SUMMARY OF CHANGES COMMERCIAL ARBITRATION RULES

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1 SUMMARY OF CHANGES COMMERCIAL ARBITRATION RULES Amended and Effective October 1, 2013 SIGNIFICANT CHANGES: 1. Mediation R-9. Mediation: Mediation is increasingly relied upon and is an accepted part of the dispute resolution process. It has proven to be highly effective in resolving parties disputes. As a result, subject to the right of any party to unilaterally opt out, the AAA implemented this new rule to include a mediation step in each case where a claim or counterclaim exceeds $75,000. This novel approach is intended to further assist parties with the quick and economical resolution of their disputes. Rule R-9 also provides that absent party agreement the mediation shall take place concurrently with the arbitration and shall not serve to delay the arbitration proceedings. 2. Effective Management of the Arbitration Process A significant focus has been placed on the need for arbitrators to effectively manage the arbitration process. The revised Rules provide arbitrators with additional tools and authority to do so. R-21. Preliminary Hearing: It is the AAA s experience that structured and organized preliminary hearings put the arbitration process on the right track. Paragraph (a) of new Rule R-21 provides that 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. Parties as well as representatives should be invited to attend and the hearing can be conducted either in person or by telephone. Paragraph (b) references a set of procedures (Sections P-1 and P-2 of the rules) that identify specific issues to be considered at the preliminary hearing: P-1. Paragraph (a) stresses the importance of conducting arbitration in a fair, but efficient and economical way. Paragraph (b) notes that care should be taken to not import procedures from court systems that will add to the costs and delay arbitration. P-2. Paragraph (a) includes a checklist comprised of 19 items that depending upon the size, subject matter, and complexity of the dispute may be addressed during the preliminary hearing subject to the discretion of the arbitrator. Paragraph (b) provides that the arbitrator shall issue a written order memorializing decisions made or agreements reached during the hearing. R-22. Pre-Hearing Exchange and Production of Information: This new Rule provides clarity to former Rule R-21 Exchange of Information. Paragraph (a) conveys to the arbitrator greater control over the exchange of information with a view toward achieving an economical resolution, while also balancing each party s ability to present their case. Paragraph (b)(1) addresses the exchange of documents in a party s possession or control on which they intend to rely and (b)(2) requires parties to update their exchanges of such documents as their existence becomes know to them. Paragraph (b)(3) requires parties to respond to reasonable document requests if the documents are in their possession or custody, or it is SUMMARY OF CHANGES COMMERCIAL ARBITRATION RULES 3

2 reasonable to assume that such documents exist; are not readily available to the other party; and are relevant and material to the outcome of the dispute. Paragraph (b)(4) addresses document exchange or production when these materials are monitored in electronic format, and provides that such information should be produced in the manner most convenient and economical for the producing party. R-23. Enforcement Power of the Arbitrator: This new Rule provides arbitrators with specific enforcement authority and powers to issue orders necessary to accomplish the goals of a fair and efficient arbitration process. Paragraph (a) addresses orders involving confidential documents and information. Paragraph (b) imposes reasonable search parameters for electronic and other documents. Paragraph (c) allows the arbitrator to allocate the costs of producing documentation. Paragraph (d) specifies the type of actions that the arbitrator may take in the case of willful non-compliance with any order and paragraph (e) provides that applicable law may authorize the arbitrator to issue other types of enforcement orders. 3. Dispositive Motions Parties to commercial arbitrations indicated that they wanted a provision in the Rules that reflected current practice regarding the permissibility of dispositive motions in arbitration, and the circumstances under which they might be considered. Similar provisions are also included in other AAA Rules. R-33. Dispositive Motions: This new Rule specifically grants to the arbitrator the authority to make rulings upon a dispositive motion provided the moving party has shown that the motion is likely to succeed and dispose of or narrow the issues in the case. 4. Emergency Measures of Protection This new Rule will enable parties to apply for emergency interim relief before an arbitrator that will be appointed within 24 hours of