Understanding AAA Arbitration Rules in Business Disputes

An Overview of AAA Arbitration

The American Arbitration Association (AAA) is a not-for-profit organization that has administered arbitration proceedings for more than 90 years. The AAA’s purpose is to provide conflict resolution services, especially in the context of contractual relations, in order to facilitate economic and social growth. The AAA has developed rules, known as the AAA Arbitration Rules, for many specific types of cases (e.g., wage disputes, international disputes, consumer disputes, insurance disputes). However, the AAA Commercial Arbitration Rules apply to most commercial disputes. The AAA also provides alternative services to litigation for construction disputes; labor disputes; and cases involving consumer, employment or international/splicing law.
There are several reasons that parties choose AAA to resolve their disputes. Parties generally prefer to arbitrate rather than litigate because arbitration is faster, cheaper and the parties have more control over the proceedings . In situations where the parties do not have a strong relationship or if the relationship is already damaged, the less formal and often more personal arbitration process is appropriate. For similar reasons, parties choose AAA rather than using another arbitrator, institution or ad hoc panel to resolve their dispute. The AAA will generally appoint a panel of two or three dispute resolution professionals with experience in the industry. If a single arbitrator is chosen, he or she is generally a former judge or a lawyer with over ten years’ experience in the relevant field.
There also several characteristics that are unique to AAA: (1) Arbitrators’ fees are based on the amount of time spent, rather than the amount of the claim, (2) Arbitrators and the AAA provide a number of procedural services not available in litigation, (3) Arbitrators work in an informal setting, and (4) AAA offers expedited procedures that allow a disputing party to obtain relief within a few months.

Key Provisions in AAA Arbitration

The AAA has established rules that govern virtually all commercial disputes through the AAA Commercial Rules. Of particular interest to those entering into arbitration agreements are the following rules:
• Rule 5(a) – Applicability of Rules – these rules apply "to the resolution of all disputes to which the United States Arbitration Act, 9 U.S.C. §§ 1-14, applies and if, as contemplated by Section 2 of the Federal Arbitration Act, the parties to a dispute agree to be governed by these procedures."
• Rule 6(a) – Notice – a party initiating arbitration shall deliver or file with the AAA "a Notice of Arbitration." The notice must be signed by counsel and "accompanied by any deposit required by the AAA for administrative expenses." A copy must be sent to the other party within five days of being filed with the AAA. The other party has 30 days to file its "Responsive Pleading," which is signed by counsel and sent to all parties. (Rule 6, generally.)
• Rule 7 – Answers – "Each answer shall be signed by counsel for the answering party and filed with the AAA. A copy of the answer shall be sent to the initiating party on or before the date it is filed with the AAA."
• Rule 2 – General Provisions – Rules 2(b) through 2(h) contain provisions related to arbitrator qualifications, number of arbitrators, language of arbitration, and consolidation of claims, as well as limitations on the arbitrator’s powers.
• Rule 12 – Prehearing Conferences – this rule provides for prehearing conferences to be held in order to fix the date and time for the hearing and any matters relating to documents and discovery. Rule 12(e) provides for confidentiality.
• Rule 31 – Default – where the AAA does not receive an answer or other responsive pleadings from a party as required, upon the request of the other party, the AAA may "have the controversy heard and determined as though the party in default had filed a response."
• Rule 45 – Waiver of Right to Appeal – the parties’ right to appeal from the arbitrator’s award is strictly limited pursuant to the Commercial Rules: "After the arbitrator has been appointed, no party shall have any ex parte communication with him or her. No person shall be allowed to have any ex parte communication with an arbitrator after the close of the hearing."
• Rule 48 – Location – The place or location of the hearing will be as provided for in the agreement, or as determined by the AAA and agreed to by the parties, or, failing that, "determined by the AAA."

