A bill that would change Pennsylvania’s arbitration laws for the first time in over 30 years has drawn the support of the Pennsylvania Bar Association, but has been met with opposition from the Pennsylvania Association for Justice trial lawyers group.
The PBA says the measure would streamline arbitration procedures in the state, while trial lawyers say they’re prepared to fight to defeat the proposal, arguing that it would give arbitrators equal powers to judges. Among other criticisms, the trial lawyers say the bill threatens to limit parties’ ability to appeal decisions through a grant of immunity to arbitrators and a "loser-pays" rule in litigation to enforce or vacate arbitrators’ awards.
Moreover, Mark E. Phenicie, legislative counsel for the PAJ, argued it is unnecessary — "an answer searching for a problem."
But backers of the Revised Uniform Arbitration Act, including PBA President Thomas G. Wilkinson Jr., say the law would pull together the disparate threads of Pennsylvania procedural arbitration rules into a single workable body.
HB 23 is expected to be taken up by the state House of Representatives sometime this week. The House passed the bill unanimously in its last session, but it stalled in the Senate.
Advocates of the legislation say it would make only procedural changes to arbitrations in Pennsylvania, while opponents say that it would alter substantive rights.
Among other changes, the proposed legislation would: require arbitrators to disclose conflicts of interest to lawyers and parties; require third parties to provide discovery; and codify that arbitrators, just like judges, would have immunity for their decision-making.
State Representative Glen Grell, R-Cumberland, the primary sponsor of the legislation, said the Senate did not take up the legislation in the last session and that he would be happy to address any issues the state Senate has with the legislation.
"We periodically look at all of our uniform laws to see whether they need to be updated," Grell said. "Now we have 30 years’ worth of experience under [the original Uniform Arbitration Act]. … The National Conference of Commissioners on Uniform State Laws are recommending some revisions and their revisions all seem to make sense in Pennsylvania."
State Senator Stewart Greenleaf, R-Montgomery, and chairman of the Senate Judiciary Committee, did not respond to a request for comment.
The changes are designed to unify all of Pennsylvania’s processes and procedures for arbitration, such as how to proceed with arbitration, how to secure an arbitration award and how to challenge an arbitration award, said Wilkinson, of Cozen O’Connor and the PBA head.
"It does not undermine substantive rights, including the existing right to a jury trial or the existing right to challenge the enforceability of an arbitration agreement," Wilkinson said.
The bill would unify and codify arbitration law in Pennsylvania so that attorneys would not have to review "a patchwork of authority in order to come to some conclusion" on how to advise clients adequately, Wilkinson said.
Wilkinson said the PBA is ready and willing to discuss issues the trial lawyers have with the legislation, including any issues they think could lead to judges misinterpreting the intent of the uniform law.
Phenicie said the Pennsylvania Association for Justice has decided to oppose the legislation because it’s a "wholesale rewrite of the Uniform Arbitration Act" that would give arbitrators equal powers to judges and that would make unnecessary changes when parties participating in arbitration already know the current rules of arbitration in Pennsylvania.
Phenicie also added that the trial lawyers are going to try "very hard" to defeat the bill.
The trial lawyers do support several of the amendments, including one that would make an exception from the act for minors and one that would make an exception for arbitrations involving disputes that have not yet arisen.
Phenicie said the trial lawyers are not opposed to arbitration after a plaintiff has been injured, including in the context of automobile cases.
But, "we have real problems with arbitration pre-injury," including nursing home cases, Phenicie said.
While arbitrations are less expensive in general, Phenicie characterized the bill as taking away the powers of judges and the rights to trial by jury.
Phenicie also criticized the bill’s provision of immunity to arbitrators for their decision-making, because there is limited review by trial judges for statutory arbitrations, and there is a loser-pays provision when prevailing parties win in court to get an arbitration award enforced or vacated.
Phenicie also criticized arbitration in the context of "contracts of adhesion" for clients entering nursing homes.
