Summary of Revised AAA Construction Industry Rules, Procedures
This article was published in September 2-Sept. 15, 2015 issue of the Colorado Real Estate Journal.
The American Arbitration Association recently revised its Construction Industry Arbitration Rules and Mediation Procedures.
The revised Rules, effective July 1, send a clear message: Arbitration should be a faster, cheaper and more efficient alternative to court litigation of complex construction matters.
Parties who ignore this may feel the force of arbitrators’ newly enhanced sanction powers.
Parties who fail to learn the newly revised rules could miss important opportunities to shape the issues, scope and costs of the proceedings.
Mediation is required for cases with claims of $100,000 or more. Mediation, by default, will happen concurrently with arbitration.
Potential benefits of this include reduced preparation costs, fewer scheduling issues, and a venue for efficiently disposing or smaller, collateral claims just before the hearing.
Drawbacks might include a lost opportunity to resolve matters early in the proceedings and a chilled negotiating atmosphere given the proximity to the hearing. If the concurrent mediation issue makes parties uncomfortable, Rule 10 allows them to agree to other timelines and procedures, or to opt out of mediation completely.
Consolidation and joinder time frames and filing requirements streamlined
General contractors or owners may want to act promptly and utilize these rules to gain control over a potential multiparty, multitier dispute.
Also, it may make sense and save costs to agree to allow the Rule 7 arbitrator to act as a merits arbitrator, or to act as the mediator later in the proceedings, since that person will already have some familiarity with the issues in the case.
At the discretion of the arbitrator, and depending upon the size and complexity of the matter, a preliminary hearing is to be scheduled as soon as practicable following the appointment of the arbitrator.
At the hearing the parties will consider efficiency and fairness in determining arbitration procedures. Parties can no longer pick the lazy route, simply adopting familiar court rules and procedures, if doing so will add cost or time to the proceeding. The arbitrator must issue a written order memorializing decisions or agreements made during the preliminary hearing, so pay attention – this is an important hearing!
Proportionality. In a word, the new R-24 gives the arbitrator greater control over the prehearing exchange of information to achieve a fair and economical resolution with burdens of production and hearing that are proportional to the needs of the case and positions of the parties. The arbitrator balances the costs and burdens of responding to requests for information with each party's right to develop and present its case.
The arbitrator may require production of electronically stored information in the manner most convenient and economical for the producing party, and may impose search criteria or parameters setting the boundaries for searches of electronically stored documents or information. (R-24[b][iv]) If you are the party requesting information, be prepared to articulate a “good cause” for why you need documents in different format than what the producing party deems convenient. Clearly make your case for production in a format that included metadata like the “to,” “from” and “date” fields in emails or “modified date” fields in drawings, reports, schedules or other files. Be aware of the kinds of information that you might need for your case, and inquire into how documentation was kept so that you can address these issues in the preliminary hearing. Failing to do so may leave you unable to get information (or get it in a workable format) when you need it later.
Parties may request emergency relief and expedited hearing, and under R-39 an arbitrator will be appointed in 24 hours to address the issues promptly.
This rule applies to arbitration clauses or agreements entered into after July 1, 2015. Parties must give notice by fax or email and certify that all other parties have been notified or an explanation of the steps taken in good faith to notify other parties.
Note, even if a party chooses to initiate a court proceeding for emergency relief, doing so does not waive its right to arbitrate.
Instead the party may request the court to appoint a special master who will abide R-39 and issue a report to the court.
Power to enforce compliance with the rules or the arbitrator’s orders
The arbitrator now has specific enforcement authority and power to issue orders necessary to enforce compliance with the rules and the arbitrator's own orders. R-25. The arbitrator may place restrictions on the scope of discovery, issue protective orders, and sanction parties for non-compliance. Available sanctions for noncompliance include a host or remedies such as payment of fees and costs, limitations on evidence, and other procedural sanctions (but not default, which is the only expressly prohibited sanction.) Any sanction that limits a party’s participation in the arbitration or results in an adverse determination or an issue or issues must be explained in writing, and must provide for a response and an evidentiary hearing with oral argument before making a final determination or an award.
Note, Rule 25(e) allows the arbitrator to issue “any other enforcement orders which the arbitrator is empowered to issue under applicable law.” One should review the applicable law regarding arbitrator powers in the controlling law jurisdiction when initially drafting construction contracts and also before seeking a sanctions order from an arbitrator.
Parties can expect arbitrators to be more receptive to dispositive motions (e.g., motions for summary judgment) if those motions will narrow or resolve the case. Motions should be clean and tight and should only be filed where appropriate.
The newly enhanced sanctions powers under R-60 allow the arbitrator to sanction a party for filing a motion that had no reasonable chance of success as this expands the cost, scope and time of the proceedings.
Other noteworthy changes (see adr.org for more details)
- Rule 19, failure to disclose conflict waives right to disqualify arbitrator later.
- Rule 36 allows an arbitrator to disregard written witness statements or expert reports if the witness or expert fails to appear for examination at the hearing.
- F-1 raises fast track applicability limit to $100,000 and documents only hearing to $25,000.
- L-4 and L-5 have been combined.