Editor’s note: This article describes a hypothetical situation.
Bob says arbitration avoids “litigation procedures” that create delays and expenses. He puts his money where his mouth is: visitors to his office cannot miss a poster, directly above his desk, that proclaims, “The United States Arbitration Act establishes by statute the desirability of arbitration as an alternative to the complications of litigation. The reports of both Houses on that act stress the need for avoiding the delay and expense of litigation ….” a quotation from Wilko v. Swan, 346 U.S. 427, 431 (1953). What a cheerleader!
Luckily, oral arguments do not take place in Bob’s office where the judge or arbitrator can see Bob’s poster. This gives Bob the “wiggle room” he needed recently.
In an arbitration proceeding, the other side filed a summary judgment motion just a couple months after Bob filed his demand and before discovery was complete. The “motion for summary disposition” argued that the statute of limitations and the doctrine of res judicata each barred Bob’s client’s claims as a matter of law. Silly arguments, Bob thought, particularly because the arbitrator does not even have the power to consider a dispositive motion. But the argument evidently was not all that silly—the arbitrator granted the motion and dismissed Bob’s client’s arbitration demand. No evidentiary hearing, no more arbitration demand.
Bob then sought to vacate the adverse arbitration award. His straightforward argument:
- Section 10(a)(4) of the United States Arbitration Act (act) allows a court to vacate an arbitration award when the arbitrator exceeded his or her powers.
- The rules governing Bob’s arbitration proceeding did not permit a summary disposition.
- The arbitrator in Bob’s matter exceeded her powers by ruling on a dispositive motion without giving the parties their “right” to an evidentiary hearing.
- Ergo, the court must vacate the award.
The court rejected Bob’s argument. Why?
An arbitrator has the authority to adopt the procedures necessary to give effect to the parties’ arbitration agreement. “Procedural” questions growing out of the dispute and bearing on its final disposition “are presumptively … for an arbitrator to decide,” as in Stolt-Nielsen v. AnimalFeeds International, 559 U.S. 662, 685-86 (2010). The arbitrator decides these “procedural” questions by determining what the parties intended. How? By looking at the arbitration agreement.
Good news for Bob, right? After all, the arbitration agreement in his matter said nothing about summary dispositions, nothing about discovery, and nothing about “procedures.” Before we agree with Bob and conclude that the arbitration agreement did not authorize the arbitrator to consider a summary disposition, however, we must consider something Bob neglected to discuss in his motion to vacate: did the agreement refer to any arbitration rules?
This is not good news for Bob. Reason: the arbitration agreement invoked an arbitration provider’s rules; and these rules suggested, in an indirect way, that the arbitrator had authority to rule on a dispositive motion. Such indirection is enough.
In Weirton Medical Center v. Community Health Systems, 2017 U.S. Dist. LEXIS 203725 (N.D. W.Va. Dec. 12, 2017), for instance, the court denied the claimant’s motion to vacate an arbitration award the arbitrator entered by summary disposition. The arbitration agreement did not expressly permit summary disposition, but—reflecting the typical view that the court must defer to the discretion of the arbitrator—it did “not expressly prohibit it either. The agreement invokes the 2009 [American Arbitration Association] rules, which provide a set of procedural rules including requiring arbitrators to ‘take such steps as they may deem necessary or desirable to avoid delay and to achieve a just, speedy and cost-effective resolution of Large, Complex Commercial Cases.’” So an arbitrator could determine a dispositive motion even if the underlying arbitration agreement did not specifically authorize the arbitrator to do so.
The court in Weirton Medical Center relied on almost-10-year old AAA rules governing commercial disputes. No matter. These AAA rules have not changed. Even more importantly, Rule 33 of the current AAA rules in commercial cases unambiguously states, “The arbitrator may allow the filing of and make rulings upon a dispositive motion only if the arbitrator determines that the moving party has shown that the motion is likely to succeed and dispose of or narrow the issues in the case.” That is more than indirection.
Weirton is not an outlier. In Sherrock v. DaimlerChrysler Motors, 2008 U.S. App. LEXIS 282 (3d Cir. Oct. 26, 2008), the court also denied an arbitration claimant’s motion to vacate an arbitration award the arbitrator had entered by summary disposition. The U.S. Court of Appeals for the Third Circuit did not buy the claimant’s argument that either the AAA Commercial Arbitration Rules governing the dispute or the act required an evidentiary hearing:
Although the AAA Commercial Arbitration Rules do not specifically provide for motions for summary disposition, they do grant the arbitrator flexibility and discretion. Accordingly, federal courts have affirmed arbitration awards where the arbitrator ruled on a motion for summary judgment or on summary disposition. Moreover, except where prohibited by the plain and express terms of the submission, an arbitrator is empowered to grant any relief reasonably fitting and necessary to a final determination of the matter submitted to him, including legal and equitable relief.”
An arbitrator has wide latitude in making these procedural determinations: “We will decline to find the arbitrators’ decision to grant summary judgment irrational where they concluded no disputed facts were present and the disposition was based on legal doctrines that were resolved on written submission.”
Did Bob mess up, at the time of contract drafting, by invoking the “wrong” arbitration provider’s rules? Should he have invoked an arbitration provider’s rules that expressly bar summary dispositions? Maybe—although he better be careful about identifying the “correct” provider; many providers specifically authorize arbitrators to make summary dispositions. For instance, JAMS Rule 18 (“summary disposition of a claim or Issue”) provides: “The arbitrator may permit any Party to file a motion for summary disposition of a particular claim or issue, either by agreement of all interested parties or at the request of one party, provided other interested parties have reasonable notice to respond to the request.”
There was another solution. Bob could have tried to convince the other side to agree to prohibit all dispositive motions at the time of contract drafting. An arbitrator who considered a dispositive motion in the face of this “plain and express” ban surely would be acting outside the scope of the contractually delegated authority in the parties’ agreement. A court then would be hard pressed to conclude there was a reasonable basis in the parties’ agreement to decide a dispositive motion.
Preventing dispositive motions means the parties may have an evidentiary hearing “just to find out whether real issues surface in a case.” See Sherrock v. DaimlerChrysler Motors, 2008 U.S. App. LEXIS 282, at *13. But that solution is not the way “to avoid the delay and expense of litigation.” Time for Bob to take down the poster sitting above his desk?
Charles F. Forer independently provides arbitration, mediation and all other neutral services. He is a former chair of both the Philadelphia Bar Association’s alternative dispute resolution committee and fee disputes committee. He is a frequent lecturer and writer on the use of ADR in a variety of settings. Contact him at 610-999-5764 and email@example.com.