Arbitration: Who Wanted This Anyway?


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Arbitration: Who Wanted This Anyway?

  1. 1. Arbitration: Who Wanted This Anyway Jason R. Scheiderer Partner, Kansas City Dentons +1 816 460 2418 CLE Seminar for In-House Counsel May 20, 2014 Kansas City, MO
  2. 2. WHY ARBITRATION? 2 What do companies like yours hope to gain by agreeing to arbitrate? May 20, 2014
  3. 3. OVERVIEW OF TODAY’S PRESENTATION 3 1. Arbitration statutes: • Federal, Missouri, Kansas 2. Important recent U.S. Supreme Court decisions • Oxford Health v. Sutter (June 10, 2013) • American Express v. Italian Colors (June 20, 2013) • BG Group v. Argentina (March 5, 2014) 3. Comparison of commercial arbitration administrators • Judicial Arbitration and Mediation Services (JAMS) • American Arbitration Association (AAA) • International Institute for Conflict Prevention & Resolution (CPR) May 20, 2014
  4. 4. 4 ARBITRATION STATUTES May 20, 2014
  5. 5. FEDERAL ARBITRATION ACT 9 U.S.C. §§ 1 ET SEQ. (“FAA”) 5 FAA enforcement provision: May 20, 2014
  6. 6. FEDERAL ARBITRATION ACT 6 • The court…shall on application of one of the parties stay the trial of the action until such arbitration has been had 9 U.S.C. § 3 • A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28 in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement 9 U.S.C. § 4 May 20, 2014
  7. 7. FEDERAL ARBITRATION ACT 7 • The arbitrator…may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case 9 U.S.C. § 7 • Within one year after the award is made, any party to the arbitration may apply to the court so specified for an order confirming the award 9 U.S.C. § 9 May 20, 2014
  8. 8. FEDERAL ARBITRATION ACT 8 FAA vacation criteria: May 20, 2014
  9. 9. FEDERAL ARBITRATION ACT 9 An appeal may be taken from an order: • Refusing a stay, • Denying a petition to order arbitration to proceed, • Denying an application to compel arbitration, • Confirming or denying confirmation of an award or partial award, • Modifying, correcting, or vacating an award 9 U.S.C. § 16 May 20, 2014
  10. 10. UNIFORM ARBITRATION ACT 10 • Enacted to mirror the FAA while respecting FAA preemption • Enacted in Missouri as Mo. Rev. Stat. §§ 435.012 et seq. • Enacted in Kansas as K.S.A. §§ 5-401 et seq. May 20, 2014
  11. 11. MISSOURI ARBITRATION ACT 11 Unique provisions: • Does not apply to insurance contracts or “contracts of adhesion” Mo. Rev. Stat. § 435.350 • Arbitrator notice provision Mo. Rev. Stat. § 435.460 • Arbitrators may not be subpoenaed Mo. Rev. Stat. § 435.012 • Application to the court is made by motion and heard as a motion Mo. Rev. Stat. § 435.425 • If not agreed to and adverse party has no residence or place of business in Missouri, venue is Cole County Mo. Rev. Stat. § 435.435 May 20, 2014
  12. 12. KANSAS ARBITRATION ACT 12 Unique provisions: • Does not apply to insurance contracts, employer/employee contracts, or tort claims K.S.A. § 5-401 • Application to the court is made by motion and heard as a motion K.S.A. § 5-415 • If not agreed to and adverse party has no residence or place of business in Kansas, venue is in any Kansas county K.S.A. § 5-417 May 20, 2014
  14. 14. OXFORD HEALTH PLANS V. SUTTER 14 Facts: • Contract between physician and insurer barred “civil actions concerning any disputes under the agreement”, requiring arbitration of “all such disputes” • Plaintiff filed class action against Oxford alleging failure to timely pay class of physicians • Oxford filed motion to compel arbitration, which district court granted • Oxford and physicians agreed that arbitrator should decide if their contract barred class arbitrations May 20, 2014
  15. 15. OXFORD HEALTH PLANS V. SUTTER 15 Proceedings below: • Arbitrator concluded that class arbitrations were allowed because they were within “the same universal class of disputes” that were barred as civil actions • Oxford moved to vacate arbitrator’s decision • District court denied the motion and Third Circuit Court of Appeals affirmed the district court May 20, 2014
