ArbitrationNation Roadmaps (primers)

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.

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.

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* 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).

So you’ve got an arbitration award, what next? In other types of civil cases, the Federal Rules of Civil Procedure (Rules) control service, and they have greatly reduced the role of U.S. Marshals in serving parties. See Fed. R. Civ. P. 4(c). But enter the Federal Arbitration Act § 9 and § 12 (FAA). When a party seeks to confirm, vacate, or modify an arbitration award, § 9 and § 12 say that a nonresident party must be “served by the marshal of any district within which the adverse party may be found in like manner as other process of the court.” Which set of requirements controls here?

Since adequate service is necessary for the court to have personal jurisdiction, the question of service has been litigated in a few district courts, but no federal appellate courts. See Logan & Kanawha Coal Co.v. Detherage Coal Sales, LLC, 789 F. Supp. 2d 716, 718 (2011) (chronicling the courts that have analyzed the issue). Some courts, like the D.C. District Court in VentureForth Holdings LLC v. Joseph, have found that service consistent with the Rules also satisfies FAA § 9 and § 12. Those courts rely on the final phrase of § 9 or § 12 that says, “in like manner as other process of the court.” They read that phrase as indicating that arbitration award confirmation or modification service should follow the same rules as other civil suits. They derisively dismiss the requirement in §§ 9 and 12 as an artifact or an anachronism.

However, some courts, like the Southern District of West Virginia in Logan & Kanawha v. Detherage Coal Sales, require service by U.S. Marshal. The first and primary argument for those courts is that the plain language of the FAA §§ 9 and 12 requires service by U.S. Marshal. When confronted with the apparent tension between the Rules and the FAA, they point to the fact that Congress has not yet repealed the marshal requirement in the FAA even if the new Rules reduce the role of U.S. Marshals. The Rules, in fact, still retain the option of using U.S. Marshals to serve other parties, so a court could order service by U.S. Marshal without violating Rule 4.

All in all, there are some district courts—but not circuit courts—talking about the potential conflict between the service requirements in the Rules and the FAA, and they do not all agree. There is no circuit law on it yet, but at least some of the district courts seem content to allow Congress’ anachronism to control current outcomes. The safest bet for any party seeking to confirm, vacate, or modify an arbitration award in federal court is to use a U.S. Marshal for service, or to get an express waiver of that requirement from the opposing party.

ArbitrationNation thanks Claire Williams, a law student at the University of Minnesota Law School, for researching and drafting this post.

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A nonexhaustive list of courts not requiring marshal service

  • VentureForth Holdings LLC v. Joseph, 80 F. Supp. 3d 147, 148 (D.D.C. 2015) (“[T]his Court holds that service of a nonresident complies with § 9 of the FAA if service is provided in accordance with Rule 4 of the Federal Rules of Civil Procedure.”)
  • United Cmty. Bank v. Campbell, No. 1:10 CV 79, 2011 WL 815684, at *2 (W.D.N.C. Mar. 1, 2011) (The Court finds that the Bank properly effected service pursuant to Rule 4(e).)
  • Elevation Franchise Ventures, LLC v. Rosario, No. 1:13-CV- 719 AJT/JFA, 2013 WL 5962984, at *4 (E.D. Va. Nov. 6, 2013) (“Service of process upon an individual is governed in this court by Fed. R. Civ. P. 4(e)(1) . . . .”)
  • Hancor, Inc. v. R &R Eng’g Prod., Inc., 381 F. Supp. 2d 12, 15 (D.P.R. 2005) (relying on Reed & Martin, Inc. v. Westinghouse Elec. Corp.)
  • Litigants in the Second Circuit should be aware of Reed & Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268, 1277 (2d Cir. 1971). In it, the Second Circuit analyzed the same phrase “in like manner” that courts point to when arguing that service in accordance with Rule 4 is sufficient. The court held that “[t]he phrase ‘in like manner as other process of the court’ found in § 9 of the Arbitration Act refers to Fed. R. Civ. P. 4 on the accomplishment of appropriate service, not to Fed. R. Civ. P. 12(a). . . .” While this quote appears to support service in accordance with the Rules, there are two big caveats. First, the court was addressing an issue on which the FAA is silent (time to answer). Second, this case was decided in 1971 when Rule 4 required “[s]ervice of all process shall be made by a United States marshal . . .” so at the time there was no conflict between the Rules and the FAA and therefore the court could not have addressed the current tension between the FAA and the Rules.

