Arbitration Powers Expanded in New AAA Construction Industry Rules

Advise & Consult, Inc. | September 4, 2015

Construction disputes are often very complex and involve highly technical concepts, vast amounts of evidence and expert witness testimony.  All of those aspects come after possibly hours of discovery and motions that complicate the timeframe for finding a resolution and obviously increase costs and uncertainty resolving the dispute.

Arbitration was once a popular choice to help alleviate many of these issues.  Lately, however, the needs of the parties involved as well as the nature of the disputes has changed, many are finding other avenues of dispute resolution.  In response to these circumstances the American Arbitration Association (AAA) recently revised their Construction Industry Arbitration Rules, which took effect on July 1, 2015.  The intent is to increase arbitration efficiency and in turn lower the associated costs.

W. Cory Haller recently wrote about what changes took place and what they mean to you.

As a threshold matter, the new rules increase the presumptive threshold for “document submission” and “fast track” arbitrations to, respectively, $25,000 and $100,000. The diversion of more disputes into abbreviated proceedings promises to result in significant time- and cost-savings. The bulk of the remaining changes apply to the rules for “regular track” arbitration.

 

Revised Rule R-7 sets firm deadlines for the consolidation of proceedings and joinder of parties. Parties are now required to file consolidation and joinder motions by the later of the appointment of the merits arbitrator or 90 days after the filing of the demand and payment of the filing fee.

 

New Rule R-10 implicitly acknowledges the trend towards mediation. The rule requires concurrent mediation of all disputes where a claim or counter-claim exceeds $100,000. The impact of this rule is uncertain, because it allows either party to unilaterally opt-out of the “required” mediation.

 

Revised Rule R-23 expands the scope of preliminary proceedings. It requires a preliminary management hearing “as soon as practicable” after the arbitrator is appointed to establish procedures to achieve a “fair, efficient, and economical resolution of the dispute.” This rule also incorporates two supplemental rules, which admonish arbitrators and the parties “to avoid importing procedures from court systems” and provide a list of suggested topics to be addressed at the preliminary management hearing.

 

Along those same lines, revised Rule R-24 gives arbitrators greater control over discovery. Arbitrators can now, either with or without the motion of a party, require and/or limit the production of documents. Perhaps most significantly, arbitrators can now require production of electronically stored information in the manner most convenient to the requesting party. Arbitrators can also limit the scope of electronically stored information by dictating the search terms to be used in review and production.

 

The AAA’s new rules also expand the powers of arbitrators. New Rule R-25 gives arbitrators the power to issue any order necessary to enforce revised Rules R-23 and R-24. New Rule R-34 gives arbitrators the discretion to decide motions for summary judgment, “upon prior written application” of a party. Similarly, new Rule R-39 creates a procedure for the consideration of motions for emergency relief. Finally, new Rule R-60 gives arbitrators broad authority to order sanctions at the request of a party.

 

Instead of simplifying arbitration proceedings, the bulk of the AAA’s new rules attempt to achieve efficiency and cost-savings by increasing the powers of arbitrators to manage proceedings and dispose of matters early in the process. Taken as a whole, these rules edge arbitrators ever-closer towards the powers enjoyed by judges. It is uncertain what these new rules mean for the construction industry.

 

Rule R-7 should achieve some time savings at the beginning of the arbitration process, but it is less clear whether the other new rules will decrease costs and increase efficiency. The impact of those rules will depend on how they are implemented. If liberally administered, they could increase legal costs and fees and further delay the ultimate resolution of disputes by increasing discovery and motions practice. If applied more judiciously, they could decrease legal costs and fees and improve efficiency by allowing arbitrators to control discovery more assertively and dispose of disputes early in the dispute resolution process.

 

Before drafting and finalizing contracts, you should keep these new rules in mind as you consider whether to adopt AAA arbitration as the default dispute resolution approach. In the event you find yourself in an arbitration proceeding following the AAA’s rules, you should also consider exercising your rights under these new rules to leverage a more timely and cost-effective arbitration process.

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