Litigation Update: American Arbitration Association Announces Changes to Commercial Arbitration Rules

Nov 06, 2013   

The American Arbitration Association has announced revisions to its Commercial Arbitration Rules which have taken place effective October 1, 2013. According to its website, the revisions include:

  • a mediation step for all cases with claims of $75,000 or more (subject to the ability of any party to opt-out);
  • arbitral control over information exchange (discovery);
  • the availability of emergency measures of protection;
  • access to dispositive motions; and
  • new preliminary hearing rules as well as remedies and sanctions for non-compliance.
These changes reflect a growing trend to duplicate the arbitral process with that of the courts, thus effectively privatizing the judicial process. The changes were made based upon feedback from arbitration practitioners over the years. A complete copy of AAA’s up-to-date “Commercial Arbitration Rules and Mediation Procedures” is available here. We break down the recent changes to the AAA rules as follows:
  1. Mandatory Mediation (Rule 9-A): The Rules now include mediation as an integral part of the process for all cases exceeding $75,000. Any party may affirmatively “opt out” of the process. The parties may agree on the date and time to mediate, and may further select the Mediator, who shall not be the appointed Arbitrator. If the parties do not otherwise agree on a date and time, the mediation shall take place “concurrently with the arbitration.”Although the terms “mediation” and “arbitration” are frequently used by the lay person interchangeably, the mechanics of these alternative dispute resolution tools are dramatically different. Mediation is a process where the parties endeavor to voluntarily settle the case. A mediator presides over the settlement conference, and labors to determine whether a suitable compromise may be agreed upon. Arbitration, on the other hand, is a formal process where a neutral arbitrator decides the dispute. Unlike arbitration, mediation allows the parties to voluntarily agree to a suitable resolution, and thus “purchase” certainty through compromise. Based on statistics, the vast majority of civil cases where mediation is required actually settle before trial. The new Rule reflects the preference of practitioners to allow the process of mediation to allow the parties one last step to settle their dispute before the arbitrator decides the dispute for the parties.
  2. More Active Management by the Arbitrator (Rules 21, 22, 23 and 58): In the past, the guiding principle of arbitration was to allow the parties to control the management of the litigation, which included everything from the selection to the arbitrator, to discovery, to the length, date and time of trial. Unfortunately, it has become rather clear that parties in a dispute frequently are incapable of agreeing to anything. The AAA has taken a great of the parties’ control and handed it back to the Arbitrator, much like the courts. While the parties still have the choice to agree in the first instance on the manner in which a case will be litigated, the new rules afford the arbitrator with the authority to control the process. Rules 21-23 have been amended to codify this power.Rule 21 governs the preliminary hearing and endeavors to ensure that the hearings are grounded with uniform procedures. New “Preliminary Hearing Procedures” have been enacted. See P-1 and P-2. The matters to be discussed seem to mirror many of the issues required in a federal court scheduling conference, and cover everything from the scope of discovery to the choice of substantive law that will apply at trial. Rule 22 provides the rules for exchanging information, including electronic data and the issues of third-party testimony. The process is more reflective of the courtroom litigation.

    Rule 23 empowers the arbitrator with the hammer to enforce his/her authority. If a party refuses to comply with “any order issued by the arbitrator,” the arbitrator is vested with the authority to sanction the offending party with such serious remedies as drawing adverse inferences, exclusion of evidence, and awarding fees and costs. Rule 58 provides additional authority to the arbitrator to sanction any party for failing to comply with any obligation or order of the arbitrator.

    Still, despite that the rules move the arbitral process closer to the normal courtroom experience, the AAA takes great pain to remind itself and the parties that arbitration is “designed to be simpler, less expensive and more expeditious.” P-1(b).

  3. Dispositive Motions (Rule 33): Perhaps the most important rule to be added is Rule 33, which now allows an arbitrator to enter summary judgments. Before the amendment, arbitrators were essentially powerless to enter an award before a final trial, even if there was no doubt whatsoever as the ultimate result. This lack of power resulted in tens of thousands of lost dollars expended in a needless and unnecessary trial. Now, just like a judge, an arbitrator is explicitly authorized to make a dispositive ruling or otherwise narrow the issues before trial. This may prove to be the rule which really affords arbitration to be the “simpler, less expensive and more expeditious” process that it was designed to be.
  4. Injunctions/Interim Relief (Rule 38): Prior to the revisions, parties had to agree to allow the AAA to enter injunctive relief (called interim relief in arbitration). Now, the Emergency Measures of Protection Rules are incorporated into all arbitrations proceeding under the Commercial Rules.
  5. Non-Payment (Rule 57): Typically, parties agreeing to arbitrate their disputes pay their proportional costs during the course of arbitration, subject to a final ruling apportioning the costs. However, what happens if one party refuses to pay? The former rules were silent on the issue. Rule 57 now allows any party to advance the fees of a non-paying party. If the non-paying party is the petitioner, the arbitrator may limit its ability to advance a claim; however, the Rule still allows even non-paying parties the right to defend against a claim or counterclaim. Likewise, the Rule now codifies that the arbitrator (or the AAA) may suspend the arbitration until payment is made, or terminate the proceedings if full payment is not received by a specific time following a suspension.

The changes we have described here include the “major” ones, but there have also been many other changes, revisions and modifications to the Rules, any one of which may significantly impact your case. Although arbitration allows individuals and companies to represent themselves (subject to state law), it is strongly recommended that you obtain representation of a seasoned professional. If you have any questions about this issue, and specifically about how the recent changes to AAA’s “Commercial Arbitration Rules and Mediation Procedures” may impact your case, please feel free to contact us at 305-350-5690 or