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March 16, 2020 Construction Law 101

Overlook Consolidation and Joinder Under the AAA Construction Rules at Your Peril!

Rae D. Mueller

Construction project participants often select arbitration under the AAA Construction Industry Arbitration Rules (“Construction Rules”) as a dispute resolution mechanism, particularly for complex projects with many specialized participants, because of the perceived benefits of experienced adjudicators, industry-specific procedures, and expeditious and efficient resolution.  However, these benefits can be quickly undermined when multi-party disputes arise and project participants failed to negotiate appropriate contractual protections upfront.  

Contractual dispute resolution provisions addressing joinder to and consolidation of arbitrations are often advised for the avoidance of dual-track proceedings and inconsistent results. See, e.g., Philip L. Bruner, Streamlining Construction Arbitration: Reducing the Peril of “Double Jeopardy” in Dual-Track Proceedings, 38 CONSTR. LAW. 7 (Fall 2018).  But parties should not overlook the vital role these provisions can play in avoiding costly, drawn-out spats over joinder and consolidation that halt substantive progress in the subject arbitration(s).  While the Construction Rules provide a valuable and uniform starting point for the consolidation or joinder process, it is ultimately up to the parties to proactively address consolidation and joinder issues when contracting and set the dispute resolution expectations for all project participants.  Failure to do so and reliance on the Construction Rules alone can result in unexpected and substantial delay and expense during arbitration.

Consolidation and Joinder Under the Construction Rules

The Construction Rules address consolidation and joinder at Rule R-7.

Requests for Consolidation or Joinder

Rule R-7 sets out the approach the AAA will employ to resolve contested consolidation and joinder requests.  First, the rule requires that parties raise all consolidation and joinder requests during the early stages of their underlying arbitration(s).  Unless good cause can be shown, requests for consolidation or joinder must be submitted to the AAA before the latter of two possible deadlines: (1) before the appointment of a “Merits Arbitrator” or (2) within ninety days of the AAA’s determination that all administrative filing requirements have been satisfied.

Following submission of a request for consolidation or joinder, the AAA directly appoints a single “R-7 Arbitrator” under R-7(a) for the sole purpose of resolving the consolidation or joinder request.  To facilitate this direct appointment, the AAA maintains a panel of construction attorneys experienced with consolidation and joinder issues and will appoint the R-7 Arbitrator from that panel unless the parties agree otherwise.  And, unless the parties agree, the R-7 Arbitrator may not serve as a Merits Arbitrator in any arbitration involved in the request at issue.

A request for consolidation is a written request to the AAA that includes the supporting reasons for the requested consolidation. As the consolidation process entails a merger of two already-pending arbitrations, the request is filed after the subject demands for arbitration have been filed with the AAA.  The requesting party must ensure that all other parties to the subject arbitrations receive a copy of the request at the same time as the AAA.  Constr. R. R-7(b).

A request for joinder is a written request to the AAA that identifies the parties sought to be joined and includes the supporting reasons for the requested joinder, filed after a demand for arbitration has been filed with the AAA.  The requesting party must ensure that all other parties to the subject arbitration and all parties sought to be joined receive a copy of the request at the same time as the AAA.  If a party sought to be joined is not a party to an ongoing AAA arbitration, the requesting party must file a demand for arbitration against that party.  Constr. R. R-7(c).

Responses, Objections, and the Remainder of the AAA Consolidation or Joinder Process

Following receipt of a request for consolidation, the AAA will send notice of the request to all other parties to the subject arbitrations.  These non-requesting parties must provide a written response within ten days of the AAA’s notice.  Constr. R. R-7(b).

Following receipt of a request for joinder, the AAA will send notice of the request to all other parties to the subject arbitration and all parties sought to be joined.  These non-requesting parties must provide a written response within fourteen days of the AAA’s notice. Any failure of a party to an ongoing AAA arbitration to object within fourteen days constitutes a waiver of any objection to the request.  As a safeguard for parties whose current involvement with the AAA is limited to the joinder request, any failure to respond by a party that is not a party to an ongoing AAA arbitration constitutes a denial of the request.  Constr. R. R-7(c).

Rule R-7 is silent regarding the procedure and timing of the consolidation or joinder process after submission of written responses.  Rule R-2 gives the AAA the authority to administer arbitrations governed by the Construction Rules and allows the AAA to determine the path forward on a consolidation or joinder request.  The AAA may address the consolidation or joinder process with the parties during an initial administrative conference or convene an additional administrative conference solely to address consolidation or joinder under Rule R-11.  And, under Rule R-7(f), the AAA has the authority to stay any arbitration(s) impacted by the consolidation or joinder request.

Beyond the Rules:  Practical Application of Rule R-7 in the Consolidation or Joinder Process

Despite the deadlines in sections (a) through (c) of Rule R-7, the procedure and timing of the full consolidation or joinder process is almost entirely up to the discretion of the AAA—and is perhaps primarily driven by the oft-competing interests of the parties involved.  Rule R-7 does give parties the flexibility to work collaboratively, both among themselves and with the AAA, and develop a procedure and timeline that fit the unique circumstances of a given consolidation or joinder request. However, this flexibility may backfire. For example, the lack of a mandated deadline for resolution of a consolidation or joinder request can leave parties in the undesirable position of being “held hostage” by a protracted consolidation or joinder dispute.  

