Not long ago, one of the American Arbitration Association’s vice presidents stopped by our firm to bring us up to speed on some recent AAA developments and the new AAA rules in effect for commercial cases, effective Sept. 1, 2022. We at Ohio Appellate Insights think one of the topics she mentioned during her presentation — “AAA’s Optional Appellate Arbitration Rules” — is worth noting for our audience of appellate practitioners.
Arbitration decisions are supposed to be quick and final but can be challenged
Several years ago, I remember working on an arbitration involving a fairly basic contractual dispute between two businesses. We had an effective AAA case manager and a strong local arbitrator, and he quickly and efficiently issued a decision in favor of our client after a brief hearing. I may be biased, but the facts seemed to clearly favor our side. Then, however, the losing party (which had affirmatively selected the arbitrator we ended up using) decided to challenge the award under the Ohio statute that permits such challenges under limited circumstances. It argued that the arbitrator — the one it selected — was biased. Under Ohio Revised Code Section 2711.10, a court of common pleas can vacate an arbitration award under the following circumstances:
(A) The award was procured by corruption, fraud, or undue means.
(B) There was evident partiality or corruption on the part of the arbitrators, or any of them.
(C) 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.
(D) 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.
This statute presents a very high bar — a bar the losing party did not meet in my case. But the losing party’s application to vacate the award still resulted in substantial (and frustrating) additional costs and long delays for my client from the related proceedings in common pleas court and the state court of appeals. I remember my client remarking, “I thought the whole point of arbitration was to get a quick decision and stay out of court?” True, indeed.
AAA’s Optional Appellate Arbitration Rules may offer an alternative pathway
As AAA’s vice president recently reminded our litigators during her visit, AAA enacted optional appellate rules effective in November 2013 as a potential alternative solution to the type of problem my client and I encountered. Those optional appellate rules, if agreed to by the parties, permit appeals from arbitration awards — under a broader standard of review than the state and federal arbitration statutes allow — but without subjecting the AAA participants to lengthy and costly judicial proceedings. As AAA explains in the introduction to the optional appellate rules:
The objective of arbitration is a fair, fast and expert result that is achieved economically. Consistent with this goal, an arbitration award traditionally will be set aside by a court only where narrowly defined statutory grounds exist. Sometimes, however, the parties may desire a more comprehensive appeal of an arbitration award within the arbitral process. The [AAA] has included clauses for appellate arbitration in its Drafting Dispute Resolution Clauses – A Practical Guide for a number of years. In addition, parties have developed their own processes and standards for conducting these proceedings. In order to provide for an easier, more standardized process, the AAA has developed these optional appellate rules.
As AAA goes on to explain:
The following rules provide for an appeal to an appellate arbitral panel that would apply a standard of review greater than that allowed by existing federal and state statutes. The appellate rules anticipate an appellate process that can be completed in about three months, giving both sides adequate time to submit appellate briefs. The rules permit review of errors of law that are material and prejudicial, and determinations of fact that are clearly erroneous.
Utilization of AAA’s Optional Appellate Arbitration Rules depends on an agreement of the parties, and the rules may not be invoked unilaterally by a losing party to an arbitration. The optional rules are comprehensive, addressing everything from the appeal’s effect on the underlying award to the qualifications of the appeal tribunal, the record on appeal, technical filing requirements, oral arguments, and the assessment of costs, etc. AAA also has adopted a cost-allocation policy regarding the optional appellate rules in employment arbitrations, and another policy regarding the appellate rules in consumer arbitrations.
Reasons why AAA’s Optional Appellate Arbitration Rules may not be top of mind
There are a few reasons why some practitioners — even those with experience in alternative dispute resolution — may not be aware of AAA’s Optional Appellate Arbitration Rules.
- They have only been around for about 10 years. Just as amendments to the civil rules can take a significant amount of time to sink in as a practical matter, the same can be said for relatively recent changes to AAA’s rules.
- The optional appellate rules are often not referenced in typical arbitration clauses that can get copied and pasted from one contract to another.
- There is no mention of the optional appellate rules anywhere in the AAA Rules for Commercial Cases. If those commercial rules are your primary resource when handling arbitrations or advising clients on arbitration clauses, the optional appellate rules may not be at the forefront of your mind.
- Let’s face it, the whole point of arbitrations is rapid and efficient finality — a concept inherently in tension with appellate processes.
For the reasons described above, however, agreement on the optional appellate rules may help parties avoid baseless and time-consuming challenges to arbitration awards under state or federal statutes that could tie the parties up in court for years under very limited (or even inapplicable) standards of review. For that reason alone, the AAA’s Optional Appellate Arbitration Rules may be worth a close look in connection with your arbitrations — particularly in more complex cases in which the panel will be addressing challenging or contested issues of law and/or fact.