Arbitration Through the American Arbitration Association
The American Arbitration Association provides a forum to resolve many types of disputes through several different sets of arbitration rules.
Arbitration of disputes is becoming the norm and not the exception. Whether the dispute is between an investor and a “Registered Investment Adviser”, between a customer and their cellular phone provider, or contracts governing business operations, companies nationwide are including binding arbitration provisions in the contracts that govern their relationships with customers, employees, contractors, and everyone in between. One of the preferred forums used by business for arbitration of disputes is the American Arbitration Association (AAA). The AAA has several sets of procedural rules that apply depending on the type of case. However, there are two primary rule sets: the Consumer Rules and the Commercial Rules, that apply to most cases. Although the rule sets are similar, there are material differences between the two and you must hire an attorney with experience in AAA arbitration to ensure your case is in the right hands.
AAA arbitration under the Consumer Rules is governed by procedural rules R-1 through R-55. One critical aspect of arbitration under the Consumer Rules is that the business is on the hook for all arbitrator-related fees. This is a huge deal and can save you thousands of dollars in costs. Be careful when filing your case in AAA and always demand arbitration under the Consumer Rules – regardless of what your arbitration agreement says – because AAA is likely to side with the consumer and impose the Consumer rule set on the parties.
Under the Consumer Rules in the AAA, arbitration starts with the filing of a Demand for Arbitration by the claimant. In arbitration, the plaintiff is usually referred to as the “claimant”. The Demand for Arbitration is governed by R-2 and requires the claimant to explain the dispute, identify the names and addresses of the consumer and the business and representatives if known, specific the amount of money at issue, identify the requested location for the arbitration hearing, and “state what the claimant wants.” When the Demand for Arbitration is filed with the AAA, you must also include a copy of the arbitration agreement and it must also be sent to the opposing party. Attorneys who have experience in AAA arbitration understand these filing requirements and can quickly and efficiently get your case filed. The Demand for Arbitration is essentially the complaint and needs to be drafted by experienced arbitration counsel. A poorly drafted Demand for Arbitration can lead to your case being dismissed on the papers without compensation.
The next step in the AAA Consumer Rules process will be the filing of the “answer” by the respondent/defendant. In the answer, the Respondent will tell its side of the story. At this point the pleadings are usually done, but each party does have the right to amend their pleadings if the arbitrator authorizes it. Now that the pleadings have been filed, the next step is the appointment of the arbitrator by the AAA.
Typically, AAA arbitrations under the consumer rules will be decided by one arbitrator, per R-17. This arbitrator may be appointed by AAA from its pool of arbitrators, can be selected based on the language of the arbitration agreement, or the parties can decide on another method of selection, pursuant to R-16. Experienced arbitration lawyers will rarely allow the forum to select the arbitrator and will know to work with the other side to discuss a ranking process so the parties have some control over who will be the judge and jury for the case.
Now that an arbitrator has been selected, the parties and arbitrator will hold a preliminary conference pursuant to R-21. This conference is not automatic, so experienced practitioners will always request one. This preliminary hearing is where the parties will discuss critical issues that will impact your case like discovery deadlines and scope, along with deadlines for motions and arbitration hearing dates. Discovery under the Consumer Rules is governed by R-22 and by design can be quite limited – sometimes too restrictive even. There is a general policy that arbitration under the consumer rules be cost effective and efficient and sometimes arbitrators take this concept to the extreme and limit discovery to very restrictive document exchange. Experienced arbitration lawyers know to work this out with opposing counsel and approach the arbitrator with a detailed plan for discovery. Although depositions and interrogatories are usually not allowed under the Consumer rules, in the age of email and text messaging, you must be able to gain access to electronic discovery or you can lose your case.
R-22 also sets a deadline for the parties to exchange all exhibits intended to be used at hearing five business days prior the first hearing date. This critical deadline is tucked in the middle of the rule and attorneys who are not used to trying cases under the AAA Consumer rules can be caught off guard by this rule and result in serious issues for your case, including lengthy postponements.