Advantages of AAA Arbitration for Corporations

The AAA rules for arbitration offer a mundane procedural framework, absent the legalese and confusion that often mark judicial litigation. Unlike most court proceedings, a business dispute in arbitration is conducted by a private arbitrator whose cost may be split by the parties, the AAA charges fees under an almost actuarial rubric (not an hourly basis), a hearing is held within 10 months and Offices of the AAA provide places to conduct hearings which, unlike most courthouses, are professional communicative spaces. In short, for businesses that have agreed—in a contract—to arbitrate disputes, and for those who have not explicit agreement, these rules provide a comfortable, certain, and practical way to resolve their disputes.

Process Involved in AAA Arbitration

Review of the AAA arbitration process is helpful to understand what disputes a party may be facing, and to anticipate that process. The quoting below is from the AAA’s Commercial Arbitration Rules Monograph: A Guide for Parties to Commercial Arbitration published by the AAA in 2012, at pages 16-20:
Initiating the Process
The parties initiate the arbitration process by filing with AAA a demand for arbitration. No particular form is required. Generally, the following documents should accompany the demand:
Submitting Documents to the Arbitrator
The AAA will send a complete copy of the parties’ filings to the arbitrator together with a transmittal letter. The letter will request the arbitrator to acknowledge his or her availability to act, to confirm that no ground for disqualification exists, and to complete and return an "administrative information form." Receipts of the document filings will be sent to the parties by both the AAA and the arbitrator.
Preliminary Hearings
The arbitrator may, after consulting with the parties, schedule a conference call or in-person hearing to review such matters as the arbitrability of some or all of the issues in dispute, scheduling, and/or preliminary rulings on issues such as the payment of AAA administrative fees and the arbitrator’s compensation. Since the arbitration is private, the arbitrator may attempt to secure at least provisional agreements that materials filed shall be protected from public disclosure beyond what is legally required. Such agreements are not legally binding, however, nor may they prevent a party from asserting a right under the federal Freedom of Information Act, state public records acts, or the provisions of other state or federal laws. If appropriate, the arbitrator may initially hear preliminary motions and set a date by which the parties will submit their witness lists, the scope of the issues, and information about what shall be included in the witness affidavits.
The Hearings: Discovery and Witnesses
The parties provide complete discovery. They typically include documentation, interrogatories, depositions, document productions, and subpoenas. Administrative Review and Service Fees relating to this aspect of the process are required. The type and extent of discovery offered by the parties and ordered by the arbitrator are similar to that which is available in federal court. Such matters as the number of depositions, the number of document requests, the time for propounding interrogatories, and the preservation of evidence are all related to the arbitrator’s determination of maintaining the efficiency and cost-effectiveness of the proceedings.
The phase following discovery may involve a "pre-arbtiral" conference or joint document or exhibit exchange. Once a discovery termination date is reached, at least 10 days prior to the hearings, the parties will exchange witness lists with summaries of the witnesses’ respective testimony, lists of the exhibits they will offer into evidence, and stipulations.
The hearing process is generally governed by the rules of evidence. The order of presentation is governed by the AAA Commercial Rules Article 21. The arbitrator’s role is described in Article 21A, including that of making evidentiary and procedural decisions, and ruling on the admissibility of witness testimony. This is consistent with the "more flexible" rules of evidence applied by trial courts particularly in the context of business-related arbitration.
After the Arbitrator’s Ultimate Award
Any decision of the arbitrator is, of course, subject to review by the courts in accordance with the FAA and applicable state laws.