the AAA s receipt of the request for emergency relief. In prior versions of the Commercial Rules, the rules for Emergency Measures of Protection were optional, and had to be agreed to either post dispute or by specific reference in the parties arbitration agreement. Amendments to the current Rule make these procedures available in all cases where the underlying contract has been entered into as of the date of the Rule amendments. This Rule is similar to the one adopted in the International Centre for Dispute Resolution s International Rules, where the Emergency Measures provisions were successfully incorporated into those rules and very well received by users. R-38. Emergency Measures of Protection: The amended rule incorporates much of the language of the prior Commercial Rules Optional Rules of Emergency Measures. However, those provisions are no longer optional in the sense that they have been made a part of the Rules and are available in all arbitrations conducted under agreements entered into on or after the effective date of amendment of the rules. The Rule provides that a party may seek emergency relief by notifying the AAA and the other parties to the arbitration. The AAA will then quickly appoint an emergency arbitrator who will promptly establish a schedule for consideration of the relief sought. 5. Non-payment by a Party To address issues and increasing concerns where parties refuse to deposit their share of arbitrator compensation or administrative charges, a new rule has been added that authorizes arbitrators to take specific measures related to non-payment. SUMMARY OF CHANGES COMMERCIAL ARBITRATION RULES 4

3 R-57. Remedies for Nonpayment: This revised Rule provides that any party may advance the fees or a non-paying party so that an arbitration may proceed. However, paragraph (a) provides that if allowed by law a party may request that the arbitrator take specific action relating to a party s non-payment. Paragraph (b) suggests that an arbitrator may limit the non-paying party s ability to assert or pursue their claim. In no event, however, may the arbitrator preclude the non-paying party from defending a claim or counterclaim. Paragraph (c) grants to a party the right to oppose a request for such measures arising from non-payment. Paragraph (d) confirms that the paying party who is making a claim must submit evidence as required by the arbitrator for the making of an award. Paragraph (e) grants to either the AAA or the arbitrator the authority to order suspension of the arbitration for non-payment. Paragraph (f) states that either the AAA or the arbitrator may terminate the proceedings if full payment is not made within the time specified following a suspension. 6. Objectionable or Abusive Conduct in Arbitration Parties to commercial arbitration indicated a strong desire to grant arbitrators the power to address objectionable and abusive conduct in the arbitration process. R-58. Sanctions: Paragraph (a) of this new Rule grants to the arbitrator the authority if requested by a party to order sanctions where a party fails to comply with its obligations under the rules or with an order of the arbitrator. If the sanction limits any party s participation in the arbitration or results in an adverse determination, the arbitrator must explain in writing the reason for the order and require the submission of evidence and legal argument prior to making of an award. The arbitrator may not enter a default award as a sanction. Paragraph (b) states that prior to making a determination regarding imposition of a sanction, a party that is subject to a sanction has the right to respond. ADDITIONAL CHANGES: R-1. Agreement of the Parties: Paragraph (a) authorizes AAA to resolve disputes involving which AAA rules shall apply. Paragraph (b) provides that attorneys fees be excluded when determining the amount in controversy. Paragraph (c) clarifies that the threshold for application of the large, complex procedures is an amount in controversy of $500,000 or more and provides that attorneys fees be excluded when determining the amount in controversy. Paragraph (d) allows parties, by agreement, to apply the Expedited Procedures, the Procedures for Large, Complex Commercial Disputes, or the Procedures for the Resolution of Disputes through Document Submission to apply to any dispute. R-2. AAA and Delegation of Duties: This Rule was modified to clarify that arbitrations administered under these rules shall only be administered by the AAA or by an individual or organization authorized by the AAA to do so. R-4. Filing Requirements: The title of this rule has been changed and the filing requirements have been re-written to provide additional clarity to parties about how to commence arbitration. Paragraph (b) addresses arbitrations that are commenced pursuant to a court order. The new rule requires that a copy of the court order accompany the Demand; that payment of the filing fee when the Demand is submitted is the responsibility of the filing party; that regardless of which party initiated the court action, the party filing the Demand is the claimant; and parties may request that the arbitrator alter the order of proceedings specified in the court order pursuant to R-32 Conduct of the Proceedings. Paragraph (c) makes it the responsibility of the filing party to ensure that any conditions precedent to the filing of a case or time requirements associated with the filing have been met prior to filing for arbitration. The parties are directed to raise SUMMARY OF CHANGES COMMERCIAL ARBITRATION RULES 5

