CONSTRUCTION DISPUTE RESOLUTION - A COMPARISON OF RULES AND FEES FROM U.S. ARBITRATION ORGANIZATIONS

Transcription

1 CONSTRUCTION DISPUTE RESOLUTION - A COMPARISON OF RULES AND FEES FROM U.S. ARBITRATION ORGANIZATIONS By: Larry R. Leiby, Esq. Domestic arbitration organizations such as AAA, 1 JAMS, 2 and CPR 3 publish rules that the arbitration organizations use in administering arbitration proceedings. Arbitration organizations charge fees for arbitration administration to compensate the organization for the services provided. CPR has published rules for a non-administered, or ad hoc, arbitration. The CPR non-administered case rules suggest that there are services that CPR can provide (for a fee) to aid with the arbitration without full administration by CPR. In July, 2013 CPR published an additional set of rules for arbitration where the case is to be fully administered by CPR. Some lawyers may choose to have their arbitration be administered by an arbitration organization, but some lawyers may choose to administer the case themselves without an arbitration organization providing administration. In the ad hoc (non-administered) arbitration the lawyers and parties, or to some extent the court, provide the administrative services that the arbitration organization would provide [e.g., clerk/repository of filings and administrative papers, provider of list of "vetted" potential arbitrators, collector of arbitrator fees (which can be a sensitive issue), decision maker on certain administrative issues, provider of hearing room, etc.], and obtaining a decision on consolidation of arbitrations. 1 American Arbitration Association, 2 JAMS ADR, The Resolution Specialists, 3 International Institute for Conflict Prevention & Resolution. 1

2 One reason that lawyers may choose non-administered arbitration is to save the fees charged for the administration services. Without organization administration judicial intervention may be used to address some of the services otherwise provided by an administering organization. Self-administration, however, risks the expense and delay of court intervention. One of the major publishers of form construction contract documents, ConsensusDocs, is presently reviewing a proposed change to their contract that would allow the parties to choose among the AAA, JAMS, or another (fill in the blank) arbitration organization s rules. It would also require an affirmative choice by the parties as to whether one of those arbitration organizations would administer the case. DIFFERENCES BETWEEN AAA, JAMS, and CPR CONSTRUCTION ARBITRATION RULES Case administration. Any agreement can be modified by subsequent agreement among the parties. Also in a case where arbitration is not in the underlying contract, when parties/lawyers wish to have control in selecting decision makers who have knowledge of the subject matter, arbitration can be agreed at that time. AAA Rules - Rule R-2 of the AAA Construction Industry Arbitration Rules (2009) provides that the parties authorize the AAA to administer the arbitration. JAMS Rules - The JAMS Engineering and Construction Arbitration Rules (2009) do not require that JAMS be the administrator of the arbitration. CPR Rules - The CPR Rules for Expedited Arbitration of Construction Disputes do not provide that CPR will administer the arbitration. 2

3 Costs. The filing fees and expenses of the arbitration organizations differ. For comparison I will use two example: Claim A will be a claim for one hundred thousand dollars ($100,000) and is expected to be heard in two days of hearing time. Claim B will be a claim for five million one hundred dollars ($5,000,100) and is expected to be heard in 10 days of hearing time. Both claims involve only two parties. AAA Rules - Under the AAA rules the filing fee and a final fee is based on the amount of the claim or counterclaim. AAA has a standard fee schedule and a flexible fee schedule, each available at the choice of the parties. For the $100,000 claim the administrative fees are presently as follows: Standard Fee Schedule - For one arbitrator: $1,850 filing fee and $750 final fee. However if there are three arbitrators, the fees increase to a $2,800 filing fee and a $1,250 final fee. Flexible Fee Schedule - For one arbitrator: $850 initial filing fee, $1,250 proceed fee to be paid within 90 days of filing or the case will be closed, and $750 final fee. If there are three arbitrators the fees increase to $1,000 filing fee, a $2,125 proceed fee, and a $1,250 final fee. For the larger $5,000,100 claim the AAA administrative fees are presently: Standard Fee Schedule - $10,200 filing fee and a $4,000 final fee. Flexible Fee Schedule - $3,500 initial filing fee, $8,200 proceed fee to be paid within 90 days of filing or the case will be closed, and $4,000 final fee. The fees do not include hearing room rental. 3