 

A nonexhaustive list of courts requiring marshal service:

  • Johnson v. Drake, No. 3:16-CV- 1993-L, 2017 WL 1173275, at *6 (N.D. Tex. Mar. 30, 2017) (“[C]ourts cannot simply disregard the plain language of 9 U.S.C. § 9 . . . .”)
  • PTA-FLA, Inc. v. ZTE USA, Inc., No. 3:11-CV- 510-J- 32JRK, 2015 WL 12819186, at *6 (M.D. Fla. Aug. 5, 2015) (“[S]ervice on nonresidents must be made via marshal. . . “)
  • Logan & Kanawha Coal Co. v. Detherage Coal Sales, LLC, 789 F. Supp. 2d 716, 722 (S.D.W. Va. 2011)
  • Nu-Best Franchising, Inc. v. Motion Dynamics, Inc., No. 805 CV 507T27TGW, 2006 WL 1428319, at *3 (M.D. Fla. May 17, 2006) (“Plaintiffs were required to serve notice through the United States Marshal.”)
  • Int’l Union of Operating Engineers Local 825 Employee Benefit Funds v. Getty Contracting LLC, No. CIV. 2:14-7799 KM, 2015 WL 4461512, at *2 (D.N.J. July 20, 2015) (“If it is a nonresident of New Jersey, Getty must be served via the U.S. Marshal in its home district.”)
  • Dobco, Inc. v. Mery Gates, Inc., No. CIV. 06-0699 (HAA), 2006 WL 2056799, at *2 (D.N.J. July 21, 2006) (“Rather, Dobco had an obligation to have Mery Gates served by a marshal, as the strict language of the statute provides.”)

I am celebrating my fifth anniversary of blogging by publishing one listicle per day this week, and today is the last one (sniff, sniff). To recap: Monday’s topic was the five biggest surprises in arbitration law; Tuesday’s was the five states most hostile to arbitration; Wednesday’s was the five arbitration cases lawyers really ought to know; and Thursday’s was the five biggest surprises in the arbitration process.  Today’s topic might be the most practical: five things you should have in your arbitration clause.

Five Things That Should Be In Your Arbitration Agreement

  1. A clear statement of the “scope” of the arbitration agreement — what kinds of disputes the parties are willing to arbitrate.
  2. The rules that will govern the arbitration.  The rules of the arbitration impact every aspect of the proceeding, including the court’s jurisdiction over issues of arbitrability.  So, identify the rules.  And please make sure they are rules that actually exist somewhere.
  3. The location of the arbitration hearing.  Two reasons for this: first, it avoids haggling over which cities are most convenient after a dispute has arisen; and second, many courts tie court venue (for compelling arbitration, etc.) to the location of the arbitration hearing.
  4. A limitation period.  Many states have held that their general statutes of limitation do not apply to arbitration proceedings.  If you want to ensure that there will be some deadline for claims, insert one into the arbitration agreement.
  5. A severability provision.  Under the FAA, courts are supposed to determine whether an arbitration agreement is enforceable without regard to any other terms in the larger contract.  Therefore, if you want to give the court latitude to simply strike any unenforceable portions of the arbitration agreement without striking the arbitration agreement altogether, the severability clause needs to be right in the arbitration agreement.

I hope you have enjoyed this series of listicles as much as I have!  Next week I may have to do “five new cases I should have blogged about instead of just sending out listicles…”

I am celebrating five years of blogging by publishing one “listicle” per day this week.  Monday, the topic was the five biggest surprises in arbitration law; Tuesday it was the five states most hostile to arbitration; Wednesday it was the five arbitration cases lawyers really ought to know.  Today, we leave case law behind and talk about the process of arbitration itself.  What are the biggest surprises for parties and advocates who find themselves in arbitration?

