The American Arbitration Association’s Commercial Arbitration Rules recently have come closer to following certain litigation procedures. This is not necessarily a bad thing, as the goals and advantages of arbitration can still be served by coming closer to litigation procedures. While keeping in mind the Preliminary Hearing Rule’s caution that with respect to a Preliminary hearing held in many arbitrations:
Care must be taken to avoid importing procedures from court systems, as such procedures may not be appropriate to the conduct of arbitrations as an alternative form of dispute resolution that is designed to be simpler, less expensive and more expeditious. [Rule P-1(b)]
One recent example of the AAA’s express importation of a procedure from court systems is the making of dispositive motions.
One’s kneejerk reaction to dispositive motions in an arbitration setting might be to expect all matters should receive an evidentiary hearing, the length of which can be determined by the arbitrator. But after years of inconsistent treatment from courts, and some instances of judicial calisthenics to reach certain results, the AAA has formally amended its Commercial Arbitration Rules to allow dispositive motions under certain circumstances.
Dispositive Motions in Arbitrations
By way of background, some arbitration rules have explicitly provided for the entertaining of dispositive motions.
- Thus, for example, Rule 27 of the American Arbitration Association Employment Arbitration Rules and Mediation Procedures provides, “The arbitrator may allow the filing of a dispositive motion if the arbitrator determines that the moving party has shown substantial cause that the motion is likely to succeed and dispose of or narrow the issues in the case.”1
- Similarly, Rule 18 of the JAMS Comprehensive Arbitration Rules and Procedures, entitled Summary Disposition of a Claim or Issue, provides “The Arbitrator may permit any Party to file a Motion for Summary Disposition of a particular claim or issue, either by agreement of all interested Parties or at the request of one Party, provided other interested Parties have reasonable notice to respond to the request.”
But prior to a recent amendment, the AAA Commercial Arbitration Rules did not explicitly permit or prohibit dispositive motions.
As a result of the previous silence on the question, courts were confronted with difficult issues, mainly, whether an arbitration award resulting from a summary judgment motion should be confirmed or vacated. Naturally, federal courts first turned to the list of grounds in the Federal Arbitration Act to determine whether an award by summary judgment was obtained in violation of any of those grounds. Section 10 of the FAA lists the following grounds for vacatur:
(1) where the award was procured by corruption, fraud, or undue means;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. [9 U.S.C. § 10[a])
In a 1998 case from the District of Columbia, The Chem-Met Co. v. Metaland International, Inc., No. Civ. A. 96-02548, 1998 WL 35272368 (D.D.C. 1998), the district court vacated an arbitration award granted as a result of a summary judgment motion, as exceeding the arbitrators’ powers and for denial of one party’s right to present its case and cross-examine the movant’s proof. The arbitration in Chem-Met was subject to the AAA’s Commercial Arbitration Rules. After months of discovery, the defendant moved for summary judgment. The plaintiff argued the defendant had not established the merit of its motion and there were significant factual disputes requiring a full evidentiary hearing. Oral argument was held on the motions, and the parties submitted supplemental briefs. The arbitration panel granted the summary judgment motion. In the federal district court, the plaintiff argued the award should be vacated because the summary judgment procedure exceeded the arbitrators’ powers (citing 9 U.S.C. § 10[a]); the summary judgment procedure amounted to a refusal to hear material evidence (citing 9 U.SC. § 10[a]); and the defendant made false representations in its motion for summary judgment, requiring vacatur of the award as obtained by fraud (citing 10 U.S.C. § 10[a]). The D.C. District Court vacated the arbitration award, concluding that the arbitrators exceeded their powers by determining the matter on summary judgment and under 10(a)(3) for denying the plaintiff the right to present its case. The court found it unnecessary to address the fraud challenge.
In the unpublished Third Circuit case, Sherrock Brothers, Inc. v. DaimlerChrysler Motors Company, LLC, 260 Fed. Appx. 497, 2008 WL 63300 (3rd Cir. 2008), the plaintiff moved to vacate an arbitration award granting summary judgment to the defendant on grounds of res judicata, collateral estoppel and waiver. The plaintiff claimed the panel committed misconduct and exceeded its powers by resorting to summary judgment to reject the plaintiff’s claims, in violation of FAA § 10(a)(3), (4), and that an evidentiary hearing was required. The parties had agreed to apply the American Arbitration Association Commercial Arbitration Rules.
