Arbitration Rules/Procedures

By Liz Kramer and Patrick Burns ( ), Guest Blogger

If an arbitration agreement calls for the dispute to be administered by an ADR provider that will not or cannot accept the case, or calls for the application of non-existent rules, it may not be enforceable.  That issue seems to be increasingly prevalent in consumer arbitrations today, which frequently call for the application of rules or arbitral fora that are unavailable. 

Consumer arbitration in the United States changed drastically in 2009.  In July of that year, the National Arbitration Forum (NAF) was essentially put out of the consumer arbitration business by the Minnesota State Attorney General’s Office.  Soon thereafter, the American Arbitration Association (AAA) ceased administering almost all consumer cases.  

Yet the resulting void of administrated consumer arbitration programs did not change the fact that many existing contracts still called for arbitration via those primary providers’ programs.  Nor does it appear to have stopped businesses from naming those same two ADR administrators in their subsequently-revised contracts.

The result is that after a dispute arises, both consumers and businesses are faced with an arbitration provision that calls for something impossible –arbitration administered by an ADR provider that refuses to accept the dispute or under rules that do not exist.  If the parties cannot agree to proceed in a replacement forum or under replacement rules, they must decide whether to roll the dice with the courts.  The trend among courts to date appears to be that they will not compel arbitration (under any rules or in any forum) if the arbitration agreement calls for arbitration before an administrator that refuses to hear the dispute. 

For example, a Pennsylvania state court recently refused to enforce an arbitration agreement between orthopedists and their patients when it called for non-existing rules.  The agreement in question called for the application of “‘Health Care Claims Arbitration Rules of the American Arbitration Association,” yet there are no rules with that title from the AAA.  In fact, the only health care rules available from the AAA do not govern disputes between doctors and patients.  The AAA’s health care rules only apply to “business-to-business” disputes (such as reimbursement disputes between health care providers and insurance payors).  The orthopedists argued that the agreement to arbitrate should still be enforced, just in another forum and under different rules, but the court found that the specific rules and forum were essential terms of the agreement.  Because those essential terms failed, the arbitration agreement was not enforceable.  (The decision is not reported; its title is Luderer v. Nazarian, and it was issued on Sept. 12 by the Philadelphia Common Pleas Court.)

 Similarly, in February of this year, the Supreme Court of Illinois held that the selection of the NAF in a consumer contract was “integral to the parties’ agreement to arbitrate,” such that when the NAF stopped conducting consumer arbitrations, the arbitration agreement was unenforceable.  Carr v. Gateway, Inc., 944 N.E.2d 327 (Ill. 2011).  However, the authors are aware of a Minnesota state court judge who resolved this problem by ordering the parties to select a new forum for arbitration when the one specified in the arbitration agreement was no longer available.   




A recent decision from the Western District of Oklahoma reminds all litigators that you may be able to get preliminary injunctive relief from the courts, despite having a valid arbitration agreement.  Although this seems to fly in the face of the courts’ general arbitration refrain (stolen from M.C. Hammer: “[We] Can’t Touch This”), courts rationalize their decision by noting that they must preserve the status quo so that the arbitration hearing may be meaningful.

 In Wells Fargo Bank v. Maynahonah, 2011 WL 3876519 (W.D.Okla. Sept. 2, 2011), the district court granted first a TRO and then a preliminary injunction, prohibiting decision-making bodies of the Apache Tribe of Oklahoma from “proceeding with any hearing, issuing any order, making any determination, or taking any official action” with respect to issues that Wells Fargo claimed were arbitrable.  While the Tribe did not challenge the validity of the arbitration agreements at issue, it had taken various actions that seriously undermined those arbitration agreements, and it planned to adjudicate issues in tribal administrative proceedings that fell within the scope of the arbitration agreement.  The Court analyzed the usual factors for injunctive relief and found: Wells Fargo had demonstrated the risk of irreparable harm (through the potential loss of its right to arbitrate and the resources it would have to spend in the tribal adjudication); the balance of interests favored Wells Fargo because of the strong federal policy favoring arbitration; the public interest favored “safeguarding an arbitration agreement made by the Tribe”; and Wells Fargo was likely to succeed in showing that the Tribe was proceeding improperly.

If you have a valid arbitration agreement in your case, but need emergency relief, a two-step analysis is required to determine whether that relief is available from the courts. 

1.         Step One: Analyze The Language of the Arbitration Provision.

            If the arbitration agreement carves out requests for injunctive relief from the scope of arbitrable controversies, you have a strong basis to seek court relief.  Even a carve-out, however, does not necessarily guarantee success with the courts if there are disputes about the scope or applicability of the carve out. 

            Note that your arbitration agreement may also provide for emergency relief from the arbitrator.  If your arbitration agreement calls for administration with the AAA, check to see if that agreement incorporates the AAA rules for emergency protection.  (Those rules are titled “O-1” through “O-8”.)  If those rules are incorporated, they provide for temporary restraining orders and preliminary injunctions using procedures very similar to those applicable in state and federal courts.  However, the AAA may not react as quickly to a claimant’s request for emergency relief as a court is able to react.  (The AAA first has to appoint a case administrator and an emergency arbitrator, for example, and will not act until all fees are paid.)

2.         Step Two: Analyze the Governing Case Law.

            If your arbitration agreement does not explicitly provide for any special emergency procedures, or you think those emergency procedures still may be too slow, the next step is to see whether the case law in your federal circuit still allows you to seek relief in court.  While the FAA does not specifically address whether courts have authority to issue injunctions, most federal circuits are willing to grant emergency relief for the limited purpose of maintaining the status quo for the arbitrator, as long as the usual tests for injunctive relief are met.  E.g., Performance Unlimited, Inc., v. Questar Publishers, inc., 52 F.3d 1373, 1380 (6th Cir. 1995); Merrill Lynch, Pierce, Fenner & Smith v. Salvano, 999 F.2d 211, 214 (7th Cir. 1993); Ortho Pharmaceutical Corp. v. Amgen, Inc., 882 F.2d 806, 812 (3d Cir. 1989); Teradyne, Inc. v. Mostek Corp., 797 F.2d 43, 47 (1st Cir. 1986); Jameson v. Pine Hill Development, LLC, No. 07-0111, 2007 WL 623807, at *2 (S.D. Ala. Feb. 23, 2007) (citing decisions on both sides of issue).

            However, other federal circuits require evidence that the parties intended to give the courts authority to grant temporary relief.  The governing rules the parties selected for their arbitration can be sufficient evidence of the parties’ intent.  For example, in Toyo Tire Holdings of Ams. Inc. v. Continental Tire N. Am., Inc., 609 F.3d 975, 980 (9th Cir. 2010), the Ninth Circuit clarified that a court may grant injunctive relief when the governing arbitration rules provide for such relief and it is necessary to preserve the status quo pending the arbitration hearing.

The AAA just reported that 143,349 cases were filed with it in 2010.  JAMS reports that approximately 10,000 cases are filed with it each year.

There were 190,543 new civil cases filed with all the U.S. District Courts in 2010.

In short, two of the largest ADR providers are currently handling almost as many civil cases as the nation’s federal courts.

Another point of comparison: the National Arbitration Forum had over 62,000 cases filed with it in two areas (domain name disputes and New Jersey personal injury cases), and Arbitration Forums, Inc. says it handles 500,000 insurance cases a year.  In contrast, there were less than 200,000 civil cases filed in the State of Minnesota in 2010 (and only 42,136 if you exclude things like conciliation court matters and unlawful detainers).

If you needed any more convincing about why the statutes and case law governing arbitration are important to our nation’s overall system of justice, that should do it.