Five Biggest Surprises In The Arbitration Process

  1. No need for a “complaint” with numbered paragraphs or lengthy recitations to start the ball rolling.  (To start an arbitration proceeding, a claimant usually just needs to complete a form identifying the parties, the claim amount, and the type of dispute, with a copy of the arbitration agreement attached.  No Twiqbal standards, no formal service.)
  2. Parties are not obligated to keep arbitration proceedings confidential.  (If confidentiality is important to your client, ask the arbitrator(s) for a protective order.  Or insert a confidentiality requirement in your agreement.)
  3. Counsel may ask follow-up questions about potential arbitrators.  (Did the potential arbitrator disclose something that sounds fishy, but you don’t have enough information to know if it is fishy?  Come up with some follow-up questions and see if the answers bring any clarity.)
  4. Neither the rules of civil procedure nor the rules of evidence necessarily apply in arbitration.  (Only the rules of the arbitration administrator apply.  That means no one is entitled to serve requests for admission, or take depositions, or even to exclude hearsay from the record, unless those rules allow it or the arbitrator has given her blessing.)
  5. You can tailor the arbitration process to fit your case.  (This is a positive surprise.  Would your case benefit from bifurcation? Or having most witnesses just give written statements? Or having the experts arm-wrestle?  Go ahead and ask the arbitrator for it!  If you can show it would lead to an efficient resolution of the dispute, you just might get your wish.)

Tomorrow is the last listicle in the series!  I can’t decide whether to focus on five things to put in your arbitration clause, the five most read posts, or five things to love about arbitration…  Feel free to send me your vote.

I am celebrating five years of blogging by publishing one “listicle” per day this week.  Monday, the topic was the five biggest surprises in arbitration law; Tuesday it was the five states most hostile to arbitration.  (None of those states have called me to complain yet…)  Today, it is the five arbitration cases lawyers really ought to know.  I don’t care if you are a rural solo practitioner who handles a bit of everything or a transactional lawyer or a general counsel who just handles exports, arbitration has become a significant part of our system of justice.  It is likely that every lawyer will bump up against it at some point in their career.  When (or better yet, before) that happens to you, here are the five cases you really should read.

Five Arbitration Cases You Should Know

  1. Rent-A-Center, West v. Jackson, 130 S. Ct. 2772 (2010).  This case is the culmination of the “severability” doctrine, which explains whether a litigant’s challenge to enforceability should be heard in arbitration or in court.  For the uninitiated, reading this case is like reading that Bruce Springsteen is actually an alien.  It is that counter-intuitive.
  2. BG Group, PLC v. Republic of Argentina, 134 S. Ct. 1198 (2014).  This case tries to explain which of the other potentially dispositive issues get decided in arbitration and which are decided in court (conditions precedent, waiver, scope, etc).  It also gives some guidance as to the deferential standard of review for arbitrator decisions, and shows the importance of the rules parties chose to govern the arbitration.
  3. AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).  This case establishes that a state statute or line of cases is preempted if it “stands as an obstacle” to the objectives of the Federal Arbitration Act.  It’s a squishy standard, but you need to know it’s there, because it potentially preempts a lot of state law (that you would otherwise rely on to invalidate the arbitration agreement).
  4. Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013).  This case shows how difficult it is to have an arbitration award vacated, especially if the argument boils down to: the arbitrator just got it wrong.  Even “grave error” is not enough.
  5. Citizens Bank v. Alafabco, Inc., 123 S. Ct. 2037 (2003).  This case drives home the reach of the Federal Arbitration Act.  It can apply in state and federal courts, and it can apply when both parties are residents of the same state.  Just assume it always applies.

Of course, these cases are just the tip of the iceberg.  If you have a real arbitration dispute, you will need to read many more cases than these.  But, you have to start somewhere, and these are a solid starting place.  Watch www.arbitrationnation.com for tomorrow’s listicle!

I am celebrating five years of blogging by publishing one “listicle” per day this week.  Yesterday, the topic was the five biggest surprises in arbitration law.  Today, it is the five states where I would not want to argue in favor of arbitration — either compelling arbitration or confirming an award.  In other words, these are the five states I view as most hostile to the case law that SCOTUS has developed under the Federal Arbitration Act.

By the way, don’t think this was an easy list to put together.  In the first eight months of 2016 alone, I have blogged askance at arbitration decisions from the highest courts of Arkansas, North Dakota, South Carolina, Georgia, New Hampshire, New Jersey, West Virginia, Kentucky, Montana and Hawaii.  And I have declined to blog about plenty of others.  (Even I find some arbitration decisions just not that interesting.)   But, after much deliberation, here are the top five, with links to posts about recent opinions that helped earn the states a spot on the list.

The Five States Most Hostile To Arbitration

  1. Kentucky
  2. West Virginia
  3. New Jersey
  4. Hawaii
  5. Montana

(You expected to see California?  Sorry, it’s had a change of heart.)

Stay tuned for tomorrow’s listicle!

