Efficient Commercial Arbitration: À La Carte Services

shutterstock_417615595In a recent post on how to make arbitration more efficient, I suggested that avoiding administered arbitration was generally not a good way to go. Included among the reason not to skip administration were: (1) AAA provides access to experienced, well-qualified arbitrators and a well-defined process for selecting them, (2) someone needs to determine challenges to an arbitrator’s continued service, and it can be awkward if the arbitrator has to resolve those challenges him or herself, and (3) someone has to provide administration, but administration at an arbitrator’s hourly rates could be expensive.

Dealing with Key Problems

There is a new development that answers some of these issues: the AAA À La Carte Services alternative.  AAA is now offering separate services as an alternative to fully-administered arbitration.  For example, arbitrator selection services are now provided.  Parties can simply get a list of arbitrators with credentials  matching what the parties want, or they can use AAA to administer the selection process.

The AAA also provides challenge review procedures for non-administered arbitrations. Thus, objections or challenges to continued service of an arbitrator goes to the AAA’s Administrative Review Council to resolve the matter.

This doesn’t answer the question of the possible expense of an arbitrator providing administration at arbitrator rates. That is still a good reason to consider fully administered arbitration.

À La Carte Appeals

Another objection some parties have to arbitrating is the lack of appeal. Arbitration awards are generally final, and the standard of review is generally based on things like arbitrator misconduct, going beyond authority conferred by the arbitration agreement. Courts do not review awards for legal error or clearly erroneous determinations of fact.  Or at least the law says they aren’t supposed to.

But the AAA now offers appeals on the grounds that the award is based on “1) an error of law that is material and prejudicial; or (2) determinations of fact that are clearly erroneous.” AAA/ICDR Optional Appellate Rules, Rule 10.  Appeals are heard by a panel of three experienced appellate judges or appellate experts.  This gives a disappointed party a way to address perceived legal or factual errors.

And the parties may choose the AAA/ICDR appeal process whether or not the underlying award was based on AAA or ICDR rules.

Availability of appeal may or may not be a good thing from your client’s point of view, depending on the outcome of the hearing and the amount at stake, but the option is there. You may want to consider allowing appeals only if the award exceeds a certain amount so that the cost of the process doesn’t consume the prize.

Planning Ahead

Of course, to take full advantage of this new flexibility, you will have to plan ahead and build references to the á la carte services you plan to use into the arbitration clause.  While parties can agree to arbitration after a dispute has arisen, that is usually unlikely.  But a party that is particularly sensitive about possible arbitration administrative fees might agree to an arbitration where only critical functions of selection or challenge resolution are provided for.  The fees for those services are relatively inexpensive and are at a flat rate.

There is almost no possibility the opposing party will agree to an arbitral appeal after the Award has been entered. You may be able to agree with your opponent to such an appeal at the outset of the arbitration, but I wouldn’t count on it.  You’ll have to build an appeal into  your arbitration clause to be sure of an arbitral appeal.

Of course, parties have been known to opt out of full administration to save fees after the arbitration has started. The new á la carte services allow parties to do that, but still have some critical services available.  I have advised folks to stick with administration to avoid the problems I note above.  Now the advice in the right case could be to forego full administration, but only if the other side agrees to use the á la carte selection and challenge procedure. For many cases, though, full administration will remain the best option.

To learn more about the new À La Carte Services Program and fees schedule, go to www.adr.org/alacarte

A New Way to Explore Efficiency

So now you have another way to explore whether your next contract should include an arbitration clause and how best to provide for efficient resolution of any disputes.