Alternative dispute resolution clauses are common in construction contracts. Often, these clauses require arbitration under the American Arbitration Association’s (“AAA”) Construction Industry Arbitration Rules (the “Construction Rules”). It is, therefore, important for those in the industry to know that the Construction Rules have undergone significant revisions, which became effective on July 1, 2015.
The rule changes are intended to make arbitration more efficient and economical. The following are some of the highlights:
- Fast Track Procedures: Rules R-1 and F-1 have been amended to increase the Fast Track Procedure dollar limit by $25,000. Now, unless the parties or the AAA determine otherwise, Fast Track Procedures will “apply in any case involving no more than two parties in which no disclosed claim or counterclaim exceeds $100,000.”
- Consolidation and Joinder: Under the previous version of Rule R-7, there were no deadlines for requesting (1) consolidation with another arbitration or (2) joinder of a non-party. But revised Rule R-7 requires that all such requests “be submitted to the AAA prior to the appointment or an arbitrator…or within 90 days of the date the AAA determined that all administrative filing requirements were satisfied, whichever is later.” In the case of a request for consolidation, the other parties to the arbitration(s) have 10 days from the date that “notice of receipt of the request for consolidation is sent by the AAA” to file a written response. In the case of a request for joinder, the other parties to the arbitration and the party sought to be joined have 14 days from the date that “notice of receipt of the request for joinder is sent by the AAA” to file a written response. If the party sought to be joined is not currently a party to any other AAA arbitration, then it must be served with the request for joinder and a demand for arbitration in accordance with Rule R-4(a).
- Mediation: Rule R-10 has been revised to require mediation in all cases where a claim or counterclaim exceeds $100,000. The parties, however, have the unilateral ability to opt out of mediation when it isn’t required by their contract. Mediation was voluntary under the old version of Rule R-10.
- Preliminary Management Hearing: Rule R-23 has been amended to, among other things, incorporate two new supplemental preliminary hearing rules. The first, P-1, is a general rule that states that “[c]are must be taken to avoid importing procedures from court systems” because arbitrations are “designed to be simpler, less expensive and more expeditious.” The second, P-2, sets forth a checklist of 20 specific subjects to be addressed during the preliminary management hearing (depending on the size, subject matter, and complexity of the case). The P-2 checklist is more expansive than the list of topics in the previous version of Rule R-23.
- Pre-Hearing Exchange and Production of Information: Rule R-24 has been significantly revised to give the arbitrator greater control over the parties’ production of information. It now states that the arbitrator will manage the exchange of information between the parties “with a view to achieving an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.” More specifically, it provides that “[t]he arbitrator…on application of a party or on the arbitrator’s own initiative” may require the parties: (i) to exchange documents on which they intend to rely; (ii) update their exchanges of documents as documents become known to them; (iii) to make their documents available to the other party in response to reasonable document requests; and (iv) to, absent good cause, produce electronically stored information in a form most convenient and economical for the party in possession. With respect to document production, old Rule R-24 merely provided that, at the request of any party or at the arbitrator’s discretion, the arbitrator could direct the production of documents, other information, and witness lists.
- Enforcement Powers of the Arbitrator: New Rule R-25 provides the arbitrator with the express authority “to issue any orders necessary to enforce the provisions of rules R-23 and R-24 and to otherwise achieve a fair, efficient and economical resolution of the case.” Rule R-25 does not limit the type of orders that the arbitrator may issue for preliminary management hearing or production violations. It does, however, specify (among other things) that “in the case of willful non-compliance with any order issued by the arbitrator,” the arbitrator may draw inferences, exclude evidence and/or other submissions, and make special allocations of costs or order an interim award of costs.
- Dispositive Motions: New Rule R-34 provides that “[u]pon prior written application, the arbitrator may permit motions that dispose of all or part of a claim, or narrow issues in a case.” This rule differs from the former dispositive motion rule, Rule R-32(c), in that it requires the filing party to obtain permission before filing its motion.
- Emergency Measures of Protection: New Rule R-39 allows the parties to seek emergency relief prior to the formation of the arbitration panel. The party seeking such relief shall notify the AAA and all other parties in writing of the nature of the relief requested and why it is required on an emergency basis. Within one business day of receipt of such an application, the AAA shall appoint a single emergency arbitrator. The emergency arbitrator shall, within two business days, establish a schedule for consideration of the application for emergency relief.
- Sanctions: New Rule R-60 allows the arbitrator to order appropriate sanctions where a party fails to comply with (1) its obligations under the rules or (2) an order of the arbitrator. But sanctions can only be ordered upon the request of a party and after the opposing party has had an opportunity to respond. Moreover, the arbitrator may not enter a default award as a sanction.
The revised AAA Construction Rules can be found here.