules, just as it does to AAA rules.  Simply Wireless, Inc. v. T-Mobile US, Inc., __ F.3d __, 2017 WL 6374105 (4th Cir. Dec. 13, 2017).
  • Claims under the Fair Labor Standards Act are subject to arbitrationRodriguez-Depena v. Parts Authority, Inc., __ F.3d __, 2017 WL 6327827 (2d Cir. Dec. 12, 2017).  (The Second Circuit is at least the third federal circuit to reach that conclusion.)
  • An arbitration agreement that carves out injunctive relief means what it saysArcher & White Sales v. Henry Schein, Inc., __ F.3d __, 2017 WL 6523680 (Dec. 21, 2017).  The arbitration agreement called for arbitration of any dispute under the agreement “except for actions seeking injunctive relief and disputes related to [intellectual property].”  Plaintiff brought an antitrust action seeking damages and injunctive relief. Applying the exception, the district court denied the motion to compel arbitration and the appellate court affirmed.
  • Independent contractors are not “agents” that can be bound as a non-signatory to arbitration clauseOudani v. TF Final Mile, LLC, __ F.3d __, 2017 WL 5587648 (1st Cir. Nov. 21, 2017) (refusing to compel arbitration of class action brought by independent contractors for wage-and-hour claims).
  • Ambiguous awards can be sent back to the arbitrator.  Herll v. Auto-Owners Ins. Co., __ F.3d __, 2018 WL 296870 (8th Cir. Jan. 5, 2018)  (sending ambiguous “appraisal award” back to arbitrator under Minnesota’s Revised Uniform Arbitration Act.)
  • If the losing party failed to raise an argument in arbitration, it can’t use that argument to vacate the arbitration awardLaborers’ Pension Fund v. W.R. Weis Co., __ F.3d __, 2018 WL 316555 (7th Cir. Jan. 8, 2018) (finding in an ERISA dispute that one party “waived its statutory-interpretation argument by failing to raise it in the arbitration.”)
  • First Amendment arguments will not get a putative class out of arbitration with a private party.  Okay, this is not an arbitration law “basic” point, but instead one that confirms the ingenuity of plaintiffs’ class action lawyers. These plaintiffs opposed arbitration “on First Amendment grounds” and asserted there was state action because the FAA and judicial interpretations of it encourage arbitration to the point that AT&T’s actions are attributable to the state.  Roberts v. AT&T Mobility, __ F.3d __, 2017 WL 6275537 (9th Cir. Dec. 11, 2017).  The 9th Circuit found no state action, and noted that plaintiffs’ arguments that the FAA violates consumers’ constitutional rights are incompatible with the Supreme Court’s decisions on arbitration.

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Now that we’ve run through those reminders on issues that arise frequently in arbitration law, let’s talk about some unsettled issues.  SCOTUS today is considering two cases involving delegation clauses and how lower courts should put its Rent-a-Center, West decision into practice:

  • New Prime, Inc. v. Oliveira — this case comes from the First Circuit and raises the question whether the court should determine that the FAA applies before enforcing a delegation clause.  Why does that matter?   In this case a worker successfully argued the FAA did not govern, because he was an exempt transportation worker, and therefore the court refused to compel arbitration.  [Jan. 22 update: SCOTUS’s order list today does not include this as a grant or deny, so it will likely be considered again in February.]
  • Applied Underwriters Captive Risk Assurance Co. v. Minnieland Private Day School — this case comes from the Fourth Circuit and raises this question: Can a defense to arbitration that applies to the arbitration agreement as a whole ever be specific to the delegation clause?   [Disclosure: I was involved with this petition.] [ Jan. 22 update: SCOTUS denied cert.]

SCOTUS is also being asked to review a decision of the California Court of Appeal that refused to compel arbitration based on a state statute.  That California statute gives courts the discretion to deny enforcement of an arbitration provision when there is a possibility of conflicting rulings in pending litigation with third parties.  The cert petition asks whether the FAA preempts that California statute and will be considered in February.

Last month, SCOTUS  denied cert in another California arbitration case.  That petition, Betancourt v. Prudential Overall Supply, challenged California’s rule that private attorney general disputes cannot be arbitrated.  (SCOTUS passed on the same issue in 2015.)

Here’s hoping that in 2018 SCOTUS sticks with its recent practice of deciding at least one arbitration case per year!  And, here’s hoping the Vikings get in the Super Bowl!

This week, the Fourth Circuit found an arbitration agreement invalid because it waived all federal and state laws.  Although two other federal circuit courts had already found the same company’s arbitration agreement unenforceable because it called for an impossible arbitration process, the Fourth Circuit found it invalid for a new reason.

The issue in Hayes v. Delbert Services Corp., __ F.3d___, 2016 WL 386016 (4th Cir. Feb. 2, 2016), was whether a putative class of plaintiffs could assert violations of two federal statutes (Fair Debt Collection Practices Act and Telephone Consumer Protection Act) by the servicing agent of a payday lender in court, or whether they had to arbitrate the claims.  The servicer relied on the arbitration clause in the loan agreement to compel arbitration.  The arbitration clause called for arbitration by the Cheyenne River Sioux Tribal Nation, in accordance with the Tribe’s “consumer dispute rules.”  However, the Tribe had no arbitration rules and no capacity to administer arbitrations.  Those failures had led the Second and Seventh Circuits to find the arbitration agreement in the same lender’s loan agreement unenforceable.  But, the arbitration clause in this case was slightly different, as it allowed the borrower the right to select either AAA or JAMS to “administer the arbitration.”  So, the question in this case seemed to be whether that could save the arbitration clause, by providing a real arbitration forum.

