ArbitrationNation Roadmaps (primers)

I field a lot of good procedural questions about how arbitration pleadings should be styled. Some of them are answered within the text of the FAA, but many of them leave clerks of court and practitioners scratching their heads and getting creative. I will address one of those common questions today: is a motion to compel arbitration a sufficient “answer” under Rule 12? Short answer: yes.

The Tenth Circuit addressed this issue and gave a clear answer, with authority that others can use:

“[a] defendant in a pending lawsuit may file a petition or motion to compel arbitration in lieu of an answer to the complaint,” Jay A. Grenig, Alternative Dispute Resolution § 23:3 at 574 (3d ed.2005)—as procedural summaries in arbitration cases uncontroversially reflect, see, e.g., Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 83, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000); Davis v. S. Energy Homes, Inc., 305 F.3d 1268, 1270 (11th Cir.2002). And, as [defendant] points out, requiring a party to file an answer denying material allegations in the complaint and asserting potential affirmative defenses—in short, formally and substantively engaging in the merits of the litigation—in order to enforce its right not to litigate is a non-sequitur.

 Lamkin v. Morinda Properties Weight Parcel, LLC, 440 Fed.Appx. 604, 607-08 (10th Cir. 2011).

Other courts have implicitly noted that a motion to compel arbitration, pursuant to Sections 3 or 4 of the FAA, may be filed instead of an answer that responds to the substance of a plaintiff’s complaint. E.g., Tuttle v. Sallie Mae, Inc., 2014 WL 545379, at *2 (N.D. Ind. Feb. 11, 2014); MQDC, Inc. v. Steadfast Ins. Co., 2013 WL 6388624, at *6 (E.D.N.Y. Dec. 6, 2013); Whaley v. T-Mobile, Inc., 2013 WL 5155342, at *2 (E.D. Ky. Sept. 12, 2013).

Therefore, if you are (or represent) a defendant who is served with a federal lawsuit, and the dispute is covered by an arbitration clause, you have two choices:

1) file a substantive answer within 21 days, which raises arbitration as an affirmative defense, with a motion to compel arbitration following soon after; or

2) file a motion to compel arbitration in lieu of any substantive answer (obviously, still within the 21 days).

The recent Sutter decision drives home repeatedly that a court may not vacate an arbitrator’s decision under the FAA just because a judge thinks the arbitrator reached the wrong result.  Justice Kagan said that under Section 10(a)(4) the court cannot second-guess the award, not even in the face of “grave error.”  Instead, the award must be confirmed, whether it is “good, bad, or ugly.”  If an ugly and gravely erroneous arbitration award does not establish that an arbitrator “exceeded his or her powers,” what does?

In general, the answer relates back to the fact that arbitration is a matter of contract.  If an arbitrator forgets that he or she is an all powerful genie only within the confines of his or her own lamp, which is defined by the arbitration agreement, there is a risk that the award can be vacated.  (Can you tell I watched “Aladdin” with the kids on my ArbitrationVacation?)  Here are a few examples of recent cases finding an arbitrator exceeded his or her powers, that would likely survive the test articulated in Sutter.

When an arbitrator issued an award that significantly rewrote the parties’ contract, the Third Circuit held that the award exceeded the arbitrator’s powers.  In particular, the court noted that the relief “was not sought by either party, and was completely irrational because [the arbitrator] wrote material terms of the contract out of existence.” PMA Capital Ins. Co. v. Platinum Underwriters Bermuda, Ltd., 2010 WL 4409655 (3d Cir. 2010). See also Nat’l Hockey League Players’ Assoc. v. Nat’l Hockey League, 30 F. Supp. 2d 1025, 1029 (N.D. Ill. 1998) (vacating an award when the arbitrator considered evidence the parties had specifically agreed to exclude).

In another case, the Ninth Circuit upheld a district court’s finding that an arbitrator exceeded the scope of his authority when he issued two permanent injunctions to bind nonparties to a trademark agreement. Comedy Club, Inc. v. Improv West Assocs., 553 F.3d 1277, 1286-88 (9th Cir. 2009). The court held that the arbitrator had no authority to enjoin a nonparty since it was not a “third party beneficiary, an agent, or an assignee” of the agreement.  That portion of the award was vacated.