Raymond P. Pepe, a partner with K&L Gates and a proponent of the bill, said Congress has pre-empted the field of arbitration by adopting the Federal Arbitration Act. All that can be done in state law is to address procedural rules, not the scope of disputes subject to arbitration, Pepe said.
Pepe added that, because the still-young federal Consumer Financial Protection Bureau is authorized to restrict arbitration regarding consumer financial products before disputes have arisen about those products, those pre-disputes may no longer be subject to arbitration if the bureau enacts such rules.
Robert F. Morris, chair of the Montgomery Bar Association’s alternative dispute resolution committee, a trial lawyer and arbitrator with Morris and Clemm in Montgomery County, and who independently reviewed the legislation, said that the bill involves some positive proposals like arbitrators having to disclose their relationship with the attorneys or parties involved. Morris also said it was positive that the bill would clarify the powers of arbitrators, such as to award punitive damages, to order discovery and to award attorney fees that have a legal basis.
For agreements involving parties who have counsel and who have knowingly signed onto those agreements, the bill would codify the powers that arbitrators in Pennsylvania think they already have now under case law, protect arbitrators and protect parties from bad arbitrations, Morris said.
But Morris said he remains concerned for people who enter arbitration agreements without consulting attorneys, such as nursing home residents.
Stephen Yusem, chair of the PBA’s alternative dispute resolution committee and one of the proponents of the bill, said there are four ways to resolve disputes: negotiation, mediation, arbitration and litigation.
"It’s an ethical imperative that the lawyer explain to the client the way the dispute should be resolved," Yusem said. "Litigation is not the only way to resolve a conflict in the country. It’s one of four."
Arbitration makes everyone’s lives easier, including trial lawyers, Yusem said. "It is a process selected by people to resolve disputes. When people do select it by agreement, which is the only way you can do it, they’ve got to try and do it as economically and expeditiously as possible."
Sixteen states and the District of Columbia have adopted the Revised Uniform Arbitration Act, according to the National Conference of Commissioners on Uniform State Laws.
While the act pending in the House has not changed much from the uniform law proposed by the commissioners, the law does allow Pennsylvania citizens to arbitrate either under the Uniform Arbitration Act or under Pennsylvania common-law arbitration, said Pepe, who is a commissioner.
No other state has both kinds of arbitration, Pepe said.
The Uniform Arbitration Act does not involve compulsory judicial arbitration, including for smaller civil cases.
Key Provisions of Revised Uniform Arbitration Act
Arbitrators must disclose known financial interests or personal relationships that would affect their impartiality. Not disclosing “evident partiality” could be a ground for vacating an arbitration award.
• Arbitrators, just like judges, would have immunity for their decision-making.
• Third parties can be required to provide discovery before arbitrations are held.
• Judges would continue to decide if an agreement to arbitrate exists or if a dispute is subject to an agreement to arbitration.
• Arbitrators, not just judges, could determine whether a contract containing an arbitration provision is enforceable.
• Arbitrators could hold pre-hearing conferences.
• Arbitrators could award punitive damages as long as they stated the basis for their decision from the facts of the dispute and the law of Pennsylvania.
• While the Uniform Arbitration Act is silent on how to start an arbitration, the revised act would set out how to start an arbitration and give notice to an opposition.
• Attorney fees and litigation costs could be awarded to prevailing parties when they win in court to get an arbitration award enforced or vacated.
Arbitrations subject to statute could be appealed in court if the award was procured by corruption or fraud, if the arbitration was not subject to a proper agreement or the other side did not have proper notice, or if the arbitrator had “evident partiality,” committed misconduct, refused to postpone the hearing or consider evidence that prejudiced a party’s rights substantially, or exceeded his or her powers.
Sources: House Bill 23; Raymond P. Pepe and Stephen G. Yusem’s April 24, 2012, report to the state Senate Judiciary Committee; and interview with Yusem.