The American Arbitration Association (“AAA”) has adopted new rules establishing an optional appeals process. The rules went into effect on November 1, 2013. Prior to the adoption of these optional rules, a party wishing to challenge an arbitrator’s award had limited options. Judicial review of an arbitration award is only allowed on very narrow grounds, such as arbitrator misconduct or clear bias. There was no option for a substantive review of the decision.
Now, if all parties expressly agree to the new rules — whether by contract or by stipulation — an appellate tribunal can substantively review the arbitrator’s decision. A party has 30 days from the arbitration award to: (1) file a notice of appeal with the AAA and all parties; (2) file a copy of the arbitration agreement with the AAA and all parties; (3) file the arbitration award with the AAA; and (4) pay an administrative fee of $6,000. Once an appeal is filed, the parties may choose their own appellate tribunal, or they may allow the AAA to choose the tribunal from its appellate panel. This appellate panel will provide a substantive review of the award, but may only review the award on the grounds that it was based on material and prejudicial errors in law and/or clearly erroneous determinations of fact.
The parties to the appeal are to “cooperate in compiling the record” and will file briefs. The tribunal will decide the appeal on the briefs. Oral argument will generally not be allowed—even if requested by the parties—unless the tribunal finds that oral argument would be necessary. The appellate tribunal has the authority to adopt the award or issue a new award. It will not remand the award back to the original arbitrator.
A company with an arbitration contract should carefully consider whether it wants to add this appellate option. These new rules provide the option of having the case heard by a panel of arbitrators, who may be more balanced and objective than a single arbitrator. On the other hand, parties often choose arbitration to minimize cost and maximize efficiency. Both goals are hampered by an appellate process. The costs of an appeal can quickly escalate, as the parties must participate in compiling the record on appeal and in drafting briefs. Furthermore, an appellant may be assessed the appeals costs, potentially including attorneys’ fees, if the appellant does not prevail.
For more information, please review the new rules, which are available online from the AAA.