Referring to the FAA grounds for vacatur, the Third Circuit noted “A court may vacate an arbitration award ‘where the arbitrators were guilty of misconduct . . . in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.’” 9 U.S.C. § 10(a)(3). The Court acknowledged the AAA Commercial Arbitration Rules “do not specifically provide for motions for summary disposition.” But the court proceeded to engage in some—in my opinion—creative rationalization in order to sustain the grant of summary judgment. Thus, the court reasoned as follows:
(a) The AAA Commercial Arbitration Rules “do grant the arbitrator flexibility and discretion.” In a footnote, the court explained the “flexibility and discretion” as follows:
For example, section 30 grants the arbitrator discretion to vary the presentment of evidence process and to expedite resolution of the dispute, and section 31 enables the arbitrator to determine the admissibility, relevance, and materiality of the evidence offered and exclude irrelevant evidence.
One might not expect a general “flexibility and discretion” patina to include the summary judgment procedure, but this Court so believed.
(b) The Court further found support in its noting that federal courts have affirmed arbitration awards where the arbitrator ruled on a motion for summary judgment—citing as an example one case from the Southern District of New York—Hamilton v. Sirius Satellite Radio, Inc., 375 F. Supp. 2d 269 [S.D.N.Y. 2005]). As an aside, however, it should be noted here that the Hamilton case did not involve a direct challenge to the use of the summary judgment procedure per se, nor does the case indicate whether the AAA’s Commercial Arbitration Rules were used. Rather, in Hamilton, after discovery—including depositions—the employer moved for summary judgment, which the arbitrator granted. On cross-motions to the district court to confirm and vacate the award, the plaintiff claimed the arbitrator manifestly disregarded the law (a related ground for vacatur used by the Second Circuit, if not other courts, stemming from the FAA statutory grounds). The plaintiff also argued the summary judgment standard was misapplied by the arbitrator. The district court rejected the arguments, and confirmed the award. Critically, there does not appear to have been a direct challenge to the use of the summary judgment procedure in Hamilton, and the case is not directly applicable.
(c) The Third Circuit also noted, “Except where prohibited by the plain and express terms of the submission, an arbitrator is empowered to grant any relief reasonably fitting and necessary to a final determination of the matter submitted to him, including legal and equitable relief”—this time quoting from a New York State Appellate Division case (for non-New York practitioners, the Appellate Division is the intermediate appellate court). Again as an aside, the Appellate Division case2 did not address the permissibility of summary judgment motions or even with arbitration rules. Rather, the case dealt with a collective bargaining agreement between a school district and a teachers union, which limited class size; if the size was exceeded, the union could “reopen negotiations to bargain the impact of such overload.” Efforts to resolve the dispute were unsuccessful, and the parties stipulated to have an arbitrator determine whether the school violated the contract and if the board failed to negotiate the impact of the overload; if so, then the arbitrator could award a remedy consistent with the collective bargaining agreement. The arbitrator initially directed the school board to negotiate the impact, as the contract required, retaining jurisdiction in the event the parties did not resolve the issue. When the parties failed to come to agreement, the union asked the arbitrator to rule on the issue; the arbitrator ruled in favor of the union and provided for a monetary remedy. The school district contended the arbitrator only had the power to direct the parties to negotiate on their own. The Appellate Division confirmed the arbitrator’s action, stating “it is evident that negotiations may prove uneventful and that the breach may go without remedy. To avoid such a patently unjust result, we hold that, absent an express agreement to that effect, the right to negotiate cannot constitute the sole remedy available to the grievant.” Further, “Where the parties have agreed to refer contract disputes to arbitration, particularly where the arbitration involves public collective bargaining agreements, the arbitrators may do justice and the award may well reflect the spirit rather than the letter of the agreement.” More to the point, however, the Appellate Division held:
At bar, the parties had agreed that the arbitrator could fashion a remedy which was consistent with the collective bargaining agreement. This is precisely what he did in affording the parties an opportunity to negotiate the impact of the breach. The arbitrator further interpreted the provision regarding oversized classes to enable him to retain jurisdiction and resolve the dispute should the parties fail to reach an accord. The monetary award rendered was “‘reasonably fitting and necessary to a final determination of the matter submitted’” . . . [citations omitted]. In so acting, the arbitrator did not alter, add to or detract from the provisions of the collective bargaining agreement [citation to contract omitted]. Rather, the arbitrator reached a rational result in an obvious attempt to do justice and did not thereby exceed his jurisdiction.
