January 30, 2014

Updated AAA Appellate Arbitration Rules

While parties may have historically agreed to some form of an appellate arbitration process, the American Arbitration Association has recently standardized the process by creating the optional appellate arbitration rules. The rules provide for an alternate approach to appealing the award through the court system. Traditionally, a court would only set an arbitration award aside if narrowly defined statutory grounds existed. However, the new rules provide for an appeal to an appellate arbitral panel who would apply a standard of review greater than that permitted by federal and state statutes. The rules allow for review of errors of law that are material and prejudicial, and determinations of fact that are clearly erroneous.

 

It should be noted that these rules are optional, meaning use of the rules is contingent on agreement of the parties. The parties, by stipulation or by contract, must provide for the appeal of an arbitration award which was rendered under AAA or the International Centre for Dispute Resolution (ICDR). The parties could also provide for the use of the Optional Appellate Arbitration Rules which would then become a part of their agreement. However, the Appellate Rules do not apply where there is an arbitration clause contained in an agreement between an individual consumer and business where the business has a standardized application of arbitration clauses and where terms of the purchase of the product is primarily non-negotiable.

 

The parties can appoint an appeal tribunal or an appeal tribunal can be appointed by the AAA. There is a non-refundable $6,000 administrative fee to be assessed to the party seeking appellate arbitration under these new rules. The parties or the appeal tribunal can request oral argument, otherwise the appeal will be determined based only on the written briefs submitted by the parties. The arbitration appeal process is designed to take approximately three months. Within one month of service of the last brief, the appeal tribunal will make a decision. The appeal tribunal will adopt the underlying award as its own, substitute its own award for the underlying award, or request additional information and exercise its option to extend time to render a decision, not to exceed one month. The appeal tribunal cannot order a new arbitration hearing or send the case back to the original arbitrators for corrections or further review. Once the appeal tribunal issues its decision, the decision becomes the final award for purposes of judicial enforcement proceedings.

What It Means to You

Contracted parties with arbitration clauses may wish to update their contract language to provide for use of the AAA’s Optional Appellate Arbitration Rules. When drafting new contracts, the parties may want to consider providing for these rules as well. These rules may serve to benefit both parties if either party believes the initial arbitration award is based on an error of law or erroneous determination of fact and wishes to have the option to appeal the award without having to go through the court system.