  16. 16. OXFORD HEALTH PLANS V. SUTTER 16 Highlights from the decision: • Lower court’s decision to maintain arbitrator’s ruling was upheld • The question is not whether arbitrator’s decision was correct, but whether the arbitrator was “arguable construing” the contract • Affirmed because the parties agreed to allow the arbitrator to determine whether the contract allowed class arbitrations • If the arbitrator “arguably construed” the contract, his construction holds “however good, bad, or ugly” • Normally, the question of “arbitrability” is a question for the courts, not the arbitrator May 20, 2014
  17. 17. OXFORD HEALTH PLANS V. SUTTER 17 Tips: • Don’t concede an issue of arbitrability is properly decided by the arbitrator (…arbitrators always find they have jurisdiction – that’s how they get paid) • Don’t leave your contract silent or ambiguous about class arbitration May 20, 2014
  18. 18. AMERICAN EXPRESS V. ITALIAN COLORS 18 Facts: • Written agreement between American Express and merchants • Agreement states that all disputes are to be resolved by arbitration • No class actions were allowed • Italian Colors files class action under the Sherman Act, alleging monopoly powers to increase rates May 20, 2014
  19. 19. AMERICAN EXPRESS V. ITALIAN COLORS 19 Proceedings below: • American Express moves to compel individual arbitration • Italian Colors argues that individual arbitrations will not be economically practical • District court dismissed lawsuits • Second Circuit reversed, holding that prohibitive costs made class action waiver unenforceable May 20, 2014
  20. 20. AMERICAN EXPRESS V. ITALIAN COLORS 20 Highlights from the decision: • Waivers of class arbitration cannot be defeated under FAA on basis that individual arbitration of claims are too expensive compared to potential individual recovery • Extended ATT v. Concepcion reasoning, which endorsed class action waivers at state level • Courts must “rigorously enforce” arbitration on agreements • Fact that claims arise under federal law does not change the analysis • Parties agreed to arbitrate… “and it would be remarkable for a court to erase that expectation” • Class action waiver does not eliminate the parties’ right to pursue their statutory remedy • ATT v. Concepcion all but resolves this case May 20, 2014
  21. 21. AMERICAN EXPRESS V. ITALIAN COLORS 21 Tips: • Explicit class action waivers are enforceable, not withstanding federal law class claims • The death of the effective-vindication doctrine • Footnote says that ATT v. Concepcion established “that the FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low value claims.” • Absence of litigation is a goal of the FAA May 20, 2014
  22. 22. BG GROUP V. ARGENTINA 22 Facts: • Investment treaty between United Kingdom and Argentina allows for dispute to be heard by a local court. But if the local court has not rendered final decision in 18 months, then arbitration allowed • BG sought arbitration in Washington, D.C., alleging that Argentina’s new laws violated the treaty • Argentina denied the claims and asserted that the arbitrators lacked jurisdiction because BG Group had not complied with local court requirement first May 20, 2014
  23. 23. BG GROUP V. ARGENTINA 23 Proceedings below: • Arbitration panel concluded that it had jurisdiction because Argentina’s conduct excused requirement of “local court first” • Panel awarded BG Group damages • Both sides sought federal court review • District court affirmed award • Federal district court in D.C. vacated award, finding that court should review de novo whether arbitrators had jurisdiction May 20, 2014
  24. 24. BG GROUP V. ARGENTINA 24 Highlights from the decision: • Treaty language should be analyzed according to ordinary contract analysis • Court must review “procedural” preconditions with considerable deference to arbitrators • Here, arbitrator’s determinations were lawful as their factual findings should be accepted as valid • When a contractual duty arises = Arbitrator’s decision • Whether there is a contractual duty to arbitrate = Court’s decision • Accordingly, the “local litigation” requirements here were a matter for arbitrators to interpret and apply, with courts giving them great deference May 20, 2014
  25. 25. BG GROUP V. ARGENTINA 25 Tips: • Presumption that parties intend for arbitrators to determine meaning and application of procedural preconditions to arbitration • This was a “procedural” provision, which is primarily for arbitrators to interpret and apply • Court must review “procedural” preconditions with considerable deference to arbitrators • If you want arbitration, get an arbitrator to determine jurisdiction first May 20, 2014
