Does your contract contain a dispute resolution section that refers to the American Arbitration Association (“AAA”) rules, mediation and/or arbitration proceedings? If so, then you need to be aware of some changes that took effect last month. The AAA revised its Commercial Arbitration Rules and Mediation Procedures (“AAA Rules”) to update some existing rules and to add new rules.
According to AAA, these changes were intended to standardize the their longstanding practices and improve processes through which disputes are resolved. Below is a brief summary of some of the key changes:
Revisions to Existing Rules
R-1(b) and (c) – Expedited and Large, Complex Case Tracks
- These rule changes increase the upper limit for the application of Expedited Procedures from $75,000 to $100,000 and apply Large, Complex Case Procedures to any case involving claims of at least $1 million.
R-2 - Civility
- Parties must now conduct themselves in accordance with the AAA’s Standards of Conduct for Parties and Representatives while using AAA’s services.
- A failure to act in accordance with the Standards of Conduct may result in the AAA declining to further administer a particular case or caseload.
R-22 (formerly R-21), R-25 (formerly R-24), R-33 (formerly R-32) – Use of Video, Audio, or other Electronic Means
- Collectively, these revised rules expand the arbitrator’s authority to determine the method of proceedings (i.e., in-person, video conference, recorded video, audio or other electronic means) to allow the use of technology to facilitate hearing attendance.
R-34 (formerly R-33) – Dispositive Motions
- Uses Expedited Procedures to place limitations on motions practice and discovery (to maintain efficient and economical resolutions of disputes).
R-52 – Modification of Award
- Allows the arbitrator to explain the award on a party’s motion.
Addition of New Rules
- E-2 – Provides new dollar thresholds for application of the Expedited Procedures.
- E-7 – Allows the use of video, audio, or other electronic means as a method of hearing, when appropriate.
R-8 – Consolidation
- Parties may now request the consolidation of arbitration or joinder of additional parties.
- If the parties do not consent, the decision to allow consolidation or joinder is left to the discretion of the arbitrator. In exercising their discretion, an arbitrator may consider the following:
- The terms and compatibility of the agreements to arbitrate;
- Applicable law;
- The timeliness of the request to consolidate and the progress already made in the arbitration;
- Whether the arbitrations raise common issues of law and/or fact;
- Whether consolidation of the arbitrations would serve the interests of justice and efficiency.
R-45 – Confidentiality
- Ensures confidentiality in all AAA related matters, including the final award.
- Grants authority to the arbitrators to issue confidentiality orders upon request.
- Effectively codifies the Code of Ethics for Arbitrators.
New Preliminary Hearing Procedures
- P-2(vi) – Checklist (Cybersecurity, Privacy, Data Protection)
- This checklist recommends that the parties discuss with the arbitrator cybersecurity, privacy and data protection issues during every preliminary hearing.
- P-2 (xii) – Checklist (Third-Party Funding)
- This checklist now includes the existence and identity of third-party funding sources as a potential topic for preliminary hearing.
The changes to the AAA Rules provide an opportunity for parties that regularly include arbitration provisions in their contracts to revisit and reevaluate their preferred language, including whether they provide for AAA administration and/or use of the AAA rules. Using the AAA Rules and using AAA administration present several positive opportunities for parties, but they also bear some risks. A few common pros and cons of AAA administration and using the AAA Rules are outlined below:
- Lists of/access to arbitrators about which the parties may not already know
- Schedule facilitation through the AAA administration
- Use of the AAA online docket/filing platform for case organization/tracking
- Having a neutral set of procedural rules
- Use of Expedited Procedures for claims under $100,000
- Inclusion of checklists to ensure that procedural matters, including cybersecurity, data protection, privacy, funding, and confidentiality, are discussed and agreed upon by the parties in advance of the hearing
- Ability to keep the proceedings private, as opposed to public court filings
- Cost, in particular where a panel of arbitrators is required
- Requirement for payment of substantial deposits early in the case
- Attorneys’ fees awards under the AAA rules even when there is no other statute or contract clause enabling the award that can unintentionally expose parties to financial payments for which they did not account
- Less flexibility on rules/administration, since the parties and arbitrator are not customizing the rules
- Expansion to three-arbitrator panels by default in some cases
- Inapplicability of the civil court evidentiary rules, such that evidence that may have been excluded by a court is allowed in an arbitration
- Inability to appeal the arbitration award
Contact our Construction Practice Group
if you would like us to review dispute resolution provisions in your construction contracts and discuss pros and cons unique to your project.