The AAA consumer rules attempt to limit motion practice under R-24. Before firing off a motion to compel discovery, a motion for subpoenas, or a motion to amend a pleading, the moving party must set up a conference call with the arbitrator to discuss the motion and why it is necessary. Essentially, you must “seek leave” to file your motion before doing so. Inexperienced lawyers will run-aground of this requirement which will result in delays and will likely aggravate the arbitrator.
Dispositive motions, or motions to dismiss or for summary judgment, are allowed under R-33. However, a distinguishing factor between the Consumer and Commercial rule set is, under Consumer R-33, the moving party must show “substantial cause that the motion is likely to succeed and dispose of or narrow the issues in the case.” Prior to actually filing the motion to dismiss, for example, the moving party must prove to the arbitrator that there is “substantial cause” that the motion is “likely to succeed.” This is a high bar, but parties opposing the request for leave must take it very seriously. If you can stop the filing of the motion, you win. If the motion is filed, you may not. Only lawyers with experience in AAA grasp the implications of R-33.
The arbitration hearing is the last stop for an arbitration case in the event there is no settlement reached. The arbitrator will handle the admission of evidence pursuant to R-34 which is not limited to the strict processes used in court under formal rules of evidence. Once the hearing is complete, the arbitrator will issue an award in the form dictated by R-43. Trying a AAA arbitration is not like trying a jury trial. If you want your claim to succeed, make sure you hire lawyers with experience trying cases under the AAA Consumer Rules.
AAA Commercial Rules
Arbitration under the Commercial Rules is traditionally reserved for business-to-business disputes and is governed by Commercial Rules 1 through 58. The Commercial Rules also include rule sub-sets for expedited procedures involving cases with less than $75,000 at issue, procedures for large/complex commercial disputes for cases with more than $500,000 at issue, and mediation procedures. There are many similarities between the Consumer and Commercial rules, but there are several key differences.
First, and this is possibly the most important difference to claimants, under the Commercial Rules, the parties are required to split the cost of the arbitrators, unless otherwise agreed. Because many cases under the Commercial Rules will have three arbitrators, this can get very expensive. It is important that an experienced arbitration practitioner determine at the outset of your claim whether your case could qualify for arbitration under the consumer rules instead.
Another issue unique to the Commercial rules is mandatory mediation under R-9. Although a party can unilaterally opt-out of this upon notice to the AAA, this mediation requirement is unique to the Commercial rule set. Another key difference found in the Commercial Rules is the appointment of the arbitrators under R-12 through R-14. AAA provides the parties wide latitude in deciding who the arbitrators will be and also provides different options. Under R-12, AAA will send the parties a list of potential arbitrators and encourage the parties to agree to a set for the case, or submit ranking lists which will then be compiled by AAA to select a panel. R-13 allows the parties to independently select their arbitrators.
Discovery under the Commercial Rules is governed by R-22 and is more expansive than the discovery under the Consumer Rules. Still, the intent is expedition and efficiency. Experienced AAA attorneys know to work with their opponent and agree to a set of discovery guidelines and submit them to the arbitrators for approval. It can be a mistake to leave the scope of discovery to the arbitrators. Motion practice is not as restricted under the Commercial Rules either, and there is no rule requiring a party to seek leave to file a motion before filing one. Discovery motion practice is quite common under the Commercial Rules and experienced counsel understand how to handle these issues.
Dispositive motions are also allowed under the Commercial Rules through R-33. Unlike the consumer rules, there is no requirement that the moving party first establish “substantial cause”. Instead, a party must merely establish the motion is likely to succeed. It is still a limiting factor and designed to curb abusive dispositive motion practice. But the bar is lower under the Commercial Rules.
The final hearing will be conducted much like the hearing under the Consumer Rules and the admission of evidence is governed by R-34 and R-35. The parties can request a reasoned award under Rule-46, but otherwise will receive a simple form award.
If you have a claim that requires resolution through AAA Arbitration, it is critical that you hire lawyers with experience representing clients in this forum. The attorneys at Stoltmann Law Offices have tried dozens of cases under the AAA rules and understand how to navigate these difference procedural rules.