Comparison with Other Arbitration Bodies

The American Arbitration Association (AAA) is not the only arbitration institution out there. Compared to some other arbitration institutions, it is instead relatively small. However, the type of commercial disputes that are submitted to and administered by the AAA also tend to be more varied than those submitted to any other major arbitration institution.
For example, the International Chamber Court of Commerce (ICC) is much more widely recognised internationally. It has a significant presence in both the US and Europe. However, the majority of the ICC’s cases are related to international construction and energy projects. The London Court of International Arbitration (LCIA) also has a significant presence internationally. Indeed , the LCIA is increasingly accounting for sizeable commercial disputes. That said, the LCIA’s case profile also tends to be heavily weighted towards construction and energy.
As a result, although a case may sit in one of these other arbitration institutions, one might consider sitting it in the AAA because of its neutrality and familiarity with the intricacies of US commercial disputes. In addition, the AAA’s Commercial Rules provide a degree of flexibility that other institutions do not and thus may allow the parties to craft their own procedural rules if they so wish.
Usually when an arbitration clause selects AAA arbitration, the parties are stuck with the AAA’s Rules unless they agree otherwise. But the Commercial Rules allow for greater flexibility.

Examples of AAA Arbitration in Commercial Disputes

Case studies of AAA Arbitration in commercial conflicts are varied but there are some consistent features. The AAA panel usually makes a decision fairly quickly that is based on the merits not on the niceties of procedure. It is often efficient, using fewer hearings than were expected. It is less expensive than trial and less expensive than many of us expect it will be, with a typical range for a four hearing AAA Arbitration of $65,000 to $110,000. And although it is a private proceeding and the result is usually not reported, the panel does issue a written decision.
There are examples: In CRU v. Avant Energy Pipeline, an American Arbitration Association Panel concluded (among other things) that Avant breached a confidentiality provision in the agreement by disclosing information acquired in the course of performance of the agreement.
Gonzalez v. C’Yard Steakhouse, LLC. In Gonzalez v. C’Yard Steakhouse, LLC, the arbitration panel awarded nothing to the plaintiff employee. In fact, the panel found that the plaintiff had previously conceded that he was not entitled to compensation and that his claims had no basis at all. The panel then went on to conclude that the plaintiff had offered false testimony, that by offering false testimony, he had committed the tort of abuse of process, and that by abusing process, the plaintiff had violated the confidentiality provision of his arbitration agreement. This meant that the plaintiff was subject to punitive damages. Instead, the panel recommended that the plaintiff be required to pay defense costs and costs of the arbitration.
Sophisticated parties-particularly those who expect their cases to be resolved by trial-tend to recommend that disputes be resolved by AAA Arbitration because it delivers on the promise of expedited results without the risk of prejudicing their ability to present their case. While these AAA Arbitration case studies and examples are only a few, they are important in deciding whether a case should be sent to AAA Arbitration or to any arbitration.

Future of AAA Commercial Arbitration

Emerging trends indicate AAA may expand its presence internationally given the increased competitiveness of the international arbitration market. In particular, the AAA may consider adopting rules specific to "legal culture" to ensure its rules and proceedings are relevant to parties with diverse legal heritages. This globalization trend may also find expression in the anticipated growth in the use of "digital" arbitration forums, which could create opportunities for AAA to partner and collaborate with arbitration platforms that provide a venue for attorneys and arbitrators to conduct hearings remotely. Parties from different jurisdictions could have the option of choosing the AAA as their provider of institutional arbitration rules even where the hearing is not in the U.S. Nor should there be any presumption of whether such an arrangement might be more likely to evolve in the international or domestic arena.
Parties continue to show preference for institutional arbitration as a more cost-effective and less formal means of pursuing resolution. While non-binding mediation proved to be a popular option among business users of alternative dispute resolution in the past , the present focus is on making arbitration less adversarial and costly. The AAA has taken steps to acknowledge this trend. In 2013, the AAA launched "Online Dispute Resolution" ("ODR"), a collaboration with Virtual Courthouse, Inc. that uses cloud-based internet technology to offer both binding and non-binding arbitration. Rather than having a formal hearing in person, parties can submit their evidence electronically and-already from their own locations-engage the arbitrator in real-time by video conference. Standard ODR administration fees contribute towards the cost of the arbitrator’s time in responding to the parties’ submissions. To date, however, the types of cases settled and brainwvice about whether to arbit.