4 JAMS Rules - The case management fee is based on the time spent by the arbitrator. For the $100,000 claim taking two days, there is a case management fee of $550 per party based for the two days to hear the case. If the time taken is more or is less, the administrative fee is more or less. The fee is based on 10 hour days. For the $5,000,100 claim taking 14 days there is a case management fee of 10% of the arbitrator fee. If the arbitrator fee is $400 per hour for 14 seven hour days for one arbitrator, that fee would be $3,920 For three arbitrators taking the same time the case management fee would be $11,760. Again, if the case takes more or less time the fee is adjusted accordingly based on up to 10 hour days. The JAMS case management fee includes use of JAMS Resolution Centers for the hearings, and a provided lunch for those attending. CPR Rules - Non Administered No filing fee and no processing or case management fees. If services are requested for arbitrator selection, challenge, or replacement; or hearing room rental, there are specific fees for such services when requested. Administered - For the $100,000 case there is a $1,750 filing fee and $8,250 administrative fee if delivery of the final award by the Tribunal to CPR for review is done within 12 months after the Pre-hearing Conference. Thereafter, CPR may charge an additional administrative fee of $2,000 for each additional 6 month period. For the $5,000,100 case there is a $1,750 filing fee and $10,250 administrative fee if delivery of the final award by the Tribunal to CPR for review is done within 12 4

5 months after the Pre-hearing Conference. Thereafter, CPR may charge an additional administrative fee of $2,000 for each additional 6 month period. Level of Detail Required in the Initial Demand or Notice for Arbitration AAA Rules - The demand for arbitration shall include: 4 A statement setting forth the nature of the claim including the relief sought and the amount involved. A more detailed statement of the claims can be addressed at a preliminary hearing. JAMS Rules - Claimant shall submit notice of its claim and remedies sought, together with a statement of their factual basis. 5 Also, under the JAMS rules (while not required with the initial demand) there is the duty to disclose initial information, and a duty to supplement that information, which is addressed in the information exchange segment below. CPR Rules - CPR has the most information required in the initial demand for arbitration based on a goal of expediting the case. Under the CPR Rules a Statement of Claim shall include: a. A detailed statement of the Claimant s claim including all facts to be proved; b. the legal authorities relied upon by claimant; c. copies of all documents that the Claimant intends to rely upon in the arbitration; d. the names of the expert witnesses Claimant intends to present together with curricula vitae and a summary of the opinion testimony to be offered; and e. the names of the percipient witnesses Claimant intends to present together with a summary of the proposed testimony of each. 6 Interpretation of Rules and the Law 4 Rule R 4, AAA Construction Industry Arbitration Rules (2009). 5 Rule 9, JAMS Engineering and Construction Arbitration Rules (2009); 6 Rule 3.4, CPR Rules for Expedited Arbitration of Construction Disputes 5

6 AAA Rules - AAA rules provide that the arbitrator and the AAA shall be the interpreter of the rules with no specific reference to the law. 7 AAA has industry professionals (non-lawyers) that may be chosen as arbitrators. Some would argue that the non-lawyer arbitrators do not have the training in dispute resolution procedure or the law that lawyers have, beyond the limited training that AAA requires and provides. Per contra with technical construction disputes it may be beneficial to have an industry person trained in the subject matter as a member of the arbitration panel instead of a panel comprised of all construction lawyers. Also, the industry professional arbitrators may ask for legal briefs and authority from the parties counsel. Limited review of the award is that which is provided by the applicable law. 8 Jams Rules - JAMS rules provide that the arbitrator and JAMS shall be the interpreters of the rules, but that the law will govern any conflict between the rules and the law." 9 All JAMS arbitrators have been trained as lawyers. If the parties choose to use the JAMS Optional Appeal Procedures, and the parties have a transcript of the proceedings, an arbitration award can be reviewed by the panel of JAMS appellate arbitrators for lack of substantial competent evidence and failure to follow the law in addition to the statutory grounds of appeal under the applicable law. CPR Rules - The CPR rules provide the arbitrator(s) shall apply the substantive law(s) or rules designated by the parties to be applicable to the dispute. 10 Failing such 7 Rule R 8, AAA Construction Industry Arbitration Rules (2009). 8 There being no AAA Appellate Arbitration Procedure. 9 Rule 11, JAMS Engineering and Construction Arbitration Rules (2009); 10 Rule 21.1, CPR Rules for Expedited Arbitration of Construction Disputes 6

