Many franchise agreements require mandatory arbitration of disputes, and a substantial number fall under the supervision of the American Arbitration Association (“AAA”). The AAA has issued revised Commercial Arbitration Rules that will apply to cases filed as of October 1, 2013.
These significant changes were meant to address common criticisms of arbitration, including burdensome discovery, lack of arbitrator control, and increased time and expense. The goal is to make arbitration better-managed, faster and more cost-effective.
The revisions include:
- A mediation step for all cases with claims of $75,000 or more (subject to the ability of any party to opt-out). New Rule R-9 makes mediation mandatory. Absent an agreement of the parties to the contrary, the mediation is to occur concurrently with the arbitration and in a manner that does not delay the proceeding. A party may unilaterally opt-out from mediation.
- Arbitrator control over information exchange (discovery). The new Rules direct the arbitrators to convene a preliminary hearing as soon as practicable following the appointment of the tribunal, and include a checklist of possible items to be discussed during the preliminary hearing (R-21); allow production of electronically stored documents to be completed in the manner most convenient and economical to the producing party (R-22); allow the arbitrators to allocate the costs of producing documents (R-23); and give the arbitrators the authority to impose sanctions to address abusive conduct (R-58).
- The availability of emergency measures of protection. An “emergency arbitrator” may grant interim relief before the arbitral tribunal is constituted (R-38). A party may request the AAA to appoint an emergency arbitrator, prior to the constitution of the tribunal. Within one business day, the AAA must appoint a single emergency arbitrator, who must then establish a schedule for the consideration of the application for emergency relief within two business days. This provision is not intended to prevent applications to courts for provisional relief.
- Access to dispositive motions. The revised Rules expressly grant arbitrators the authority to hear dispositive motions, as long as the party who intends to bring the motion shows that the motion is likely to succeed in disposing of or narrowing the issues in dispute (R-33).
Since arbitration is a matter of contract between the parties, some of these Rules, like mandatory mediation, may be varied by the agreement. Agreements that have AAA arbitration clauses should therefore be reviewed and updated. New agreements should be drafted with these Rules in mind.