Raymond P. Pepe of K&L Gates and Stephen G. Yusem.

As of June 28, Pennsylvania has joined 20 other states and the District of Columbia in adopting the Revised Uniform Arbitration Act (RUAA), effective July 1, 2019, the objective of which is to update and facilitate the practice of arbitration. The RUAA was promulgated by the Uniform Law Commission in 2000 to replace the original Uniform Arbitration Act promulgated by the Commission in 1956.

The Federal Arbitration Act (FAA), 9 USCA Ch.1, enacted in 1925, declares that written agreements to arbitrate “shall be valid, irrevocable and enforceable” subject to the grounds to revoke any contract. Over the past several decades, the U.S. Supreme Court has consistently supported arbitration as a viable alternative for dispute resolution the most recent iteration of which is Epic Systems v. Lewis, 138 S.Ct. 1612 (May 21, 2018). Although the language of the FAA is generally procedural in nature, Southland v. Keating, 465 US 1 (1984) held that it is a substantive statute that pre-empts conflicting state law.

Pennsylvania adopted the original version of the Uniform Arbitration Act (UAA) in 1958, 42 Pa.C.S.A. Sections 7301-7320. With the advent of the information age, as well as the proliferation of arbitration case law, the Pennsylvania Bar Association recognized the desirability of revising the outdated UAA to provide more complete arbitration procedures to meet modern needs. The RUAA codifies more than 50 years of case law, and in so doing, resolves ambiguities and conflicts in case authority.

As the UAA is silent on the initiation of arbitration proceedings, the RUAA specifies steps for initiating arbitration and giving notice to adverse parties. The act also resolves confusion over who decides arbitrability and by what criteria. Under the RUAA, unless the arbitration agreement provide otherwise, the court determines whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate. It is the responsibility of the arbitrator to decide whether a condition precedent to arbitrability has been fulfilled and whether a contract containing an agreement to arbitrate is enforceable.

Under the new act, the grounds for vacating an arbitration award are expanded to include whether an award was procured by corruption, fraud, or other undue means and whether the misconduct of an arbitrator or lack of notice of the initiation of arbitration proceeding prejudices the rights of a party. The RUAA also provides that the “evident partiality” of a neutral arbitrator sufficient to vacate an award can be demonstrated by the failure of an arbitrator to disclose any known facts that a reasonable person would consider likely grounds to affect the impartiality of an arbitrator, including financial interests or personal relationships.

In order to encourage the willingness of qualified individuals to serve as arbitrators, subject to limited exceptions, the RUAA grants arbitrators immunity from civil liability and protects arbitrators from being compelled to testify or to produce records relating to arbitration proceedings to the same extent as judges. The RUAA also provides that if a motion is filed challenging the immunity of an arbitrator, the prevailing party, may be awarded attorney fees.

The RUAA recognizes that parties to arbitration require discovery. Under the UAA, the U.S. Court of Appeals for the Third Circuit has held that arbitration parties cannot depose nonparty witnesses, see Hay Group v. E.B.S. Acquisition, 360 F.3d 404 (3rd Cir. 2004). Under the RUAA, subpoenas may be issued by the arbitrator, and depositions may be permitted upon request of a party with respect to both party and non-party witnesses, based on demonstrated need while ensuring that the proceeding is fair, expeditious and cost-effective. The act also provides for the use of electronic records, contracts and signatures under the Pennsylvania Uniform Electronic Transactions Act.

In the interests of economy, expediency and flexibility, the act authorizes arbitrators to issue provisional remedies and to consolidate separate arbitrations involving the same transaction or parties if no one is prejudiced. The RUAA also allows arbitrators to award attorney fees and costs under certain circumstances.

It has always been the law of Pennsylvania that arbitrators may issue punitive damage awards unless the arbitration agreement provides otherwise. The RUAA guards against the improper exercise of punitive damage awards by requiring that the arbitrator state in writing the basis in both fact and law for such an award.

With limited exceptions, the UAA fails to clarify whether its provisions may be varied or waived by an arbitration agreement. In contrast, the RUAA enhances party autonomy by providing that most of its provisions may be waived by the terms of an arbitration agreement or the consent of the parties except for fundamental terms that may never be waived or modified, and that other provisions may be varied only after a dispute subject to arbitration issues. The RUAA prohibits any modification of its provisions relating access to judicial relief to enforce or stay arbitration, or to modify, correct, vacate or enforce an arbitration award, or relating to the immunity of arbitrators. Before a dispute subject to arbitration arises, the act also prohibits waivers or modifications of its provisions relating to the right to challenge the existence or enforceability of an agreement to arbitrate; access to provisional remedies; witnesses, subpoenas and discovery; the right to counsel in arbitration hearings (other than as provided by collective bargaining agreements); the designation of the court in which to seek judicial relief; and the right to appeal judicial rulings relating to arbitration agreements or awards.

Pennsylvania is the only jurisdiction of the 49 which have adopted the UAA to divide the act into two subchapters. Subchapter A, 42 Pa.C.S. Sections 7302-7320, is referred to as statutory arbitration and generally follows the UAA as issued by the National Conference of Commissioners on Uniform State Laws. Subchapter B, 42 Pa.C.S. Section 7341, known as “common law arbitration,” is unique to Pennsylvania. It provides that where an arbitration clause fails to designate which subchapter applies, the default is common law arbitration the rules for which do not grant parties the right to counsel, do not require arbitrator disclosures, do not grant the right to be heard, present evidence or cross examine witnesses and do not even require a written arbitration award. Common law arbitration has also been construed to significantly limit the right to vacate an award. The Pennsylvania RUAA abolishes common law arbitration for arbitration agreements executed on or after July 1, 2019.

Although the enactment of the RUAA prospectively eliminates the bifurcated statutory and common law arbitration rules provided by the Pennsylvania version of the UAA, it nonetheless deviates from the recommendations of the Uniform Law Commission by applying the RUAA only to arbitration agreements executed on or after its effective date and does not apply to previously executed agreements.

Under the Pennsylvania RUAA, the practice of arbitration, as an alternative means to resolve disputes, should be more predictable, fair and efficient while protecting the interests of the parties to arbitration agreements.

Stephen G. Yusem is a past chair of the Pennsylvania Bar Association alternative dispute resolution committee and is an adjunct professor of law teaching Dispute Resolution at the Cornell University Law School.

Raymond P. Pepe is of counsel in the Harrisburg office of K&L Gates and has served since 1983 as a Pennsylvania delegate to the Uniform Law Commission.