AAA Adds Appellate Process

In the category of "not quite new" news, the American Arbitration Association amended its rules effective November 1, 2013.  While a number of rules were amended (as discussed more thoroughly at ADR Prof Blog), a significant rule addition of interest to appellate practitioners is the inclusion of an appeals process.  This is significant because opponents of arbitration have long argued that arbitration has a much greater likelihood than traditional court litigation to end up with unjust conclusions.  This concern is premised on the possibility that arbitrators, some being non-lawyers, may not properly construe the law - resulting in inconsistent and perhaps inconceivable outcomes.  When you couple this concern with a strict standard of review on appeal, it is understandable why some people shy away from arbitration.  

As it stands without consideration of the AAA rule change

When a party appeals an arbitral award, the Federal Arbitration Act (FAA) section 10 dictates the very limited areas where vacatur is permissible.  These primarily include:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

 

Some courts have construed this to create a "manifest disregard of the law" standard.  This standard greatly reduces the chances of reversal on appeal.  The Supreme Court in Hall Street Associates also held that parties cannot by contract expand the scope of appellate court review.  Therefore, parties agreeing to arbitrate disputes are stuck with the language articulated in the FAA.  While this limited standard of review can be seen as good for expediency in bringing an end to the dispute (timely dispute resolution is a major reason why people choose ADR), it certainly can be painful for the disputant on the wrong end of the decision and facing the daunting prospect of a reversal on appeal.

 

Changes made to the AAA process

 

The changes made by AAA now allow the parties to select an appellate review process within the scope of their arbitral contract, therefore not implicating how a court will later review the arbitral decision.  The rules permit Appeal Tribunal review of errors of law deemed material and/or prejudicial, as well as clearly erroneous factual determinations.  Parties selecting this process can file an appeal within 30 days of the arbitrator's award, and it is "possible" that the process, including the time allotted for briefing, will not exceed 3 months.    The appellant's brief is filed 21 days after the Notice of Appeal is filed, and appellee's brief is due 21 days thereafter.  A Reply Brief can be filed within 7 days.  No more than a 7-day extension of time to file a brief will be granted.  The parties can request oral argument.  Once the last brief is submitted, or oral argument is concluded, the Appeal Tribunal will render a decision within 30 days.  The arbitrator's award will not be considered final, for the purposes of any later court action to modify, enforce or vacate it, until after the appellate process is complete.  

 

These changes are good for the arbitration process.  It allows parties to expand the scope of review within the arbitration process itself, and to essentially get two bites at the appellate apple.  The one negative is that it expands the time spent on the dispute, but this is not really problematic since the parties agreed in advance to allow for this additional appellate process.  One important limitation to note is that these rules do not apply to businesses utilizing standard, non-negotiable consumer arbitration contracts.