In a case where the court remanded an award to the arbitrator to clarify the calculation of damages, but the arbitrator did more than clarify the requested issue, the Fifth Circuit has held that the arbitrator exceeded his authority upon remand, and thereby reinstated the original arbitration award. Brown v. Witco Corp., 340 F.3d 209, 221 (5th Cir. 2003).

If “manifest disregard of the law” is no longer a separate, viable basis for vacating an arbitration award (which SCOTUS has not officially declared, but has hinted strongly twice), then parties seeking relief from an award must find ways to fit themselves into one of the four narrow bases for vacatur under Section 10(a) of the FAA.  The fourth of those, when an arbitrator exceeds his or her power, is just as narrow as the rest.   As the Court said in Stolt-Nielsen “[i]t is only when [an] arbitrator strays from interpretation and application of the agreement and effectively ‘dispense[s] his own brand of industrial
justice’ that his decision may be unenforceable.”


*ArbitrationNation thanks Zelda Elcin, a student at the University of Minnesota Law School, for her work on this post.

**If you find this blawg useful or interesting, please consider nominating it for the ABA Journal’s list of the top 100 Blawgs!  ArbitrationNation would be honored to be listed for a second year.

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.

As a thank you to all the subscribers and readers who continue fueling Arbitration Nation’s success, this 100th blog post contains my recipe for the Best Arbitration Agreement Ever.  (I know, where did the time go??  The blog is growing up so fast!)  What should your arbitration agreement include?  How can you best take advantage of the new case law under the FAA?  Here are some tips.

First, a caveat.  I will not include draft language here.  That would be what my marketing team calls “giving away the store.”  They frown upon that.  But, here is a list of items that should be in your arbitration agreement, and others you should at least seriously consider putting in your arbitration agreement.

Ingredients You Must Have

  • A clear statement of the types of disputes that should be arbitrated (Think broad! “Any and all disputes arising out of” the contract is a good place to start.)
  • A clear statement of whether the Federal Arbitration Act will govern or a particular state’s Uniform Arbitration Act will govern instead (state acts may provide more authority for third-party discovery or judicial review, but the federal act is very strong in enforcing arbitration agreements)
  • A separate delegation clause (meaning that even disputes about the validity of the arbitration agreement will be decided by the arbitrator, taking advantage of Rent-A-Center — because in my view, if you are going to arbitrate, arbitrate everything)
  • An identification of who will administer the arbitration (AAA? JAMS? CPR? or will the arbitrators self-administer it?) and what rules will govern
  • A reasonable limitations period on claims, or an indication of what law will set statutes of limitations
  • Clear language about whether class (or even multiple-claimant) arbitration is or is not authorized (taking advantage of Stolt-Nielsen)
  • A severability clause (so that if any part of your arbitration agreement itself is invalid, the rest will be enforceable)
  • A statement that the prevailing party may turn the arbitration award into a court judgment in a specific court (taking advantage of Section 9 of the FAA)

Considering Sprinkling In:

  • A required hearing location
  • A required number of arbitrators (a single arbitrator is cheaper, but increases the chance of a wacky award; alternatively some provider’s rules say claims under a certain dollar amount will be heard by a single arbitrator, while those over that amount will be heard by a panel of three)
  • Required qualifications of the arbitrators (should it be someone from a particular industry?)
  • The availability of emergency equitable relief (with the AAA, this can be done by incorporating the “Optional Rules For Emergency Measures of Protection”)
  • A requirement that the arbitrators issue a reasoned award (otherwise you reduce your already limited ability to try and vacate any potential wacky award — but if you anticipate only small claims, this may unnecessarily drive up expense)
  • The availability of a quick appeal through the arbitration provider
  • Required mediation either before, or during, the arbitration process
  • Requiring that the loser pay the prevailing party’s attorneys fees (or other modifications to the default rules as to costs and fees of arbitration)
  • If you have chosen an institution to administer the arbitration that is uncommon, you may want to include a statement about what happens if the provider is no longer in business or otherwise unavailable
  • A limitation on the types of damages available
  • Some parameters on discovery – in all disputes or in certain types of disputes (i.e., no more than X depositions, no interrogatories, no requests for admission, no expert depositions…)
  • If your form contract will be used with thousands (or millions) of consumers, and those consumers may have claims that are not economical to pursue on an individual basis, but have significant public benefit, you may want to address the AmEx decision (which refused to compel individual arbitration of antitrust claims because plaintiffs could not “effectively vindicate” their statutory rights via individual arbitrations).  That could be accomplished by stating that claims under certain federal statutes (like antitrust statutes) are outside the scope of the arbitration clause
  • Similarly, consider allowing low-dollar individual claims to be heard in small claims court

