Ken Carroll

The American Arbitration Association (“AAA”) recently adopted optional rules to provide for and govern appellate review of arbitration awards, not by courts, but by arbitral panels within the contractual arbitration process. The rules became effective November 1, 2013. This review process permits parties to an arbitration agreement to provide for appellate review by a panel of appellate arbitrators on broader grounds than state or federal courts traditionally allow. Now, parties to an arbitration agreement that incorporates these rules may appeal an initial award for errors of law that are “material and prejudicial” and for fact determinations that are “clearly erroneous.”

These new “optional” appellate rules from the AAA are just that—the parties must either stipulate that the appellate rules apply or provide in their contract that the appellate rules will apply. Appeal is not allowed absent such agreement. So, parties who include arbitration clauses in contracts should now consider whether language incorporating the new appellate rules should also be included.

A party seeking to appeal a final arbitration award must file a notice of appeal within thirty days after the award has been submitted to the parties. Any cross-appeal must be filed no more than seven days later. Each party wanting to appeal—the appellant or cross-appellant—must pay a $6,000 administrative fee at the time of filing the notice of appeal or cross-appeal. In addition to the fee, parties appealing must pay any outstanding AAA fees and costs in the dispute as a prerequisite to initiating the appeal. Generally, arbitrators will be selected from the AAA’s Appellate Panel. Three arbitrators will hear the appeal unless the parties agree to use a single arbitrator. The rules contemplate that appeals ordinarily will be decided on written submissions, but parties may request oral argument.

The scope of review is limited. Parties may appeal only on grounds that the initial panel’s final award is based on errors of law that are “material and prejudicial” or fact determinations that are “clearly erroneous.” Further, in contrast to the remedies available to appellate courts, the arbitral panel hearing an arbitration appeal has limited alternatives. The panel cannot choose to “remand” the appeal to the original arbitrators. Instead, the rules provide that the appellate panel must either adopt the original panel’s underlying award, substitute its own award, or request additional information from the parties and extend the time for either adopting the award or substituting the award. The rules specifically provide that the “appeal tribunal may not order a new arbitration hearing or send the case back to the original arbitrator(s) for corrections or further review.”

While these new appellate review procedures provide for a more expansive review of arbitration awards than is available in the courts, these procedures attempt to maintain the arbitration goal of efficiency, with the intent that the appellate process take only three months.