As a former inside counsel, I am well aware that commercial arbitration sometimes gets a bad rap for seeming to be no less expensive or lengthy than a court proceeding, and, well, arbitrary. Unfortunately, the accuracy of these criticisms often is inadequately explored — negative views of arbitration are sometimes based upon one-off adverse examples, and there are many proactive steps that parties and arbitrators should take to make business arbitration the efficient and fair process that it can be. Important steps in this regard are set forth in an article I co-wrote with United Technologies Litigation Chief Steven Greenspan: “Reassessing Commercial Arbitration: Making It Work for Your Company,” published in ACC Docket, Association of Corporate Counsel, March 2017, pp. 53-61.
Here I briefly address what some practitioners find particularly alarming: the narrow grounds available under the Federal Arbitration Act (FAA) for vacation of an arbitration award. See 9 U.S. Code § 10. Since most arbitrations are governed by the FAA, a commonly held view is that parties will be stuck with a “runaway” arbitration award if they agree to arbitration. Judicially created exceptions that are only available in some jurisdictions based upon “manifest disregard for the law” — sometimes justified as a gloss on the vacation ground in the FAA based upon an arbitrator exceeding his or her powers — provide insufficient comfort. (For a general discussion, see Liz Kramer’s “Arbitration Nation” blog.)
As discussed in the ACC Docket article cited above, there are many things that practitioners should do in connection with structuring their arbitration and arbitrator selection to ameliorate arbitration risks. Beyond that, however, attorneys should be aware of and explore with their clients at least two additional options:
1. Optional arbitration appeal procedures
The major alternative dispute resolution providers — the American Arbitration Association (AAA), JAMS and the Institute for Conflict Preservation and Resolution (CPR) — are well aware that attorneys sometimes avoid arbitration altogether because of the appealability concern. Starting with CPR in 1999, and followed by JAMS in 2003 and the AAA in 2013, each has adopted optional appellate rules — with varying procedures and standards of review — pursuant to which parties can agree in their arbitration clauses or later to provide for an appeal to a panel of senior arbitrators and avail themselves of an expanded standard of review by that panel on a reasonably expedited time frame. The rules, along with other model clauses and forms, are readily available on the provider websites, www.cpradr.org, www.adr.org and www.jamsadr.com. Under the JAMS procedures, the arbitration appeal panel applies the same standard of review that the first-level court in the jurisdiction would apply to an appeal from a trial court decision. CPR and the AAA also permit expanded review of the factual and legal errors. Many attorneys may not be aware of these optional rules, but should be since it could impact their decision to pursue arbitration. Arbitrators should consider helping to raise awareness of this option with practitioners by mentioning it when they speak and write about the arbitration process.
2. The FAA is not the only game in town
In Hall Street Assoc. LLC v. Mattel Inc.,
552 U.S. 576 (2008), the U.S. Supreme Court held that the FAA barred courts from honoring parties’ agreements to have courts review an arbitration decision for legal error where the FAA applied. The court explicitly noted, however, that the FAA “is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable.” Id.
There are a number of options here. Carefully and expressly adopting in an arbitration clause a state arbitration statue that permits expanded judicial review beyond the grounds permitted by the FAA — and assuming the dispute has sufficient jurisdictional contacts with the state if that is required — may secure expanded judicial review of an award, for example. New Jersey is one such state (New Jersey Arbitration Act, N.J. Stat. § 2A: 23B-4c) and there are others, including Texas and California. Nafta Traders Inc. v. Quinn,
339 S.W.3d 84, 98-101 (Tex. 2011) (“We hold that the FAA does not preempt enforcement of an agreement for expanded judicial review of an arbitration award enforceable under the [Texas Arbitration Act]”); Cable Connection Inc. v. DIRECTV Inc.
, 190 P.3d 586 (Cal. 2008) (parties may structure their agreement to allow for judicial review of legal error under California Arbitration Act). An excellent summary of the potential terrain left open by Hall Street
— with appropriate cautionary notes concerning the changing landscape — is available in “Writing Arbitration Clauses to Get the Arbitration You Want
,” Merril Hirsh and Nicholas Schuchert, Law360, Aug. 9, 2016. “As Hall Street
suggests,” the authors note, “the Federal Arbitration Act is not the only game in town” and the current state of play is certainly worth exploring in your jurisdiction.
Conna A. Weiner is a mediator and arbitrator at JAMS. Learn more at