4 with the arbitrator any dispute as to whether a condition precedent has been met. Paragraph (d) provides rules for initiating a case as a result of a post-dispute submission (former rule R-5 Initiation Under a Submission). Paragraph (f) allows parties to file or submit a dispute to AAA online through WebFile or regardless of the intended locale of the hearing with any AAA office. Paragraph (h) clarifies that the date on which the filing requirements are satisfied shall establish the date of the filing and all disputes in connection with the AAA s determination of the date of filing may be decided by the arbitrator. Paragraph (i) incorporates amendments to the Construction Rules that provide for notification by AAA of filing deficiencies. If the deficiencies are not cured by the date specified, AAA may return the filing. R-5. Answers and Counterclaims: Answer and counterclaims were previously addressed in the same Rule that addresses filing requirements. To provide greater clarity, these issues were broken out into a new rule. The changes incorporate amendments made to the 2009 Construction Rules, but are included in a separate rule instead of being included in the rule for filing requirements. Paragraph (a) changes the deadline for filing an Answer from 15 days to 14 calendar days. Paragraph (b) clarifies that the filing of a counterclaim must comply with the limitations set forth in rule R-6 Changes of Claim. Paragraph (c) clarifies that if the Respondent alleges that a different arbitration provision is controlling, the matter shall be administered in accordance with the arbitration provision submitted by the initiating party subject to a final determination by the arbitrator. Paragraph (d) allows AAA to return the filing if any filing deficiencies are not cured by the date specified by the AAA. R-6. Changes of Claim: Changes to the Rule clarify that a change to an existing claim or counterclaim is not the same as raising a new or different claim or counterclaim. Paragraph (a) addresses changes to an existing claim or counterclaim and specifies that if the change of claim amount results in an increase in administrative fee, the balance of the fee is due before the change of claim amount may be accepted by the arbitrator. Paragraph (b) addresses the raising of new claims or counterclaims and changes the deadline for a response by Respondent from 15 to 14 calendar days. R-7. Jurisdiction: Paragraph (a) clarifies that the arbitrator has the power to rule on the arbitrability of any claim or counterclaim. R-8. Interpretation and Application of Rules: The language is identical to current Commercial Rule 53. The only change is placement and numbering of the rule. R-10. Administrative Conference (formerly Rule 9): As a result of the inclusion of a mandatory mediation process in Rule 9, the word potential has been removed from the phrase mediation of the dispute when describing the issues that may be discussed during an arbitration conference. R-11. Fixing of Locale (formerly Rule 10): This rule has been changed to reflect the fact that complex legal arguments may be raised regarding the appropriate locale of an arbitration. Many of the changes incorporate amendments made to other AAA Rules. The deadline for the filing of an objection to locale to be decided by the AAA has been changed from 15 days to 14 calendar days. The rule now clarifies that the deadline shall be either the date of the AAA s initiation of the case or a date to be established by AAA. The rule also includes specific procedures governing resolution of disputes regarding locale arising from three potential scenarios. SUMMARY OF CHANGES COMMERCIAL ARBITRATION RULES 6