  28. 28. KEY AREAS OF COMPARISON 28 1. Procedures 2. Discovery 3. Award & Award Review May 20, 2014
  29. 29. COMPARISON OF PROCEDURES ADMINISTRATION 29 JAMS AAA CPR File documents with JAMS Case management fees Case management is handled by the arbitrator(s) 300 full-time neutrals File documents with AAA Case management fees AAA provides case managers 7,500+ arbitrators and mediators File initial documents with CPR Parties pay administrative fees • Single fixed fee • No fee for counterclaim • Fixed-fee scale based on amount in dispute After arbitrator is selected, the arbitrator manages the process and scheduling with general oversight of CPR May 20, 2014
  30. 30. COMPARISON OF PROCEDURES NUMBER OF ARBITRATORS 30 JAMS AAA CPR Rules provide that one arbitrator will conduct the arbitration unless the parties agree otherwise AAA rules provide that if: • Less that $1 million is at stake, the AAA has discretion to appoint one or three arbitrators • More than $1 million is at stake, the AAA will appoint three arbitrators Rules provide that the first two arbitrators (who are selected by the parties) select the third May 20, 2014
  31. 31. COMPARISON OF PROCEDURES PROTECTIVE ORDERS 31 JAMS AAA CPR Rules state Arbitrator may issue Rules do not mention, but AAA arbitrators often issue protective orders Rules state arbitrator may issue May 20, 2014
  32. 32. COMPARISON OF PROCEDURES CONFIDENTIALITY 32 JAMS AAA CPR Arbitrator and JAMS must maintain confidentiality Confidentiality not imposed on the parties Arbitrator and AAA must maintain confidentiality Confidentiality not imposed on the parties Arbitrator, CPR, and the parties must maintain confidentiality May 20, 2014
  33. 33. COMPARISON OF PROCEDURES DISPOSITIVE MOTIONS 33 JAMS AAA CPR If the parties agree that the expedited procedures will apply, dispositive motions are not permitted Rule 33 specifically allows rulings on dispositive motions which will dispose of or narrow issues in the case Rules do not address dispositive motions. But the arbitrator may decide purely legal issues before the hearing on a question involving undisputed issues of fact May 20, 2014
  34. 34. COMPARISON OF PROCEDURES HEARING 34 JAMS AAA CPR Arbitrator determines the “order of proof, which will generally be similar to that of a court trial” Closing arguments and post-hearing briefs are permitted Arbitrator has discretion to: • Expedite resolution • Direct orders • Bifurcate proceedings • Order parties to focus on certain issues • Oral hearings may be waived • Witness evidence may be offered by: • Video conference • Internet communication • Telephonic conference • Other non-personal means Parties must submit pre-hearing briefs Arbitrators typically want post-hearing briefs Arbitrators often appoint neutral experts to testify May 20, 2014
  35. 35. COMPARISON OF PROCEDURES EXPEDITED 35 JAMS AAA CPR Life cycle of the case is for the award to be made within 150 days of the Preliminary Conference Discovery cutoff is 75 days after Preliminary Conference Hearing is within 60 days of the discovery cutoff Life cycle of the case is approximately 60 days from its initiation Hearing takes place within 30 days of the panel appointment and is to last only one day Award is to be made within 14 days of the close of the hearing Life cycle of the case is 100 days from the date set by the panel at the initial conference Hearing is within 60 days of the panel appointment Award is to be made within 30 days of the close of the hearing May 20, 2014
  36. 36. COMPARISON OF DISCOVERY DOCUMENT PRODUCTION 36 JAMS AAA CPR Parties to produce documents directly relevant to significant issues in the case Parties to produce all documents on which a party relies Four modes: 1. Only documents to be used at the hearing 2. Mode 1 + documents essential to an important matter with demonstration of substantial need 3. Mode 2 + documents in possession of relevant witnesses 4. Non-privileged documents relevant to claims or defenses May 20, 2014
  37. 37. COMPARISON OF DISCOVERY INTERROGATORIES 37 JAMS AAA CPR No mention in rules Typically not used New rules do not mention Old rule allowed-for good cause shown Typically not used Rules do not mention At the discretion of the arbitrator May 20, 2014