If there is a colorable objection to the consolidation or joinder request, it is easy to see how a protracted consolidation or joinder process may ensue due to the possible procedural obstacles; the scheduling constraints of the parties, the R-7 arbitrator, and the AAA administrator; and the lack of a deadline for completion of the R-7 process.  Even if the parties adjudicate their consolidation or joinder dispute solely within the realm of the AAA, the potential delay and disruption to the subject arbitration(s) are substantial.  Consider the following hypothetical timeline:  A request for joinder of several parties is timely filed and a notice of the request is issued by the AAA the following day.  Responses are submitted fourteen days later, and all responding parties object to being joined to the arbitration.  An R-7 Arbitrator is appointed seven days later and the AAA provides all parties seven days to object to the appointment.  No party objects to the appointment and the R-7 Arbitrator decides substantive briefing is necessary to determine if joinder is appropriate; an additional forty-five days are allotted to complete the briefing, a telephonic hearing, and allow for an ultimate decision by the R-7 Arbitrator.

In this hypothetical, almost two-and-a-half months elapse from the date the request for joinder is filed until a decision is reached.  In complex disputes where a viable opposition to joinder is raised, scheduling and logistics realities will likely extend this timeline.  It is highly probable that most or all procedural progress in the underlying arbitration will cease during a joinder or consolidation process: the AAA is permitted to stay the subject arbitration(s) under R-7(f) and will likely do so to avoid appointing arbitrators or taking other action that may disadvantage or prejudice any parties ultimately joined or participating in an ultimately-consolidated arbitration.  The timing of a joinder request may extend the timeline further: if the request is filed at the very end of the permissible period under R-7(a), and the AAA stays the underlying arbitration during the joinder process, the parties may advance more than six months into the underlying arbitration before engaging in a Merits Arbitrator selection process.

Additional hurdles will arise if the parties objecting to joinder enforce their rights in a forum other than the AAA.  For example, an objecting party may take the position that the alleged arbitration agreement between the parties does not exist.  Absent consent to the AAA’s jurisdiction, under the Federal Arbitration Act this threshold question of arbitrability is for a court—rather than an arbitrator—to decide.  See, e.g., Arnold v. Homeaway, Inc., 890 F.3d 546, 550 (5th Cir. 2018) (federal courts have authority and responsibility under FAA to determine whether contract containing arbitration agreement exists).  A two-phase, two-forum resolution of a joinder request is a possibility: an objecting party may argue before a court that the alleged arbitration agreement does not exist, and following defeat and a determination that the parties agreed to arbitrate under the AAA Construction Rules, argue before an R-7 Arbitrator that the dispute is time-barred.  See, e.g, Wior v. BellSouth Corp., No. 1:15-CV-02375-ELR, 2016 WL 11528970, at *7 (N.D. Ga. June 29, 2016) (determining that, under the FAA, an arbitrator rules on a statute of limitation defense).  Such nuanced fact patterns and procedural maneuvering are beyond the scope of this article, but may extend the timeline for a given dispute and increase all involved parties’ costs.

Contract Considerations: Addressing Consolidation and Joinder at the Outset of a Project

What can contract drafters do to ensure that future arbitration consolidation or joinder requests are resolved efficiently and expeditiously?  First, require that all project contracts and subcontracts contain a baseline dispute resolution provision that mandates arbitration under the Construction Rules.  Second, include a mandatory arbitration consolidation and joinder provision for desired disputes and claims in all contracts and subcontracts.  Consider the tiers of subcontractors and suppliers that should be included in a potential dispute and require that such a provision is included in agreements with those tiers of subcontractors and suppliers as well.  Third, owners and contractors should consider provisions that permit review and/or approval of subcontracts and supplier agreements to verify that contractually-bargained-for arbitration consolidation and joinder provisions are actually included.  Ultimately, “[t]he goal is to bind all project participants to common [and, crucially, unambiguous] arbitration clauses and rules that require arbitration of all intertwined disputes and claims arising on or related to the same project to be addressed under the same arbitration provisions and adjudicated before the same tribunal.”  Bruner, supra, at 8.

What can project participants do if they realize midway through a complex project that the above contract provisions are not in place—or that those provisions that are in place are ambiguous?  Even if the project is progressing properly and a multi-party dispute seems unlikely, consider proposing and negotiating contract and subcontract addendums that address these issues.  Such addendums would provide needed certainty by resolving a seemingly minor issue that could have serious ramifications should a consolidation or joinder dispute arise.

On paper, the procedure set out in Rule R-7 and the authority granted to the AAA provide an organized and timely process for resolution of consolidation and joinder requests.  In practice, without adequate foresight and cooperation of the parties, the application of the Rule R-7 process can be chaotic and drawn-out, driving up costs for everyone involved.  To prevent delay and extra expense, consider consolidation and joinder at the outset of all complex projects to avoid reliance on the Construction Rules alone when a consolidation or joinder request materializes.

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Rae D. Mueller

Baker Botts LLP, Washington, DC, Young Lawyers Division