In view of the absence of an express limitation upon the arbitrator to afford a remedy to the grievant for the contract violation, such construction was proper and unassailable . . .
(d) The Third Circuit also cited a Pennsylvania district court case from 1976 that noted an arbitrator has “wide latitude” to fashion an appropriate remedy.3 But the Pennsylvania district court case involved a union/company dispute under a collective bargaining agreement. Although the arbitrator used the word penalty to describe his monetary award against the company, the court found the arbitrator had the authority to make a compensatory award, and the award was upheld. This was not a situation where an arbitrator granted summary judgment to one party.
(e) Based on the foregoing, the Third Circuit concluded, “Granting summary judgment surely falls within this standard, and fundamental fairness is not implicated by an arbitration panel’s decision to forego an evidentiary hearing because of its conclusion that there were no genuine issues of material fact in dispute. An evidentiary hearing will not be required just to find out whether real issues surface in a case. Therefore, this Court finds that the panel majority did not deny [plaintiff] a fundamentally fair hearing, and thus did not engage in misconduct under 9 U.S.C. § 10(a)(3).”
All can make their own judgments about the cogency of the reasons offered in Sherrock Brothers. It does appear, at least to some, that the reasoning was somewhat artificial to reach the result of sustaining the award.
A year later, the challengers of an arbitration award obviously learned from the Sherrock Brothers decision and strived to limit it to the issues in that case. Thus, in Campbell v. American Family Life Assurance Company of Columbus, Inc., 613 F.Supp.2d 1114 (D. Minn. 2009), an arbitration was conducted subject to the Commercial Arbitration Rules of the AAA. The arbitration panel issued a scheduling order for a summary disposition motion which one party indicated it intended to file. After four to five months of discovery, one party moved for summary judgment. In response, the plaintiff argued there was a presumption in favor of a hearing, and a presumption against granting motions for summary judgment.
The plaintiff in Campbell relied on the 1998 District of Columbia opinion referenced above, The Chem-Met Co. v. Metaland International, Inc., as well as Sherrock Brothers.
The Minnesota District Court noted the Commercial Arbitration Rules “neither permit nor prohibit motions for summary judgment.” 613 F. Supp. 2d at 1117. The plaintiff argued summary judgment might only be appropriate where there are facially deficient claims, such as claims barred by res judicata, collateral estoppel, waiver or a statute of limitations—the first three of which were involved in Sherrock Brothers. The Minnesota court ultimately concluded summary judgment is permissible, a movant or respondent may present arguments and evidence to the arbitrators, and rejected the plaintiff’s argument that summary judgment was permissible only for claims barred by res judicata, collateral estoppel, waiver or statute of limitations. The challenge was based on the FAA ground of refusal to hear evidence pertinent and material to the controversy (9 U.S.C. § 10[a]) and the ground that the arbitrators exceeded their powers (9 U.S.C. § 10[a]).
In upholding the award, the Minnesota District Court found Sherrock weighed in favor of allowing summary judgment in arbitration proceedings (not surprisingly), and referred to other cases where arbitration awards by summary judgment were upheld, including an unpublished case from the Sixth Circuit The Louisiana D. Brown 1992 Irrevocable Trust v. Peabody Coal Company, 205 F.3d 1340, 2000 WL 178554 (6th Cir. 2000).
In Peabody Coal, the unsuccessful party argued the arbitrators committed misconduct by deciding the dispute by dispositive motion without permitting the plaintiff to conduct discovery. The Sixth Circuit rejected the argument, finding the Commercial Arbitration Rules permitted arbitrators to set a preliminary hearing to consider matters that will expedite the arbitration proceedings and to determine the extent of discovery; and noted that while another rule provided parties may offer such evidence as is relevant and material to the dispute, the arbitrators determine relevance and materiality. The court noted arbitrators are not bound by formal rules of procedure and evidence, and a party is entitled to a fundamentally fair hearing—which requires “only notice, an opportunity to present relevant and material evidence and arguments to the arbitrators, and an absence of bias on the part of the arbitrators” [citation omitted]. Finding the plaintiff had an opportunity to present its claims, including the argument that additional discovery should be permitted and was relevant, and finding the arbitrators could have concluded the requested discovery would not have been relevant, the plaintiff did not have a fundamentally unfair hearing and the confirmation of the award was affirmed.