5 Paragraph (a) provides that when the arbitration agreement is silent and the parties cannot agree upon the hearing location, AAA shall make an initial determination, subject to the rendering of a final determination by the arbitrator following appointment. Paragraph (b) provides that when a specific location is required by the arbitration agreement, the hearing shall be conducted at that location absent the parties agreement to change the location or a determination by the arbitrator following appointment that applicable law requires a different locale. Paragraph (c) state that if the reference to a locale in the arbitration agreement is ambiguous and the parties are unable to resolve the ambiguity, the AAA shall make an initial determination, subject to a final determination by the arbitrator following appointment. Finally, the Rule grants to the arbitrator the discretion to conduct special hearings at other locations if reasonably necessary and beneficial to the process; for example, for document production purposes. R-12. Appointment from the National Roster (formerly Rule 11): The deadline for returning the arbitrator selection lists has been changed from 15 to 14 calendar days. The revised Rule clarifies that the selection lists do not have to be exchanged between the parties and that the failure to return a selection list shall only impact the party who failed to respond; namely all neutrals named on the list shall be deemed acceptable to that party. R-13. Direct Appointment by a Party (formerly Rule 12): Paragraph (d) changes the number of days required for a party to respond to a notice from AAA to appoint an arbitrator from 15 to 14 days. R-14. Appointment of Chairperson by Party-Appointed Arbitrators or Parties (formerly Rule 13): Paragraph (b) changes from 15 days to 14 days the time period in which party appointed arbitrators must notify the AAA about their appointed chairperson. R-16. Number of Arbitrators (formerly Rule R-15): Paragraph (b) now requires that any request for a change in the number of arbitrators resulting from an increase or decrease in the amount of a claim or assertion of a new or different claim must be made within 7 calendar days after receipt of notice of the change in claim. R-17. Disclosure (formerly R-16): Paragraph (a) now places a duty upon the parties and their representatives to make disclosures about possible conflicts in connection with an appointed arbitrator. In addition, Paragraph (a) introduces a new provision that failure of a party or representative to disclose a potential conflict may result in waiver of the right to object to an arbitrator in accordance with Rule 41. R-18. Disqualification of Arbitrator (formerly R-17): The content of this Rule has not been changed, however, the format was modified slightly. R-19. Communication with Arbitrator (formerly R-18): Paragraph (c) of this Rule authorizes AAA to initiate communications with each party or representative either jointly or individually. Paragraph (d) requires that documents submitted to the arbitrator be simultaneously provided to the other party or parties unless instructed otherwise by AAA or by the arbitrator. R-20. Vacancies (formerly R-19): Paragraph (a) was modified to grant the AAA itself the authority to remove an arbitrator who demonstrates an unwillingness to perform the duties of office, for example, by failing to respond in a timely manner to the AAA or the parties. SUMMARY OF CHANGES COMMERCIAL ARBITRATION RULES 7

6 R-26. Representation (formerly R-24): The Rule was amended to clarify that parties may participate without representation (pro-se) or they may select any one of their choice to represent them unless such selection is prohibited by applicable law. The time for notification by a party of representation has been changed from 3 to 7 calendar days. R-28. Stenographic Record (formerly R-26): The Rule was amended in paragraph (b) to prohibit other forms of recording absent agreement of the parties or per the direction of the arbitrator. Paragraph (c) now requires agreement of both the parties and the arbitrator as to what shall constitute the official record of the proceedings. Paragraph (d) authorizes the arbitrator to resolve any disputes regarding apportionment of the costs of obtaining a recording. R-32. Conduct of Proceedings (formerly R-30): The Rule was amended in paragraph (c) to grant the arbitrator with the discretion to allow for the presentation of evidence by alternative means other than in person provided all parties are afforded a full opportunity to present material and relevant evidence and cross-examine witnesses. Such alternatives include, but are not limited to video conferencing, internet communications, and telephonic conferences. Paragraph (d) provides that in addition to waiving oral hearings, parties may agree to utilize the Procedures for Resolution of Disputes Through Document Submission pursuant to Rule E-6. R-35. Evidence by Written Statement and Post-Hearing Filing of Documents or Other Evidence (formerly R-32): The word affidavit has been replaced by the phrase written statement in the title of the Rule. The Rule has been revised in conjunction with Rules 21, 22, and 23 to promote more efficient arbitration proceedings. Paragraph (a) grants to the arbitrator the authority to take such action as deemed to be just and reasonable, including disregarding a written witness statement and/or expert report, where a witness or expert fails to appear for examination at