Do you think I missed some key ingredients?  Please tell me via email or Twitter and I will consider updating the lists.

Other Resources:

If you were hoping for the full, frosted contractual cake, instead of just a recipe, and you aren’t yet ready to hire me, here are some sources you may want to consider visiting, but note that they do not take advantage of the recent case law.

AAA’s “Clause Builder” 



Ken Adams, a specialist in contract drafting, has a suggestion for the first few lines of your agreement



Let’s say you are considering updating your form contract, or you are in the midst of negotiating a new contract with someone.  Should you include mandatory arbitration for resolving any disputes?  Assuming you have the choice, my view is you should only include arbitration if at least one of these five factors are present:

1.  Having a knowledgeable industry professional decide the dispute is very important (an architect, engineer, doctor, reinsurance expert, etc), instead of a judge or jury without that expertise, because disputes are likely to be very technical.

2.  Keeping the proceedings confidential (and not publicly available in court filings) is very important to you.  (Although, if either party moves to vacate, much of your arbitration proceeding could become part of a court record.)

3.  You do not want class actions.  (They can be precluded in an arbitration agreement; it is less clear whether they can be precluded without an arbitration agreement.)

4.  You want to arbitrate because other parties on the same project or deal have arbitration provisions.  (For example, if the owner and general contractor on a construction project are bound to arbitrate, the owner and architect may also want to agree to arbitrate in case the architect is implicated in claims between the owner and general.)

5.  There is a chance that you may have to enforce a judgment in a foreign court.  The New York Arbitration Convention allows the winning party in an arbitration to enforce its judgment abroad much more easily than if the judgment had come from a U.S. court, which is important if the loser’s assets are located abroad.  [*Note that the original version of this post only included the first four reasons.  But I received useful feedback via Twitter and email about this additional benefit of arbitration over litigation and added it to the list.  Thanks for the input!]

It is a relatively short list.  But, in my view, these are the only four bases on which arbitration has a significant advantage over litigation.  You will note that speed of resolution is not on the list (unless parties opt for expedited proceedings, arbitrations generally take about as long as court proceedings — the median case valued between 1 and $10 million dollars administered by the AAA took 414 days to get to an award).  You will also note that cost is not on the list (in my experience on complicated commercial matters, there is no cost saving to arbitration and I found a recent study supporting my anecdotal evidence).  Speed and cost used to be the primary reasons people chose arbitration.

There are other potential reasons to choose arbitration that I am also discounting.  For example, the risk of an illogical jury verdict is not significantly greater in my mind than the risk of an illogical arbitration award.  I also do not see any advantage to the greater informality and looser rules in arbitration, or find it less adversarial.  And, although you can make someone conduct the arbitration hearing in the basement of your building, you could just as easily have a forum selection clause choosing your home town courthouse in most circumstances, so I do not count that as a big advantage for arbitration.

It’s the start of a new year and a great time to step back and revisit our reasons for inserting arbitration in our contracts.  I’d love to hear whether you agree or disagree with my list!  Let me know @KramerLiz.

This post is dedicated to a perennial favorite topic: subpoenas for documents in arbitration.  Why this topic and not something hot off the presses?  Because SCOTUS has not yet accepted or denied the cert petition in Sutter, and no cases have come out recently that meet my high standards for discussion on this blog (is it about arbitration?  does it lend itself to a fun title?  at least a fun photo?).