 

Do you hear the corks popping, friends??  You should, because the imaginary champagne was just opened and the balloons have been released to the far corners of the internets in honor of ArbitrationNation’s FIFTH ANNIVERSARY!  At the end of this week, I will have published 253 posts over the course of five years.

Taking inspiration from other social media sites, I am celebrating this blogiversary by publishing one “listicle” per day this week, five in all.  Today, the topic is the five biggest surprises in arbitration law.  Full disclosure — this is not based on any statistically valid survey or data.  (Neither are any other listicles you click on…)  But, it is based on the almost daily emails I receive from lawyers or parties in arbitration, asking me for help.  And, this list is about surprises in the law surrounding arbitration, not the process of being in arbitration itself.  (That’s for another day.) Caveats out of the way, here we go.

Five Biggest Surprises In Arbitration Law

1.The Arbitrator (and not a court) likely has authority to decide whether the parties must arbitrate and whether their contract (as a whole) is valid (Buckeye Check Cashing; Rent-A-Center).  (Yes, you can be forced to arbitrate based on a clause within an otherwise unenforceable contract.)

2.Piecemeal litigation is “A-Okay”; efficiency is not the goal of the arbitration acts (KMPG v. Cocchi).

3. The bases for “appeal” of an arbitration are incredibly narrow (9 U.S.C. 10; Sutter), so the award is generally the final word.

4. Parties must preserve any bases for vacatur by raising them with arbitrator (if those bases were known or could have been known) (Dealer Computer Services).  (In other words, if you may want to appeal your arbitration award based on arbitrator bias, you first have to tell the arbitrator you believe she is biased…)

5. There is still significant judicial hostility to arbitration.  Even when you are arguing for arbitration, and the case law is on your side, a court may still find a way to retain jurisdiction or vacate the award.  (Examples here, here, and here, and almost every week on this site.)

Watch for a new list tomorrow!

What is “arbitration”? Although courts often use and apply the word, rarely do they stop to define it.  While the FAA concerns agreements to “settle by arbitration a controversy,” the FAA does not define “arbitration,” leaving the question to the courts. Lacking definitive guidance from the U.S. Supreme Court, two lines of cases have developed among the U.S. Courts of Appeals.

The split can be traced back to AMF Inc. v. Brunswick Corp., where bowling lane companies agreed to submit disputes about advertising to a third party to determine whether the claims in the ads were supported. 621 F. Supp. 456 (E.D.N.Y. 1985). After ads from Brunswick claimed “high tech” superiority over AMF’s wooden lanes, the court set out to resolve whether the process detailed in the agreement was “arbitration.” The key language from the case is that the “essence of arbitration” is “to have third parties decide disputes.” The court concluded that the parties had agreed to arbitrate because at least one controversy — the factual issue of whether the advertising claim was supported — would be “settled.” “Arbitration” need not end all controversy between the parties, and with the factual dispute resolved it was “highly likely” that the litigation based on that factual dispute would also be resolved.

Will it resolve the dispute?

The first line of case law stemming from AMF emphasizes the likelihood of parties to resolve their disputes through a given dispute resolution process. The Third, Ninth, Fourth, Tenth, and Second Circuits take this view, each with their own twist. In Harrison v. Nissan Motor Corp. in U.S.A., the Third Circuit narrowed the AMF holding slightly, reviewing an arbitration provision that expired after 40 days and holding that the process agreed to was not arbitration because the parties did not agree to see the dispute “through to completion.” 111 F.3d 343 (3d Cir. 1997).

The Ninth Circuit expanded Harrison’s definition in Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205 (9th Cir. 1998), holding that an agreement that did not “explicitly permit one of the parties to seek recourse to the courts” was still arbitration, even though it was non-binding. The Fourth Circuit stretched Harrison’s definition even further in United States v. Bankers Ins. Co., holding that an agreement that permitted a federal agency to unilaterally reject a third party’s determination qualified as arbitration. 245 F.3d 315 (4th Cir. 2001). The court reasoned that because the agency would presumably approve an arbitration award it found favorable, the dispute resolution process would not be a “futile exercise.”

