Confidentiality
One perceived benefit of arbitration is that parties can resolve their disputes with a greater degree of confidentiality than accorded in litigation, which is generally not confidential 7 Bruner & O'Connor Construction Law § 21:10. However, the previous version of the rules did not contain an explicit requirement that the parties maintain the confidentiality of the proceedings.
New Rule R-45 States:
R-45. Confidentiality (a) Unless otherwise required by applicable law, court order, or the parties’ agreement, the AAA and the arbitrator shall keep confidential all matters relating to the arbitration or the award. (b) Upon the agreement of the parties or the request of any party, the arbitrator may issue orders concerning the confidentiality of the arbitration proceedings or of any other matters in connection with the arbitration and may take measures for protecting trade secrets and confidential information.
This Rule makes explicit the requirement for the AAA and the arbitrator to keep all matters confidential. The Rule also grants arbitrators the specific authority to issue confidentiality orders, either on agreement of the parties or on the request of any party. However, the rule does not define when a party’s request for confidentiality should be honored. We anticipate that parties will make arguments analogous to those justifying protective orders in litigation under the federal rules of civil procedure, and, of course, the law regarding protection of trade secrets. However, the lack of specificity here makes it a good idea for parties who desire that disputes remain confidential to agree in their arbitration clause (or, failing this, at the outset of a dispute) that the dispute and all matters relating to it will remain confidential.
Consolidation and Joinder
The rules have been revised to restrict the period during which parties may add other parties to an arbitration proceeding through consolidation and joinder. The previous rule permitted requests for consolidation and joinder within 90 days of filing. Under revised Rule R-7, requests for consolidation and joinder must now be filed before the Merits Arbitrator appointment is confirmed. The “90 days after filing” option has been removed no doubt to expedite the proceeding and to avoid challenges to the arbitrator who the original parties selected when a new party is joined. A party requesting leave to file a joinder request after the Merits Arbitrator has been confirmed will now need to establish not only good cause, as was required under the prior version of this Rule, but also prejudice if the request is not permitted. This revision will require parties who may need to join other parties to plan ahead and act more promptly than before.
Dispositive Motions
It is often said (but without any actual study to back up the assertion) that arbitrators rarely grant dispositive motions like summary judgment. If this is actually true, it is likely because courts may vacate arbitration awards “where the arbitrators… refus[ed] to hear evidence pertinent and material to the controversy.” 9 U.S.C. § 10(a)(3). Accordingly, claims that might be quickly dismissed in litigation through a summary judgment motion may go to hearing in arbitration proceeding, thereby costing far more to dispose of, making arbitration more costly and inefficient.
Whether or not summary judgment is more frequently granted in litigation or arbitration, it is certainly true that dispositive motions are expensive to prepare and present. One of the goals of arbitration is to reduce the cost of dispute resolution, so the new amendment to Rule R-34 requires an arbitrator to take into account the cost of a dispositive motion when deciding to allow such a motion.
R-34 states:
Dispositive Motions (a) Upon prior written application, the arbitrator may permit motions that dispose of all or part of a claim, or narrow the issues in a case. (b) Consistent with the goal of achieving an efficient and economical resolution of the dispute, the arbitrator shall consider the time and cost associated with the briefing of a dispositive motion in deciding whether to allow any such motion.
Depending on your point of view, this is either a step forward or a step backward. Those who believe that efficiency in arbitration depends on arbitrators being willing to consider dispositive motions may prefer a regime that requires arbitrators to consider dispositive motions when a party wishes to bring it. Those who believe that dispositive motions are too costly and should be rarely used in arbitration will consider it proper to restrict them to situations where the cost justifies it and will applaud the new rule.
Clarifying Awards.
Rule 52 was revised to permit arbitrators to “clarify” their awards, although the merits of an award still may not be reconsidered. The previous rule allowed arbitrators to address only clerical, typographical, technical, or computational errors in their awards.
It is likely that parties will push the meaning of the term “clarify” to its limit. This has the potential to undermine the finality of arbitration, particularly where “interim” awards dealing with the merits often precede “final” awards which deal with interest, costs, and attorney’s fees. Many parties will be unable to resist the temptation to modify an “interim” award by seeking “clarification.”
Fast-Track and Large Complex Disputes
The upper threshold for the one day, expedited Fast Track Procedures has been raised to $150,000, which expands the number of disputes that will qualify for Fast Track treatment. The new rules also attempt to streamline fast track proceedings adding a requirement that a case may be removed from the Fast Track if discovery is permitted (which may be done only in extraordinary circumstances) and specifying that motions will not be permitted except upon a showing of good cause.
The only significant change to the Procedures for Large, Complex Construction Disputes is that the default threshold for appointing a three-arbitrator panel has been increased from cases exceeding $1 million to cases exceeding $3 million. See L-3. This will result in significant cost savings for parties with disputes of between $1 million and $3 million, who will be able to get by with paying one arbitrator rather than three – a considerable cost difference.
Conclusion
The Construction Rules that the AAA promulgates will generally become the law that parties must live by when their disputes ripen into arbitration proceedings. Since parties may have the luxury of modifying that law by contract if they exercise sufficient forethought to do so, it is important to know these rules and consider whether they should be contractually altered in the context of a particular project or business relationship.