Arbitration FAQs

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Answer:  No.  Empirical evidence has shown that this prevalent myth about arbitration is not true.  An American Arbitration study, no longer available online, of large claim business to business commercial cases awarded in 2015 shows that more than 93% of such awards clearly favored one party.  31% of such awards denied the claim outright (strong respondent win), and 41% awarded 81% or more of the amount sought by the claimant (strong claimant win).  In only 6% of the cases was the award between 41% and 60% of the amount sought by the claimant.  American Arbitration Association studies, also no longer available online, of cases awarded in 2012, 2010, and 2005 similarly showed that arbitrators do not "split the baby" -- instead, awards are typically decisively in favor of one party or the other.  

Answer:  For arbitrations governed by the FAA, maybe.  The federal circuits are split on this issue.  Some circuits, including the Fifth Circuit, have held that manifest disregard of the law is no longer available to challenge an arbitration award following the Supreme Court decision in Hall Street Associates, L.L.C. v. Mattel, 552 U.S. 576, 585 (2008).  Citigroup Global Mkts. Inc. v. Bacon, 562 F.3d 349, 355-58 (5th Cir. 2009).  Other circuits have disagreed, holding that manifest disregard of the law is still available as a judicial gloss on the challenge grounds set forth in section 10 of the Federal Arbitration Act.  In Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671 n.3 (2010), the Supreme Court recognized this conflict in the circuits, but declined to resolve it.
 
For arbitrations governed by the TAA, the answer is no.  In 2016, the Texas Supreme Court held that under the TAA the grounds for vacatur enumerated in the statute are exclusive and manifest disregard of the law is no longer available as a vacatur ground.  Hoskins v. Hoskins, 497 S.W.3d 490 (Tex. 2016).

Answer:  It depends.  An AAA study titled One May Be Enough (no longer available online) indicates that there are substantial arbitrator compensation cost and time to award benefits from using a single arbitrator versus a three person panel.  On the other hand, many believe that a three person panel provides benefits not available with a single arbitrator, such as collaborative decision making.  Under the AAA’s Procedures for Large, Complex Commercial Disputes, absent a different agreement of the parties, and subject to a financial hardship exception, a three person panel is assembled for claims of $1 million or more; a single arbitrator decides claims of less than $1 million.  The parties, however, can always agree on a number of arbitrators.

Answer:  The United States Supreme Court has held that if the validity challenge is to the contract as a whole, the arbitrator decides the challenge.  On the other hand, if a party specifically challenges the validity of the agreement to arbitrate, a court should decide the challenge.  Nitro-Lift Techs., L.L.C. v. Howard, 568 U.S. 17 (2012); Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 69-73 (2010); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967).  The rules of the American Arbitration Association are in accord:  “The arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part.” AAA Commercial Arbitration Rule R-7(b).

Answer:  AAA Commercial Arbitration Rule R-47(a) provides that an arbitrator “may grant any remedy or relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties.”  There is nothing in the AAA rules that says an arbitrator must follow the law.  Most agreements that contain an arbitration clause, however, also contain a choice of law provision saying that disputes concerning the agreement shall be decided in accord with the substantive law of a particular jurisdiction, and arbitrators will ordinarily honor such a choice of law provision by applying the substantive law of the chosen jurisdiction.

Answer:  Ordinarily not.  For example, AAA Commercial Arbitration Rule R-34(a) provides:  “Conformity to legal rules of evidence shall not be necessary.”  Under the AAA rules, however, arbitrators are required to honor legal privileges, such as the privilege for confidential attorney-client communications, and may exclude evidence that is “cumulative or irrelevant.”  R-34(b), (c).  In practice, when fairness requires, some arbitrators exclude unreliable evidence, such as hearsay in situations where the offering party could have obtained the evidence in a manner (such as a pre-hearing deposition) that would have afforded the opposing party the opportunity to cross-examine the declarant, but did not do so.

Answer:  The Federal Arbitration Act applies if the contract containing the arbitration clause affects interstate commerce. The state arbitration act applies if the agreement has significant Texas contacts (for example, the agreement was made in Texas by Texas parties).  When both acts apply to a particular arbitration agreement and dispute, and the relevant provisions of the FAA and the TAA conflict, the court should engage in a preemption analysis to determine if the relevant FAA provision displaces the conflicting TAA provision.  For an example of such a preemption analysis, see Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex. 2011).

Answer:  The rules of evidence ordinarily do not apply.  Arbitrators may receive and consider written statements of witnesses (e.g., AAA Commercial Arbitration Rule R-35(a)), which are not admissible in a jury trial because of the hearsay rule.  Experienced arbitrators, rather than lay jurors, decide disputed issues of fact.  And because there is no jury, there is no jury selection, no jury charge, and no motions for judgment as a matter of law.

Answer:  According a 2007 study of the American Arbitration Association (no longer available online), the median time to final award for moderate sized arbitration cases ($75,000 to $500,000) was 9.9 months from filing of the demand and just six months from the preliminary hearing.  More recent statistics (also no longer available online) indicate that for the year 2008 the median time for completion of domestic, commercial arbitration cases was just 7.9 months.

Answer:  Through the courts. Both the Federal and Texas Arbitration Acts allow a party to move in court for a judgment confirming an arbitration award.  Once such a judgment is entered, it is enforceable in the same manner that any other court judgment is enforceable.