The Fourth Circuit did not answer that question, however.  Instead, it issued a much bolder decision.  It focused on the fact that the loan agreement “purports to disavow the authority of all state or federal law.”  In its “Governing Law” section, for example, the loan agreement states “this Agreement shall be subject to and construed in accordance only with the provisions of the laws of the Cheyenne River Sioux Tribe, and that no United States state or federal law applies to this Agreement.”  (Similar language was repeated within the arbitration clauses, so there is no severability doctrine problem here.)

Those provisions really raised the court’s hackles.  It held that:

[A] party may not underhandedly convert a choice of law clause into a choice of no law clause–it may not flatly and categorically renounce the authority of the federal statutes to which it is and must remain subject.  Because the arbitration agreement in this case takes this plainly forbidden step, we hold it invalid and unenforceable.

To support that holding, the court cited 14 Penn Plaza, for the idea that arbitration agreements cannot waive federally protected civil rights, and to Italian Colors, for the proposition that the FAA precludes “an arbitration agreement forbidding the assertion of certain statutory rights.”  Because it found the rejection of all federal law to be at the “core of the arbitration agreement,” the court would not sever those provisions.

In closing, the court issued a bench-slap to the servicer, and a warning to drafters of arbitration agreements:

rather than use arbitration as a just and efficient means of dispute resolution, Delbert seeks to deploy it to avoid state and federal law and to game the entire system.  Perhaps in the future companies will craft arbitration agreements on the up-and-up and avoid the kind of mess that Delbert is facing here.

This opinion is interesting mostly because it could have been predictable and easy.  The Fourth Circuit could have just said “two of our sister circuits have already found this clause invalid, and the add-on language about allowing the AAA to “administer” the arbitration doesn’t save it”.  But instead, the court seems to expand on the existing case law regarding federal statutory rights and takes a strong stance against allowing corporations to use arbitration to circumvent federal claims.

On February 4, an arbitration panel ordered Lance Armstrong to pay $10 million to his former promotions company, SCA, as a result of his “unparalleled pageant of international perjury, fraud and conspiracy” that covered up his use of performance-enhancing drugs.  (Read the NYT story about it here.)  What is curious about the award, from an arbitration law standpoint, is that SCA essentially re-opened an arbitration that it had lost with Armstrong in 2005 to obtain this new award.

The general rule of thumb is that arbitrators lose jurisdiction once they issue the final award.  Other than the short period within which parties may request that arbitrators correct a clerical or computational error under the arbitral rules (AAA gives 20 days; JAMS gives only 7), the arbitrators turn into pumpkins for all practical purposes after the final award is issued.  The arbitral rules do not have any equivalent to Rule 60, which in state and federal courts allows a judge to re-do a judgment or order based on newly discovered evidence, fraud, or mistake.  (But even Rule 60 sets a deadline of one year after the judgment is entered to request that the judgment be vacated…)

There is even a fancy Latin name for the reason that arbitrators turn into pumpkins after they issue final awards: functus officio.  The policy is that arbitration awards are suppoed to bring finality, and we wouldn’t want arbitrators revisiting awards based on improper or ex parte information.  However, one of my favorite arbitration resources, Domke on Arbitration, suggests that there are now so many exceptions to the functus officio doctrine that they just about swallow the rule.  Courts have allowed arbitrators to revisit their awards to correct mistakes, to rule on an issue that was submitted but not decided, to clarify an ambiguity, and always, if the parties contractually authorize the same panel to hear a new issue.

That last exception explains how the SCA got a second bite at its arbitration with Armstrong.  SCA’s petition to confirm the new arbitration award gives some important additional facts about what happened at the 2005 arbitration.  Before the arbitration concluded, SCA and Armstrong entered into a settlement agreement requiring SCA to pay Armstrong $7.5 Million.  That settlement agreement specified that the same panel of three arbitrators who heard the 2005 evidence would have “exclusive jurisdiction over” “any dispute or controversy [between the parties] arising under or in connection with” the settlement agreement.

After Armstrong admitted to Oprah Winfrey that he lied in his arbitration with SCA, SCA pursued two new claims with the three original arbitrators: sanctions for perjury and forfeiture of prize money that SCA had paid to Armstrong.  Armstrong objected that the initial panel lacked authority to reconvene, but a majority of the panel disagreed.  After hearing the evidence, a majority of the panel awarded SCA $10 million in sanctions against Armstrong.

Is there any lesson in this highly unusual tale for the run-of-the-mill arbitration?  Of course.  In general, parties and their advocates have one shot at getting the right result in arbitration, so every effort should be made to uncover important evidence and submit it to the panel.  But, in the circumstance where one party is convinced that material evidence remains hidden, why not find a way to make sure the same arbitrator(s) could hear that evidence in the future?  The settlement agreement between Armstrong and SCA is a good vehicle for that.

[Thanks to Karl Bayer and his Disputing Blog for alerting me to this award.]

Post Script: I received great advice from readers that I want to pass along to other advocates.  A few readers noted that the case law authorizing arbitrators to sanction parties is still developing, so attorneys who are involved in drafting arbitration agreements should consider granting the arbitrator specific authority to punish bad behavior.  Additionally, another reader noted that if the parties agree to have the same panel hear any future disputes, they would be wise to consider what happens if one of the panelists is no longer available.  Otherwise, a party who later refused to arbitrate could say that the precise makeup of the panel was integral to the parties’ agreement, such that the inability of any of the arbitrators to serve destroys the agreement to arbitrate.