the arbitration hearing. Paragraph (b) grants to the arbitrator at the request of either party the authority to order an essential witness who is unable or unwilling to testify at the hearing to appear in person for examination at a location where the witness is either willing to appear or can be legally compelled to appear. R-39. Closing of Hearing (formerly R-35): The Rule clarifies in paragraph (b) the date on which the hearings shall be declared closed. If documents, responses and briefs are to be filed as provided in Rule R-34(b) Evidence, the hearing shall be declared closed as of the final date set by the arbitrator for the receipt of briefs. If no documents, responses or briefs are to be filed, the hearings shall be declared closed as of the date of the last in person or telephonic hearing. If the case was heard without oral hearings, the hearing shall be declared closed as of the date established by the arbitrator for receipt of the final submissions. Paragraph (c) grants to AAA the authority in unusual and extreme circumstances to extend the time limit for rendering an award. R-40. Reopening of Hearing (formerly R-36): The amended Rule clarifies that the arbitrator must direct the reopening of the hearing following a request by a party. References to time limits in the contract for the making of the award have been replaced by such time limits referenced in the arbitration agreement or by agreement of the parties. If the case is governed by the Expedited Procedures and the arbitration agreement does not specify a time lime, the arbitrator has 14 calendar days from the closing of the reopened hearing within which to make an award. R-43. Serving of Notice and Communications (formerly R-39): The phrase and communications has been added to the title of the Rule. Paragraph (b) now authorizes the use of electronic mail for the delivery of notices without having to first obtain the permission of the parties and the arbitrator. New procedures have been included that enable the AAA to deal effectively with unilateral, and sometimes harassing, communications. Paragraph (d) clarifies that all written communications, not just documents, must simultaneously be provided to the other side unless instructed to do otherwise SUMMARY OF CHANGES COMMERCIAL ARBITRATION RULES 8

7 by the AAA or the arbitrator. Paragraph (e) provides that a failure to provide copies of all communications to the other side may result in the AAA or the arbitrator refusing to act on any requests or objections. Paragraph (f) grants AAA the authority to direct the manner in which oral or written communication is to be sent by a party or their representative and to disregard any oral or written communication sent by a party or their representative that AAA deems to be inappropriate. R-44. Majority Decision (formerly R-40): Paragraph (b) is new and is intended to streamline decision-making regarding discovery issues. Absent an objection of a party or another member of the panel, it authorizes the chairperson of the panel to resolve disputes related to the exchange of information or procedural matters without the need to consult with the full panel. R-45. Time of Award (formerly R-41): The Rule has been amended so that in cases where no oral hearings take place the due date set for receipt of the parties final statements and proofs now constitutes the beginning of the 30-day period for the making of the award. R-46. Form of Award (formerly R-42): To ensure that any questions concerning enforcement of international arbitrations administered pursuant to the Commercial Rules can be addressed, Paragraph (a) now requires that the award be executed in not just the manner, but also the form required by law. R-48. Award Upon Settlement (formerly R-44): Paragraph (b) contains an amendment providing that a consent award shall not be released to the parties until all administrative fees and all arbitrator compensation have been paid in full. R-51. Release of Documents for Judicial Proceedings (formerly R-47): The Rule includes amendments that clarify that a party seeking release of documents must have been a party to the arbitration; that party may request non-certified copies; and that AAA has the authority to not release papers that the AAA determines to be privileged or confidential. R-52. Applications to Court and Exclusion of Liability (formerly R-48): Of this Rule paragraph (e) specifically forbids the calling of the arbitrator, the AAA or AAA employee as a witness in litigation or any other proceeding relating to the arbitration. R-56. Deposits (formerly R-52): The Rule includes amendments in paragraph (b) that explains how the arbitrator shall estimate the amount of deposits to be submitted by the parties in cases where the arbitrator is not serving for a flat fee. Paragraph (c) specifies that if requested by a party, AAA shall obtain from the arbitrator an itemization or explanation of the arbitrator s estimated fees. MINOR CHANGE TO THE NUMBER OF THE RULE R-15. Nationality of Arbitrator (formerly R-14) R-24. Date, Time, and Place of Hearing (formerly R-22) R-25. Attendance at Hearings (formerly R-23) R-27. Oaths (formerly R-25) R-29. Interpreters (formerly R-27) SUMMARY OF CHANGES COMMERCIAL ARBITRATION RULES 9