Now, however, the AAA has clarified and explicitly provided for dispositive motions in commercial arbitrations, provided another procedure—one similar to that found in court systems—is first complied with.
The recent amendment to the AAA Commercial Arbitration Rules in Rule 33 provides:
The arbitrator may allow the filing of and make rulings upon a dispositive motion only if the arbitrator determines that the moving party has shown that the motion is likely to succeed and dispose of or narrow the issues in the case.
Under R-33, by first having to persuade the arbitrator that a dispositive motion is likely to succeed, one might liken the procedure to that often found in the federal courts and in some state courts, i.e., seeking a premotion conference where a party outlines the motion he/she wants to bring, and provides brief support for the merits of such a motion. But reading the rule literally imports a key difference between the arbitration process and the typical federal process. In my experience, and presumably most of yours, if premotion conferences are sought with a federal judge with respect to a possible dispositive motion, a federal judge may opine that the motion is unlikely to be granted, but may nevertheless advise that he/she cannot prevent a party from making the dispositive motion. In one personal experience, an adversary sought to make the motion; we responded that from our side, we, too, believed there were no issues of material fact, but that summary judgment would be appropriate in our favor. The court reviewed both sides’ premotion letters, held a teleconference, and ultimately advised it did not think anyone would prevail on a summary judgment motion, but could not preclude a party from so moving. Our adversary was committed to making the motion; we similarly filed a summary judgment motion. But the motions were sub judice a full year—essentially keeping the case at a standstill—and then, ultimately, the respective motions were denied. A year was lost in the life of that case. In contrast, if one reads Rule 33 literally, the arbitrator can function as the gatekeeper for the motion—either allowing or refusing to allow the motion to be made—an improvement in some ways to the delays one might find in a judicial system where judges have, presumably, larger case loads, cannot prohibit a party from making a dispositive motion, and often write long opinions to justify their rulings, which may become the subject of an appeal.
Clarity is a good thing. Now the AAA has removed any question about dispositive motions in commercial arbitrations and set forth the arbitrator as a gatekeeper to avoid the making of a wasteful motion. The goals of arbitration have been furthered—even at the risk of being accused of importing court procedures.
If you are in a situation where you have not agreed in advance to arbitrate disputes, and your adversary requests you to agree to arbitrate the dispute in lieu of litigation, take into consideration the risks and benefits to your client of agreeing postdispute to arbitration. For example, consider how much discovery your client needs, and whether that discovery will be obtained in the arbitration venue you are be asked to select. Consider how your client’s position would be affected if a summary judgment motion is made in arbitration and if you required more discovery. Consider how your client would be perceived in a testimonial setting, and how you believe your adversary’s client would come across in a testimonial setting. Do you anticipate an arbitrator or fact-finder would conclude your client is credible, or sympathize with your client? The same questions should be considered with respect to your adversary’s client. These are factors considered in the litigation realm; you should not lose sight of them in the arbitration realm, particularly if you are being asked, post-dispute, to agree to arbitration.
If you are in an arbitration setting where the governing rules neither expressly provide for nor prohibit dispositive motions, do not assume the motions are prohibited. Given the guidance from the above cases it seems that if you have colorable arguments that are dispositive in whole or in part of the issues in the dispute, it is worth the effort to persuade the arbitral body to entertain a summary judgment motion. The expediency benefit and goal of arbitrations will be furthered, your client should save time and costs, and if the motion is granted, in view of the reviewing parameters of an arbitration award, it is likely the award will be confirmed in court.
1. And notwithstanding the express provision for such motions, some parties nevertheless challenged the entertainment of dispositive motions by arbitrators. In Hodgson v. IAP Readiness Management Support, No. 5:10 cv 86/RS/MD, 2010 WL 3943698 (N.D. Fla. Sept. 20, 2010), after finding the plaintiff’s motion to vacate an arbitration award untimely, the court proceeded to consider, and find lack of merit to, the plaintiff’s arguments that the arbitrator committed misconduct by using a summary procedure. The court cited, among other things, Rule 27 of the AAA Employment Arbitration Rules.