If the arbitration involves interstate commerce, the Federal Arbitration Act governs the issuance of subpoenas.  Section 7 authorizes an arbitrator to “summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case.”  9 U.S.C. § 7.  The section also specifies that if the recipient of the subpoena does not cooperate, the issuing party must bring a motion in the federal district court in “the district in which such arbitrators, or a majority of them, are sitting.”  (If your arbitration does not involve interstate commerce, then the applicable state arbitration act will govern the availability of subpoenas.)

The language of Section 7 has led to a circuit split on whether the FAA authorizes document discovery from third parties.  The plain text of the statute suggests that documents are only available if they are in the possession of a third-party witness who is testifying during the arbitration hearing (but not available in advance of the hearing without a testifying witness).  And, indeed, that is the interpretation that both the Second and Third Circuits have offered in recent years.  E.g., Life Receivables Trust v. Syndicate 102 of Lloyd’s of London, 549 F.3d 210 (2nd Cir. 2008); Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404 (3d Cir.2004).   The Second Circuit characterized its decision as part of an “emerging rule” and a “growing consensus,” probably due in part to the fact that Justice Alito wrote the Hay Group opinion before joining the Supreme Court.

The only strong opposition comes from a  twelve year old decision from the Eighth Circuit, finding that if an arbitrator has the power to order a third-party to bring documents to a hearing, it must also have the power to order that the documents be produced in advance.  In re Arbitration Between Sec. Life Ins. Co. of Am., 228 F.3d 865, 870-71 (8th Cir.2000).  The Fourth Circuit struck out a middle ground, without the benefit of any of the previously-cited decisions, noting that arbitrators have the power to order third parties to produce documents in advance of the hearing only in cases of special need.  COMSAT Corp. v. Nat’l Sci. Found., 190 F.3d 269, 275 (4th Cir.1999).

Of course, parties have found creative ways around the rule against pre-hearing discovery from third parties.  For example, arbitrators have conducted mini-hearings, in advance of the full hearing on the merits, for the sole purpose of hearing testimony and/or receiving documents from a third party.  See Alliance Healthcare Services, Inc. v. Argonaut Private Equity, LLC, 804 F. Supp. 2d 808 (N.D. Ill. 2011).   In addition, the rules of the forum may authorize third-party discovery before a hearing (FINRA does, for example).

Assuming the arbitrator has the power to subpoena a third party for documents in advance of the hearing, are there any limits on who those third parties can be?  In particular, can they be outside the state where the arbitration will occur, or more than 100 miles from the hearing site (the limitations in FRCP 45)?  Again, courts are split on whether the geographic limitations of Rule 45 apply in the arbitration context.  A number of courts find the limits do not apply.  E.g., In re Arbitration Between Sec. Life Ins. Co. of Am., 228 F.3d 865, 870-71 (8th Cir.2000); Festus & Helen Stacy Fdn. v. Merrill Lynch, 432 F. Supp. 2d 1375, 1378 (N.D. Ga. 2006).  Other courts hold that the geographic limitations apply equally to arbitration and court subpoenas.  E.g., Legion Ins. Co. v. John Hancock Mutual Life Insurance Co., 2002 WL 537652, at *27–28 (3d Cir. April 11, 2002).   Finally, other courts get around the perceived unfairness of arbitration subpoenas being limited to third parties in a certain geographic radius by using FRCP 45(a)(3)(B) as a gap-filler of sorts, allowing for the issuance of third-party subpoenas outside the federal district where the arbitration hearing will proceed.  See Ferry Holding Corp. v. GIS Marine, LLC, 2012 WL 88196 (E.D. Mo. 2012).

In short, subpoenaing documents from third parties is an area where the law is in flux, so you want to reserve your requests for third parties whose documents are critical and merit the expense of fighting over whether they should be produced. The issuing party must check the precedent in the federal district where the arbitration hearing will take place to see if pre-hearing document discovery is allowed and whether it is restricted to the geographic limits of Rule 45.  If courts in the relevant district have limited the reach of subpoenas for documents, you will need to get creative to get your discovery.  For those who want to object to a subpoena for documents from an arbitrator, you can bring to bear all the usual objections under Rule 45, as well as the unique arbitration-related objections that document discovery from third parties is not available in arbitration.