Answer:  At a minimum, an arbitration provision should provide for final and binding arbitration, enforceable in court, and administered by a particular association, such as the American Arbitration, pursuant to an identified set of rules, such as the AAA’s Commercial Arbitration Rules.  An arbitration provision may also identify the location of the arbitration; provide for a schedule; precisely define the disputes required to be arbitrated; address the number, selection, qualifications, and neutrality (or not) of the arbitrators; create a pre-arbitration dispute resolution procedure, such as mediation or mandatory settlement discussions; provide for limits on discovery; address the recoverability of attorneys’ fees and particular types of damages, such as punitive damages; and identify the governing substantive law.  The AAA has published an online tool, ClauseBuilder, that facilitates the drafting of custom arbitration agreements.  With this tool, a user can begin with the standard AAA clause for commercial disputes and then modify the standard clause by selecting options offered relating to fourteen different arbitration parameters.  The AAA ClauseBuilder tool can be found here.

Answer:  Under both the Federal and Texas Arbitration Acts, arbitrators have the power, enforceable through the courts, to subpoena witnesses to attend the hearing and produce documents at the hearing.  Federal decisions conflict over whether the FAA authorizes an arbitrator to subpoena a third-party witness for a pre-hearing deposition or document production.  The TAA expressly gives an arbitrator the power to subpoena a third-party witness for a pre-hearing deposition, at least if the witness is unable to attend the hearing.

Answer:  Very little.  Most arbitration agreements provide for final and binding arbitration (there would be little reason to incur the expense of arbitration for a non-binding award), and there is no appeal from a final award.  An arbitrator cannot second guess the substance of his or her award and can typically modify the award only for clerical or arithmetic errors.  AAA Commercial Arbitration Rule R-50.  Under the Federal and Texas Arbitration Acts, recourse from an award in the courts is limited to extraordinary situations, such as fraud or corruption of the arbitrator.

Answer:  In baseball arbitration, the claimant and respondent provide the arbitrator and each other with a proposed monetary award.  After hearing evidence, the arbitrator is limited to selecting one of the two awards proposed by the parties.  The principal perceived benefit of baseball arbitration is that it incentivizes the parties to be very reasonable in their proposed award positions (an extreme position is not likely to be accepted by the arbitrator), which may lead to a negotiated settlement.  In a variant, night baseball, the arbitrator is not told of the competing award positions.  The arbitrator renders an award as in any other arbitration.  The party position closest to the arbitrator’s award becomes the final award.

Answer:  It depends.  If the parties have agreed upon a method for arbitrator selection, the agreement controls.  Absent agreement, the selected rules will govern.  Under a typical method, the administering organization provides the parties with a slate of candidates from a roster or panel of arbitrators maintained by the organization.  The parties strike candidates they deem objectionable and number the remaining candidates based on preference.  The organization then selects the arbitrator most preferred by both parties from among the candidates not stricken.  E.g., AAA Commercial Arbitration Rule R-12(a), (b).  

Answer:  No.  Courts uniformly hold that if a party is aware of undisclosed information that calls an arbitrator’s fitness to serve into question and does not object to the arbitrator before the final award, the objection is waived.  Consistent with this case law, AAA Commercial Arbitration Rule R-17 provides that the duty to disclose applies to parties as well as to the arbitrator and states that “[f]ailure on the part of a party . . . to comply with this rule may result in the waiver of the right to object to an arbitrator . . . .”  

Answer:  Maybe.  AAA Commercial Rule R-33 provides that an arbitrator may allow the filing of, and may rule 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."   

Answer:  No.  With a jury waiver agreement, fact issues underlying your dispute will be decided by a legal professional (a trial court judge) instead of lay jurors.  But you will still be burdened by the inefficiencies of civil litigation (for example, extensive document and deposition discovery, motion practice, and perhaps a long wait for trial), the trial court decision will not be final (but instead, subject to appeal), and the proceeding will not be confidential (but instead, open to public scrutiny).

Answer:  If you can obtain venue in state district court in Texas, maybe.  Texas Rule of Civil Procedure 202 allows a Texas district court, in response to a verified petition, to authorize the taking of depositions for the purpose of investigating a potential claim provided the court makes certain findings required by the rule.  In Patton Boggs LLP v. Moseley, 394 S.W.3d 565 (Tex. App. -- Dallas 2011, no pet.), the Dallas Court of Appeals held that a district court considering a Rule 202 petition lacked jurisdiction to grant a motion to compel arbitration and stay even though the claim that the petitioner sought to investigate would be subject to an arbitration agreement.  Although the Dallas court overturned the district court's order allowing Rule 202 depositions, it did so only because the district court did not make the findings required by the rule.  The Dallas court's opinion suggests that a party can use Rule 202 to obtain court ordered depositions (and perhaps accompanying document production) to investigate a claim that, once asserted, would be subject to arbitration. 

Answer:  Yes.  In AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the Supreme Court approved consumer arbitration agreements that disallow class arbitration, holding that the FAA preempted a California rule that would invalidate such agreements as unconscionable.  The Court said that states can impose some limitations on the enforceability of such agreements, such as requiring that class-action waiver provisions be highlighted.  Subject to such limitations, Concepcion theoretically provides companies who serve large numbers of consumers in small dollar transactions with the ability to negate consumer access to class action treatment through the use of mandatory arbitration provisions that disallow class arbitration.