8 R-30. Postponements (formerly R-28) R-31. Arbitration in the Absence of a Party or Representative (formerly R-29) R-34. Evidence (formerly R-31) R-36. Inspection or Investigation (formerly R-33) R-37. Interim Measure (formerly R-34) R-41. Waiver of Rules (formerly R-37) R-42. Extension of Time (formerly R-38) R-47. Scope of Award (formerly R-43) R-49. Delivery of Award to Parties (formerly R-45) R-50. Modification of Award (formerly R-46) R-53. Administrative Fees (formerly R-49) R-54. Expenses (formerly R-50) R-55. Neutral Arbitrator s Compensation (formerly R-51) EXPEDITED PROCEDURES E-6. Proceedings on Documents and Procedures for the Resolution of Disputes Through Document Submission: The Procedure increases the presumption of a documents only hearing to $25,000 from $10,000, includes attorneys fees as an item to be excluded when calculating the claim amount and instead of allowing the arbitrator to establish the method by which the documents only hearing shall be conducted incorporates the Construction Rules procedures for document only hearings that may be utilized by agreement of the parties or the discretion of the arbitrator. Paragraph (a) provides that the arbitrator may within 14 calendar days of confirmation of appointment convene a preliminary hearing via conference call, video conference or internet to establish a fair and equitable procedure for the submission of documents and if deemed appropriate by the arbitrator to schedule one or more telephonic or electronic conferences. Paragraph (b) grants to the arbitrator the authority to remove a case from the documents only process if the arbitrator determines that an in-person hearing is necessary. Paragraph (c) confirms that if the parties agree to in-person hearings following the appointment of an arbitrator to conduct the documents only process that arbitrator shall conduct the in-person hearings. If the parties cannot mutually agree upon in-person hearings, the issue shall be resolved by the arbitrator following the submission of comments by the parties. Paragraph (d) clarifies that the date set by the arbitrator for either written submissions or a final telephonic or electronic conference shall operate to close the hearing and commence the deadline for rendering of the award. Paragraph (e) specifies that unless the parties agree to a form of award other than that set forth in Rule R-45, the arbitrator shall render the award within 14 calendar days from the date the hearing is closed. Paragraph (f) extends the deadline to render the award to 30 calendar days if the parties have agreed to a form of award other than that described in Rule R-45. Paragraph (g) confirms that the award is subject to all the other provisions of the Regular Track of the Rules that pertain to awards. E-9. Time of Award: The Rule was amended so that in cases where oral argument does not take place, the date for commencement of the deadline for the award runs from the due date established for the receipt of the parties final statements and proofs. SUMMARY OF CHANGES COMMERCIAL ARBITRATION RULES 10

9 NO CHANGES TO CURRENT PROCEDURES E-1 E-2 E-3 E-4 E-5 E-7 E-8 E-10 PROCEDURES FOR LARGE, COMPLEX COMMERCIAL DISPUTES L-2. Arbitrators: Paragraph (b) now provides that AAA has the discretion regardless of the amount in controversy to require the appointment of only one arbitrator in cases involving the financial hardship of a party or other circumstances. L-3. Management of Proceedings (formerly L-4): The hearing management process has been revised in keeping with the inclusion of new rules R-21 Preliminary Hearing and R-22 Pre-Hearing Exchange and Production of Information and Sections P-1 and P-2. Paragraph (b) mandates that the preliminary hearing conform with sections P-1 and P-2. Paragraph (d) requires that the parties and arbitrators address issues related to information exchange in accordance with Rule R-21. Paragraph (e) grants to the arbitrator or any single member of the tribunal the authority to resolve information exchange issues by any reasonable means within the discretion of the arbitrator, including the issuance of orders as set forth in R-22. Paragraph (f) removes the current reference to the propounding of interrogatories, thus, restricting the arbitrator s discretion to the ordering of depositions in exceptional cases. NO CHANGES TO CURRENT PROCEDURES L-1 NO CHANGES TO CURRENT LANGUAGE Commercial Mediation Procedures Commercial Arbitration Rules Fee Language SUMMARY OF CHANGES COMMERCIAL ARBITRATION RULES 11

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