7 a designation by the parties, the arbitrator(s) shall apply such law(s) or rules of law as it determines to be appropriate. All other rules shall be interpreted and applied by the CPR Institute. It is also provided that the law shall trump the rules in the event of a conflict. 11 CPR has an optional appellate arbitration procedure. 12 For this review to be available: a) the arbitrators in the original arbitration must be required (by agreement) to reach a decision in compliance with applicable law and issue a written award setting forth the factual and legal bases, and b) a record of all hearings and evidence in such original arbitration proceeding must be available. Number of arbitrators After pointing out that most people see the limited appeal rights as a benefit of arbitration, in comments on its appellate procedures the CPR says: "In the first instance arbitrations can and should be structured so as to minimize the risk of an erroneous award or an unjustified compromise award. The single most important factor is the selection of a highly qualified arbitrator or panel." 13 The number of arbitrators may be the result of agreement among the parties. However absent party agreement the published rules have default provisions with respect to the number of arbitrators. 11 Rule 1.2, CPR Rules for Expedited Arbitration of Construction Disputes 12 CPR Arbitration Appeal Procedure (2007). 13 CPR Arbitration Appeal Procedure and Commentary 7

8 AAA Rules - AAA rules 14 and the AAA fast track rules, 15 provide for one arbitrator, subject to party agreement. The AAA large complex case rules provide for three arbitrators subject to party agreement." 16 JAMS Rules - The JAMS rules provide for three arbitrators, subject to party agreement. 17 The JAMS Comprehensive rules 18 and the JAMS streamlined rules, 19 provide for one arbitrator subject to party agreement. CPR Rules for Expedited Arbitration of Construction Disputes - Under CPR Rules, unless otherwise agreed the panel shall consist of three neutral arbitrators, one appointed by each of the parties. 20 Within 5 days after the appointment of the second arbitrator, the two party-appointed arbitrators appoint the third arbitrator, who shall chair the panel. If the party-appointed arbitrators are unable to agree on the third arbitrator within the 5-day period, the third arbitrator shall be selected by CPR (at a cost if the case is non-administered). Where the arbitration agreement entitles each party to appoint an arbitrator but there is more than one Claimant or Respondent, and either the multiple Claimants or the multiple Respondents do not jointly appoint an arbitrator by the time specified in these Rules, the CPR Institute shall appoint the arbitrator(s) (at additional cost if the case is non-administered) Rule R 18, AAA Construction Industry Arbitration Rules (2009). 15 Rule F l, AAA Construction Industry Arbitration Rules (2009). 16 Rule L 3, AAA Construction Industry Arbitration Rules (2009). 17 Rule 7(a), JAMS Engineering and Construction Arbitration Rules (2009). 18 Rule 7, JAMS Comprehensive Arbitration Rules & Procedures (2010). 19 Rule 12, JAMS Streamlined Arbitration Rules & Procedures (2009). 20 Rule 1.2, CPR Rules for Expedited Arbitration of Construction Disputes. 21 Rules 5 and 6, CPR Rules for Expedited Arbitration of Construction Disputes. 8

9 Information Exchange (Discovery) AAA Rules - Under AAA rules there shall be no discovery or information exchange unless the parties agree or the arbitrator orders it, with the following exceptions: the arbitrator may direct the production of documents and other information, and the identification of any witnesses to be called. 22 At least 7 calendar days prior to the hearing, or by the date established by the arbitrator, the parties shall exchange copies of all exhibits they intend to submit at the hearing. Under the AAA Fast Track Rules at least 5 business days prior to the hearing or no later than the date established by the arbitrator, the parties shall (a) exchange directly between themselves copies of all exhibits, affidavits and any other information they intend to submit at the hearing, and (b) identify all witnesses they intend to call at the hearing. No other discovery is permitted unless agreed or the arbitrator orders it. 23 Under the AAA Large Complex Case Rules the parties may conduct such discovery as may be agreed to by all the parties provided, however, the arbitrator may place such limitations on the conduct of such discovery as the arbitrator shall deem appropriate. 24 At the discretion of the arbitrator, upon good cause shown and consistent with the expedited nature of arbitration, the arbitrator may order depositions of, or the propounding of interrogatories to, persons who may possess information determined by the arbitrator to be necessary to a determination of the matter. The parties shall exchange copies of all exhibits intended to be submit at the hearing 10 calendar days prior to the hearing unless the arbitrator determines otherwise. 22 Rule R 24, AAA Construction Industry Arbitration Rules (2009). 23 Rule F 8, AAA Construction Industry Arbitration Rules (2009). 24 Rule L S, AAA Construction Industry Arbitration Rules (2009). 9