  38. 38. COMPARISON OF DISCOVERY SUBPOENAS 38 JAMS AAA CPR Rules allow subpoenas for attendance of witnesses at hearing or for the production of documents before the hearing Rules allow issuance of subpoenas for attendance of witnesses at the hearing No mention in the rules At the discretion of the arbitrator May 20, 2014
  39. 39. COMPARISON OF DISCOVERY DEPOSITIONS 39 JAMS AAA CPR One per party unless arbitrator allows more based on: • Reasonable need for the requested information • Availability of other discovery • Burdensomeness of the request Complex rules allow for depositions in: • Exceptional cases • At the discretion of the arbitrator • On showing of good cause Only permitted when testimony is material to case, and one of the following: • Witness statement not being used • Parties agree, or • Witness may not be available May 20, 2014
  40. 40. COMPARISON OF DISCOVERY POWER TO SANCTION 40 JAMS AAA CPR Rules authorize arbitrators to order sanctions for party’s failure to comply with obligations under JAMS Rules Permit the following: • Exclusion of evidence • Drawing adverse inferences • Determining an entire issue adversely to the party that has failed to comply with the rules Rules explicitly empower the arbitrator to sanction a party (upon party request) where a party fails to comply with the AAA rules or an order of the arbitrator Rules do not include the term “sanction” but they do authorize an arbitrator to: • Impose a remedy the arbitrator deems just, including an award of default if a party fails to comply with the CPR rules or an order of the tribunal May 20, 2014
  41. 41. COMPARISON OF AWARD & AWARD REVIEW ATTORNEYS’ FEES 41 JAMS AAA CPR If provided by agreement or allowed by applicable law Unlikely without use of “shall” May award if: • Both parties request (even if not in the arbitration agreement), or • Award authorized by law or arbitration agreement Arbitrator to fix “costs of arbitration” which include “costs for legal representation and assistance and experts” May 20, 2014
  42. 42. COMPARISON OF AWARD & AWARD REVIEW FORM AND TIMING 42 JAMS AAA CPR Rules provide for the award to be: • Reasoned unless there is a party agreement to the contrary • Rendered within 30 calendar days • Based on the arbitrators’ majority vote Reasoned award is not required unless the parties request in writing before the panel is appointed Rendered within 30 calendar days from the date the hearing closes Rules provide for the award to be: • Reasoned unless there is a party agreement to the contrary • Rendered to CPR within one month from the date the hearing closes • Rendered to the parties by CPR “promptly” thereafter May 20, 2014
  43. 43. COMPARISON OF AWARD & AWARD REVIEW MOTIONS TO CORRECT AWARD 43 JAMS AAA CPR Only corrections permitted are for typographical, computational, and other similar errors Only corrections permitted are for typographical, computational, and other similar errors Permits the arbitrator to “clarify” (meaning, interpret) the award or “make an additional award as to claims presented but not determined in the award” May 20, 2014
  44. 44. COMPARISON OF AWARD & AWARD REVIEW APPEALS 44 JAMS AAA CPR Award is appealable to JAMS Rules provide for three neutral arbitrators Award is appealable to AAA Rules provide that the underlying award may be appealed pursuant to the AAA’s Optional Appellate Arbitration Rules Award is appealable to CPR Rules provide for three former federal judges May 20, 2014
  45. 45. What you should expect… 45 • Arbitration agreements are going to be enforced • Arbitration agreements are going to be interpreted broadly in favor of arbitration • The decisions of arbitrators are going to be upheld by federal courts • Arbitration can vary in important ways, depending upon the administrator • Discovery in arbitration proceedings is not as limited as you might presume • However, arbitrators will not exert as much control over discovery procedures and tactics • Arbitration may not be as "confidential" as you anticipated • Arbitration awards are appealable to the administrator May 20, 2014
  46. 46. © 2014 Dentons Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see for Legal Notices. Thank you! Jason R. Scheiderer Dentons US LLP 4520 Main Street, Suite 1100 Kansas City, MO 64111 USA