July 22, 2018 Articles

Does Summary Judgment in an Arbitration Proceeding Avoid Delays and Expenses—Or Add to Them?

Does an arbitrator have the author to grant a summary judgment motion?

By Charles F. Forer

The promise of arbitration under the Federal Arbitration Act (FAA) is to avoid litigation procedures that create delays and expenses. As the Supreme Court said decades ago, "The [FAA] establishes by statute the desirability of arbitration as an alternative to the complications of litigation. The reports of both Houses on that Act stress the need for avoiding the delay and expense of litigation…." Wilko v. Swan, 346 U.S. 427, 431 (1953).

Does that mean that an arbitrator has the authority to grant a summary judgment motion, and so avoid the costs and delays that a full-blown arbitration hearing would entail? But what about Section 10(a)(4) of the FAA, which allows a court to vacate an arbitration award when the arbitrator exceeded his or her powers? How do we resolve the tension between "avoiding the delay and expense of litigation" through a summary judgment procedure and ensuring an arbitrator stays within the bounds of his or her delegated authority?

Does the Summary Judgment Procedure Satisfy the Promise of Arbitration?

An arbitrator has the authority to adopt the procedures necessary to give effect to the parties' arbitration agreement. Procedural questions growing out of the dispute and bearing on its final disposition "are presumptively . . . for an arbitrator to decide." Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 685–86 (2010). The arbitrator decides these procedural questions by determining what the parties intended. How? By looking at the arbitration agreement. Except it is not so easy to find the answer to procedural questions by reading the parties' arbitration agreement. Arbitration agreements often say nothing about summary disposition (summary judgment in the context of an arbitration proceeding) and nothing about procedures. How can the parties, in the middle of an arbitration proceeding and now bitter foes, figure out what to do in this seeming vacuum?

The court in Weirton Medical Center, Inc. v. Community Health Systems, Inc., Case No. 5:15CV132, 2017 U.S. Dist. LEXIS 203725 (N.D. W.Va. Dec. 12, 2017), faced this very issue. The court denied the claimant's motion to vacate an award the arbitrator had entered by summary disposition. The arbitration agreement did not expressly permit summary disposition, but, reflecting the typical view that the court must defer to the discretion of the arbitrator, the court noted that the agreement did

not expressly prohibit it either. The agreement[] invoke[s] the 2009 [American Arbitration Association] rules, which provide a set of procedural rules including requiring arbitrators to 'take such steps as they may deem necessary or desirable to avoid delay and to achieve a just, speedy and cost-effective resolution of Large, Complex Commercial Cases.

Id. at *14. As a result, the court concluded that the arbitrator could resolve the case by granting a dispositive motion, even if the underlying arbitration agreement did not specifically authorize the arbitrator to do so.

Weirton is not an outlier. In Sherrock v. DaimlerChrysler Motors Co., Case No. 06-4767, 2008 U.S. App. LEXIS 282 (3d Cir. Jan. 7, 2008), the court also denied an arbitration claimant's motion to vacate an arbitration award the arbitrator had entered by summary disposition. The Third Circuit did not accept the claimant's argument that either the AAA Commercial Arbitration Rules governing the dispute or the Act required an evidentiary hearing:

Although the AAA Commercial Arbitration Rules do not specifically provide for motions for summary disposition, they do grant the arbitrator flexibility and discretion. Accordingly, federal courts have affirmed arbitration awards where the arbitrator ruled on a motion for summary judgment or on summary disposition. Moreover, 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.

Id. at *12 (emphasis in original) (citations omitted).

An arbitrator has wide latitude in making these procedural determinations: "We will decline to find the arbitrators' decision to grant summary judgment irrational where they concluded no disputed facts were present and the disposition was based on legal doctrines that were resolved on written submission." Id. at *14.

The Weirton and Sherrock decisions were both decided under the old AAA Commercial Rules. In 2013, those rules were amended to deal with dispositive motions explicitly. Rule 33 of the current AAA Commercial Rules now states that "[t]he 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." These rules give arbitrators direct authority to decide dispositive motions.

Getting It Right at the Time of Contract Drafting

These (and numerous other) decisions underscore the need, at the time of drafting the arbitration agreement, to invoke the "right" arbitration provider's rules. But what does "right" mean? Do you want rules that allow summary disposition? Do you want rules that proscribe summary disposition? Different clients have different needs. At the very least, however, the drafter should understand what will happen when there is an arbitrable dispute.

A drafter of an arbitration agreement seeking to preclude a summary disposition procedure better be careful about two things.

First, a drafter seeking to bar all summary disposition motions must identify the "correct" provider; many providers specifically authorize arbitrators to make summary dispositions. For instance, JAMS Rule 18, 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."

Second, as we saw in Weirton,arbitration agreements can indirectly allow summary judgment motions when they invoke an arbitration provider's rules and those rules authorize the arbitrator to rule on a dispositive motion.

There is another solution—and this one puts the contract drafter in charge. If consistent with the client's needs, the drafter at the time of drafting could try to convince the other side to agree to prohibit all dispositive motions. An arbitrator who considered a dispositive motion in the face of a "plain and express" ban surely would be acting outside the scope of the contractually delegated authority in the parties' agreement. A court would be hard pressed to conclude there was a reasonable basis in the parties' agreement to decide a dispositive motion.

The bottom line: Often months and even years before any dispute has arisen, the drafter of an arbitration agreement must consider whether it will be beneficial for his or her client to allow for summary dispositions. Determining this issue—as best as the drafter can do with limited knowledge and with no way to predict the future needs of the client—may well be the best way to serve the client's interests. After all, the drafter ill serves the client by leaving this issue up in the air, thereby potentially inviting protracted and expensive post-arbitration litigation. Not the best way of avoiding the delay and expense of litigation.

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