Liz has written before about the ways that state courts sometimes try to resist SCOTUS’s love affair with arbitration.  Resistance can come in many and varying forms, some more subtle than others.

One persistent source of confusion in arbitration law, and thus a locus for resistance, centers on delegation clauses. As a quick refresher, in the United States, courts decide questions of arbitrability (questions about the proper scope of an arbitration agreement as well as the contractual validity of an arbitration agreement) unless the parties, in clear and unmistakable language, delegate these questions to the arbitrator.  Parties may provide such a delegation, most courts agree, by including express language in the arbitration clause to this effect or by incorporating by reference a set of arbitration rules that include such a delegation.  (See, e.g., Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069, 1074 (9th Cir. 2013) (“Virtually every circuit to have considered the issue has determined that incorporation of [institutional] arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.”  But for a different take, check out this blast from ArbitrationNation’s past.)

Like the doctrine of separability, the goal of a delegation clause is to insulate and protect the arbitral process, preventing the parties from having to waste time and money fighting in court before getting to arbitration.

In Midwest Neurosciences Associates, LLC v. Great Lakes Neurosurgical Associates, (Wis. 2018), however, the Wisconsin Supreme Court effectively created a new rule that allows a court to ignore a delegation clause.  As the dissenting Justice says, the case “creat[es] a new rule bestowing on the judiciary the power to decide arbitrability even though the parties agreed an arbitrator would resolve this issue.”   Accordingly, parties who choose arbitration in Wisconsin, may wind up stuck waging preliminary battles about arbitrability in courts, even if they include clear and unmistakable language saying that they want all of their fights resolved before an arbitrator.

The case involved a potential conflict between two contracts.  The first was an Operating Agreement, which contained an arbitration clause and a choice to arbitrate pursuant to the JAMS Arbitration Rules (which include a delegation provision).  The Operating Agreement substantively contained a set of non-compete obligations preventing certain behavior by the defendants.  The second, and subsequent, contract was a Redemption Agreement, which did not contain any reference to arbitration, included a merger clause, and was intended to at least partially supersede the earlier agreement.  Specifically, the Redemption Agreement was supposed to release the defendants from their obligations under the Operating Agreement.

The defendants started acting in contravention to their non-compete obligations. The plaintiffs objected, saying that they had never actually agreed to the Redemption Agreement. Instead, they believed it to be a mere proposal that they had ultimately rejected.

The Wisconsin Supreme Court concluded that the questions of whether the Redemption Agreement was valid and, if so, whether it changed the forum for dispute resolution were for the court rather than the arbitrator.  In reaching this conclusion, the majority effectively ignored the delegation clause, relegating it to an aside in a footnote.

Lest you think that I’m being too harsh in saying that the decision evidences resistance to arbitration, I’ll just quote Justice Rebecca Bradely’s dissent in closing:

While the foundation of the majority’s preference for court resolution of arbitrability disputes is unclear, its disdain for arbitration as a method of dispute resolution is transparent . . . The majority misunderstands that the choice of method for dispute resolution belongs to the parties, not the court.

 

 

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.

If you are a party that wants courts to rigidly enforce delegation clauses – sending questions about even the validity of the agreement to arbitration – then you will appreciate a new decision from the Tenth Circuit. In Belnap v. Iasis Healthcare, __ F.3d __, 2017 WL 56277 (10th Cir. Jan. 5, 2017), the court refused to do even a spot check of whether defendant’s claims of arbitrability were accurate and enforced the parties’ delegation clause.

Belnap involved a surgeon suing a medical center, its parent company, four doctors on its Medical Executive Committee, and its “risk manager,” for notifying data banks that he had been suspended, but not notifying all relevant organizations when it later vacated his suspension.  The surgeon’s agreement with the medical center had a dispute resolution clause that called for first mediation and then arbitration “administered by JAMS and conducted in accordance with its” rules.  Relying on that agreement, all defendants moved to compel arbitration.  The district court found the medical center could compel arbitration of one of the seven claims, but that the other six were outside the scope of the arbitration clause.  The district court rejected the non-signatories’ attempt to compel arbitration and rejected the argument that the parties had delegated questions of scope to the arbitrator.

On appeal, the Tenth Circuit began its analysis, as it should, with the question of who should decide whether the claims are arbitrable. On that question, it found that by incorporating the JAMS Rules into the agreement, the surgeon and the medical center had shown a clear and unmistakable intent to delegate questions of arbitrability to an arbitrator.  It also took exception to the fact that “some courts have suggested that the Tenth Circuit is the only federal appellate court that has deviated from this consensus.” (The consensus being that referencing arbitral rules which delegate arbitrability to an arbitrator is clear and unmistakable agreement to alter the default rule that courts decide those issues.)  It clarified a 1998 decision that had led other courts to that conclusion, thereby appearing to mend any alleged circuit split on that issue.

After finding the arbitrator should decide arguments about scope, however, the 10th Circuit still had to address another of the surgeon’s arguments supporting the court’s review.  The surgeon asked the 10th Circuit to “adopt the ‘wholly groundless’ approach of the Fifth, Sixth, and Federal Circuits.”    That approach allows a district court, after finding the parties delegated arbitrability, to conduct a smell test of sorts: whether the assertion of arbitrability is “wholly groundless.”  The idea is, let’s not let parties with delegation clauses go around enforcing them willy nilly, even in instances where there is no legitimate basis for the claim to be arbitrated.  That would force the plaintiffs to waste time and resources going to arbitration, just to be sent back to court again (we hope).

However, the 10th Circuit “decline[d] to adopt the ‘wholly groundless’ approach.”  It found it is in tension with the inflexible language of SCOTUS’s decisions.  It also cited multiple cases from other federal circuits that require enforcement of a delegation clause, but in fairness it appears that the “wholly groundless” approach was not presented to those appellate courts.  Therefore, there is now a split among the federal circuits regarding whether a court can at least spot-check a defendant’s claim of arbitrability before enforcing a delegation clause.

Finally, to end its arbitrability tome, the Tenth Circuit addressed whether the defendants who were not parties to the arbitration clause could also compel arbitration of the surgeon’s claims because they are “principals and agents” of the medical center. The court found against the non-signatories, finding Utah law did not support binding a parent company to an arbitration clause signed by its subsidiary, and that Utah law also did not support the individuals’ ability to compel arbitration.

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.