10 JAMS Rules - Under the JAMS Engineering and Construction Arbitration Rules the parties shall cooperate in good faith in the voluntary and informal exchange of all non-privileged documents and other information (including electronically stored information ("ESI") relevant to the dispute or claim immediately after commencement of the arbitration. 25 The parties shall complete an initial exchange of all relevant, nonprivileged documents, including, without limitation, copies of all documents in their possession or control on which they rely in support of their positions, names of individuals who may have relevant knowledge or who may be called as witnesses at the arbitration hearing, and names of experts who have been retained or who may be called to provide expert testimony at the arbitration hearing, within twenty-one (21) calendar days after all pleadings or notice of claims have been received. The JAMS rules require a party to supplement the disclosure information given as new documents/data become available. Final expert reports of testifying experts will be exchanged as scheduled in the preliminary conference or within 14 days after the close of discovery. The arbitrator may modify these obligations. Also each party may take two depositions of either an opposing party or individuals under the control of the opposing party. Additional depositions are at the discretion of the arbitrator upon request if not agreed. Under the JAMS Comprehensive Arbitration Rules 26 and Streamlined Arbitration Rules & Procedures 27 the information exchange requirements are the same except that one deposition is provided for under the Comprehensive Rules and no depositions are mandated under the Streamlined Rules. 25 Rule 17, JAMS Construction Industry Arbitration Rules & Procedures (2009). 26 Rule 17 (2010). 27 Rule 13 (2009). 10

11 CPR Rules - CPR has the most stringent requirements for information to be included with the arbitration demand, described above. Thereafter at the request of any party the arbitrators shall order the exchange of relevant and material documents not included with the Statement of Claim, Statement of Defense, Counterclaim or Reply. 28 Other discovery is in the discretion of the arbitrators. Electronic discovery will not ordinarily be permitted except, in the discretion of the arbitrators, to the extent of narrow, focused requests that are justified in terms of importance and materiality and possible to conduct within a reasonable time frame. Note that the CPR Rules contemplate a final hearing within 100 days of filing notice of arbitration. 29 Form of Award AAA Rules - Under the AAA Fast Track and Regular rules unless otherwise agreed among the parties the arbitrator shall provide a concise written financial breakdown of any monetary awards and, if there are non-monetary components of the claims or counterclaims, the arbitrator shall include a line item disposition of each nonmonetary claim or counterclaim. 30 No reasoning is required unless the parties agree to require reasoning prior to selecting the arbitrator. The arbitrator may agree to give a reasoned award if requested after arbitrator appointment. Reasoning in the award is required under the AAA Large Complex Case Rules unless the parties agree otherwise Rule 11, CPR Rules for Expedited Arbitration of Construction Disputes 29 Rule 1.3, CPR Rules for Expedited Arbitration of Construction Disputes 30 Rule R 44, AAA Construction Industry Arbitration Rules (2009) Rule L 6, AAA Construction Industry Arbitration Rules (2009). 11

12 JAMS Rules - Under all of the applicable JAMS Rules a reasoned award is required unless the parties agree otherwise. 32 CPR Rules - All awards shall be in writing and shall state the reasoning on which the award rests, unless otherwise agreed. 33 The lawyers/parties may agree in the underlying agreement, or later, for the award to include findings of fact and conclusions of law. This would be helpful if the parties agreed to appellate arbitration review. Conclusion While each of the published rules seeks to provide a disciplined path toward expeditious dispute resolution there are differences, some described above. Rules may be chosen in the agreement to arbitrate and the other party(ies) may choose to not change anything when a dispute arises. Thus those who draft the contracts should be aware of the differences in the rules. Then again when a dispute arises the parties/lawyers may see a benefit from choosing one set of rules over another, modifying the rules; or choosing to have the case administered or not. Some parties appreciate the limited right to appeal afforded arbitration in the courts and others may wish to provide for an arbitral appellate review. 32 Rule 24, JAMS Engineering and Construction Arbitration Rules (2009); Rule 24, JAMS Comprehensive Arbitration Rules & Procedures (2010); Rule 19, JAMS Streamlined Arbitration Rules & Procedures (2009). 33 Rule 14.2, Rules for Expedited Arbitration of Construction Disputes 12