Appellate Review of Arbitration Awards in the American Arbitration Association
Posted Nov. 1st 2013
BY: GENE J. ESSHAKI, ESQ.*
ABBOTT, NICHOLSON, QUILTER, ESSHAKI & YOUNGBLOOD, P.C.
On November 1, 2013, the American Arbitration Association (“AAA”) published Optional Appellate Arbitration Rules establishing for the first time an internal appeals process for awards issued by the AAA and its affiliated organization, the International Centre For Dispute Resolution (“ICDR”).
The optional rules provide for a new appeal process within the arbitration process itself that previously did not exist. Historically, under state and federal law, grounds for overturning an arbitration award were strictly limited to actions involving claims that the award was procured by corruption, fraud or undue means; was the result of evident partiality or corruption in the arbitrators; was so imperfect upon its face it could not stand; or where the arbitrators exceeded their powers (the Federal Arbitration Act 9 U.S.C. § 10).
Rarely, if ever, was an arbitration award overturned by a state or federal court because the grounds for review were so limited. Simple errors of law or erroneous findings of fact are not a basis for overturning an arbitration award in court. Indeed, courts were often instructed not to look beyond the face of an award in ruling upon a motion to overturn.
In announcing the adoption of the new optional appellate rules, the AAA indicated it was responding to requests for an objective, expedited, cost-effective and just appellate arbitral process. In doing so, the optional appellate arbitration rules constructed an appeal process that was designed to be expedient, cost-effective and intended to correct errors that could not be addressed in the limited reviews permitted by state and federal statutes and case law. The rules may be found in their entirety at: http://go.adr.org/appellaterules.
Some of the more interesting highlights of the rules include the following:
1. Applicability. The optional appellate rules can only be invoked where provided for in the parties’ contract arbitration clause or upon joint stipulation. (A-1)
2. Scope of Review. Appeals are strictly limited to reviewing errors of law that are material and prejudicial and/or determinations of fact that are clearly erroneous. (A-10)
3. Appeal Process. Appeal decisions are based solely upon the record and materials submitted at the hearings giving rise to the award, absent a determination by the Panel of the need for oral argument, sue sponte, or on motion of a party. (A-15) 2
4. Time of Appeal. The guidelines establish that an appeal should be completed within ninety (90) days after notice of the original appeal is filed. (Introductory Comments)
5. Composition of Appellate Panel. The AAA and the ICDR will establish appellate panels that will consist predominantly of former federal and state judges and neutrals with strong appellate backgrounds. (Introductory Comments)
Some of the more interesting aspects of the rules not contained in the general overview
above include the following:
1. Stay of Proceedings. Upon the filing of a notice of appeal, the award shall not be considered final and binding, no further action shall be taken towards enforcement of the award and all time periods are suspended until the appellate process is concluded. (A-2)
2. Non-Modification. The appellate process is not designed to address requests for modifications of an award, which are strictly within the jurisdiction of the hearing panel. The denial of a modification request, however, can form the basis of an appeal. (A-2 b)
3. Time Limitations. Strict limitations are established for the filing of the appeal, any cross-appeals, and submission of the record, briefs and cross-briefs. Parties are entitled to one seven (7) day extension for filing a brief upon good cause shown. (A-17)
4. Limitations on Appellate Decisions. The rules strictly limit the actions an appellate panel can take with respect to an appeal. The panel can:
a. Adopt the underlying award as its own, or
b. Substitute its own award for the underlying award (incorporating those aspects of the underlying award that are not vacated or modified), or,
c. Request additional information and notify the parties of the tribunal’s exercise of an option to extend the time to render a decision, not to exceed thirty (30) days. The appellate panel is prohibited from ordering a new arbitration hearing or sending the case back to the original arbitrators for corrections or further review. (A-19)
5. Written Decision. The decision of the appellate panel shall be in writing and shall include a concise summary of the decision and an explanation of the decision, unless waived by the parties. (A-19c)
6. Fees and Costs. The appealing party bears sole responsibility for the filing fee ($6,000) and the fees and costs of the tribunal if no cross-appeal is filed. If a cross-appeal is filed, an additional filing fee of $6,000 is due by the cross 3 appealing party and the fees and costs of the appeal are otherwise to be shared equally or pro-rated if more than two parties are involved. (A-12 and Fee Schedule)
The AAA has indicated that these new optional appellate rules are designed for complex commercial cases, involving significant dollar awards where clear errors of law or erroneous factual determinations have substantially prejudiced a party. This type of a review is not otherwise available in state or federal courts and provides the parties with an option to correct such mistakes. It must be remembered, however, that in order to invoke the appellate rules the optional appeal clause must either be contained in the parties’ contract arbitration clause or be stipulated to by the parties. Obviously, a prevailing party is unlikely to enter into such a stipulation after the award is entered, so the issue of optional appellate review needs to be addressed either in the contract formation process or in the order referring an existing dispute to arbitration crafted by the parties in a judicial proceeding.
* Gene J. Esshaki is a Member of Premier Resolution Experts of Michigan. He is a graduate of Wayne State University Law School. Since graduation, he has continuously practiced law in the Detroit Metropolitan Area, specializing in complex commercial litigation and alternative dispute resolution. He is a neutral Arbitrator on the complex case panels of the American Arbitration Association and the International Center for Dispute Resolution. He has an active practice in mediation and is appointed frequently by state and federal judges to mediate some of their most complex commercial cases. Gene is a member of the American Board of Trial Advocates and a frequent Lecturer for ICLE on ADR topics. He is a founding shareholder in Abbott, Nicholson, Quilter, Esshaki & Youngblood, P.C., located in Detroit, Michigan.