Seemingly rejecting the more expansive views of the Ninth and Fourth Circuits, the Tenth Circuit held that an agreement to accept a series of appraisals to resolve a purchase price dispute was not an agreement to arbitrate in Salt Lake Tribune Publ’g Co., LLC v. Mgmt. Planning, Inc., 390 F.3d 684 (10th Cir. 2004). Relying heavily on Harrison, the court found that the appraisal at issue would only fix the purchase price under certain circumstances, and therefore would “not necessarily settle a dispute” between the parties. The Second Circuit took a similar approach in Bakoss v. Certain Underwriters at Lloyds of London Issuing Certificate No. 0510135, emphasizing precedent requiring a binding resolution for arbitration, and holding that a doctor’s “final and binding” evaluation of a disability diagnosis met the definition. 707 F.3d 140 (2d Cir. 2013).

Does it look like “classic” arbitration?

The second line of AMF-derived cases focuses less on a dispute resolution process’s likelihood of settling disputes, and instead looks for a set of procedural features indicative of “classical arbitration.” In Fit Tech, Inc. v. Bally Total Fitness Holding Corp., the First Circuit identified several “common incidents of arbitration,” including a binding resolution, an independent adjudicator, substantive standards, and an opportunity for each side to present its case. 374 F.3d 1 (1st Cir. 2004). Finding that the parties’ dispute resolution process had all of these features, at least with respect to some of their disputes, the court held that it qualified as arbitration.

The Eleventh Circuit identified the circuit split on the definition of arbitration, but did not see a real disagreement. Advanced Bodycare Sols., LLC v. Thione Int’l, Inc., 524 F.3d 1235 (11th Cir. 2008). The court concluded that submitting a dispute to a third party for a binding decision is “quintessential classic arbitration,” and identified four factors used to decide whether a dispute resolution method is arbitration, expanding on the “common incidents of arbitration.”

The Sixth Circuit provided the most comprehensive definition of arbitration of all the AMF-derived appellate cases in Evanston Ins. Co. v. Cogswell Properties, LLC, 683 F.3d 684 (6th Cir. 2012). In building its definition of arbitration, the court cited Fit Tech factors in support of the proposition that the definition of arbitration depends on “how closely it resembles classic arbitration.” The court observed that a central feature of classic arbitration is a third party empowered to render a decision settling the dispute between parties, mirroring the reconciliation approach taken in Advanced Bodycare. Citing Harrison, the court also observed that arbitration requires parties to submit to the process “through to completion.”

Why does this matter? 

Many contracts provide that some third party will decide a dispute between the parties.  For example, a third party appraiser will determine if a change in rent is fair, or a CPA will determine the buy-out price for a departing shareholder.  But, if those provisions are treated as arbitration by the court, that means they can be strictly enforced pursuant to Section 2 of the FAA, and it means the third party’s decision is entitled to great deference, pursuant to Section 10 of the FAA.  That may not have been what the parties intended when they were drafting.

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Additional reading:

Definitional Avoidance: Arbitration’s Common-Law Meaning and the Federal Arbitration Act by Niall Mackay Roberts provides an in-depth look at the evolving definition of arbitration among the courts over time

The Committee on International Commercial Disputes examines the definition of arbitration and a host of other issues in the expert determination context in its 2013 report, Purchase Price Adjustment Clauses And Expert Determinations: Legal Issues, Practical Problems And Suggested Improvements.

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ArbitrationNation thanks Justin Sharp, a law student at Northwestern University School of Law, for researching and drafting this post.  And asks you to consider nominating the blog for the ABA’s Blawg 100 list, by following this link (the URL is www.arbitrationnation.com)!  Last request. 

Statutes of limitations provide peace of mind for many attorneys and clients, knowing previous conduct cannot lead to liability after a prescribed time period. But, do statutes of limitations apply to arbitration proceedings? The answer is: not necessarily.  Because of that, advocates and parties need to know when statutes of limitation may apply as well as how they can revise their arbitration clauses to avoid this confusion.

The benefits of applying the statute of limitations to arbitration procedures are clear. However, it is often unclear whether a state will apply a time bar to arbitration actions. Neither the Federal Arbitration Act (FAA) nor the Revised Uniform Arbitration Act (RUAA) has a statute of limitations, so the arbitrator must look to state law to apply a time bar. When drafting the arbitration clause, or preparing for arbitration, there are three sources to review to determine whether a statute of limitations applies:

  • The state’s relevant statute of limitations, to see if it expressly applies to arbitration proceedings;
  • The case law in the relevant jurisdiction, deciding whether the statute of limitations applies in arbitration; and
  • The Uniform Commercial Code.

1. State Statutes Expressly Applying the SOL to Arbitration Proceedings

Only three states have passed laws expressly applying the statute of limitations to arbitration. These states are New York (N.Y. C.P.L.R. § 7502 (McKinney 2016)), Georgia (Ga. Code Ann. § 9-9-5 (2016)), and Washington (Wash Rev. Code § 7.04A.090(3) (2016) (overturning Broom v. Morgan Stanley DW Inc., 236 P.3d 182 (Wash. 2010))). All three states prohibit an arbitration action if the same claim could not be brought in court.

Washington’s statute, for example, reads, “A claim sought to be arbitrated is subject to the same limitations of time for the commencement of actions as if the claim had been asserted in a court.” Clearly, these statutes of limitations apply to arbitration proceedings governed by the state law of those states.

2. State or Federal Decisions Regarding Whether to Apply the SOL to Arbitration

If the relevant statute does not explicitly apply to arbitration proceedings, it is important to see how the common law has treated this question. Some state courts have already decided whether arbitrations should have a limitations period. These states include: California, Connecticut, Florida, Idaho, Indiana, Maine, Massachusetts, Michigan, Minnesota, North Carolina, and Ohio. All of these states, except Florida, do not apply the statute of limitations to arbitrations.

The courts’ rationale for refusing to apply the time bar usually notes the simplicity of arbitrations compared to judicial proceedings. One purpose of arbitration is quick and simple resolutions without as many formal rules. Many courts view the statute of limitations as one of the formal, rather than substantive, rules that is lost when deciding to arbitrate.

For example, the court in NCR Corp. v. CVS Liquor Control, Inc., 874 F. Supp. 168, 172 (S.D. Ohio 1993) found the relevant statute of limitations did not apply to arbitration claims. It reasoned the “statute of limitations is to bar an action at law, not arbitration.” Similar to other decisions on this issue, the court said an arbitration is not an “action.” The opinion noted how parties could have included a provision in the arbitration clause limiting the time to bring an arbitration proceeding.

Florida, however, took the opposite stance in Raymond James Financial Services, Inc. v. Phillips, 126 So. 3d 186 (Fla. 2013). In this case, the court held the statute of limitations applied in arbitration. The lower court granted the plaintiff’s motion declaring the arbitration was not time barred. The Florida Supreme Court reversed, finding the term “action” in the statute of limitations includes arbitration because arbitration is considered a “civil action or proceeding.” Along with statutory interpretation, the court also relied on principles of fairness, noting a statute of limitations protects the defendant from being at a disadvantage due to untimely claims.

3. The UCC’s Statute of Limitations

The UCC bars bringing an “action” after four years. It defines action in § 1-201(b)(1) as a judicial proceeding and “any other proceeding in which rights are determined.” There is a strong argument that an arbitration is a “proceeding in which rights are determined,” thereby allowing the application of the limitations provisions. No courts discuss the Uniform Commercial Code’s statute of limitations provision in the context of arbitration. However, if the law in the governing jurisdiction is not clear, it may be beneficial to consider arguing for the UCC’s four-year limitation provision, if your dispute is governed by the UCC.

In order to qualify for this time bar, the dispute must revolve around a contract governed by the UCC. The UCC has three statutes of limitations provisions: §§ 2-725, 2A-506, and 3-118. Section 2-725 applies to contracts for the sale of goods, section 2A-506 applies to lease contracts, and section 3-118 governs negotiable instruments.

Practice Tip – Including a Limitations Period in the Arbitration Clause

Because many states have not addressed this issue, it can be very difficult to predict whether the general statute of limitations in the applicable state will apply to your dispute.  The easiest and most effective way to stay out of this confusion is to include a limitations provision in the arbitration agreement itself. With the only qualification that the time limit be “reasonable,” this practice ensures there is some time limit applicable to the arbitration.

Here are two examples of limitation provisions for the arbitration clause:

“Any demand for arbitration under this Agreement must be made before the statute of limitations applicable to such a claim has run.”

“Any demand for arbitration must be made within one year of discovery, or the claim will be deemed waived.”

Don’t be SOL! Always check whether the statute of limitations applies to your arbitration proceeding, and always put a time limit for bringing an action in your arbitration clause. There are no hard and fast rules to know when they apply and when they do not, but a simple search could save you from losing your action and your client’s money.

ArbitrationNation thanks Kevin Kitchen, a law student at the University of Minnesota, for researching and drafting this post.