Over the summer, the American Arbitration Association (AAA) revised the Construction Industry Arbitration Rules and Mediation Procedures. Some changes are rather modest, while others will have a great impact on construction contract disputes. Whether they effect your contract or not is determined by the language of your contract. Even if your contract was agreed upon before these revisions, the contract may still call for you to follow the rules in effect at the time the dispute arose rather than when the contract was formed. All construction parties should familiarize themselves with these new rules. These revisions could have a great affect on your lien rights.
Filling In Rule R-7: Joinders
There are no teeth to this purported requirement. Rule R-7 was originally a rather vague provision. It did not provide any sort of guidelines for timing concerning requests for joinders and responses to requests. The AAA revised this rule to mandate that a request for a joinder must be submitted before a Merit Arbitrator has been selected or 90 days before the AAA determines all filing requirements have been met, whichever is later. The revision also requires a response to the request within 10 to 14 days, respectively, of the AAA receiving notice of such request. Failure to object to the request waives any objections. The new rule also allows the AAA to stay any arbitration due to the request for a joinder. These revisions are rather modest and intend to essentially fill in the gaps of the original rule.
New Rule R-10: Mandatory Mediation (Sort Of)
Originally, Rule R-10 was a hollow rule stating that mediation was an option if both sides agreed to mediate. Essentially saying, “we’re here if you need us, but you can completely ignore us if you want.” Now, the revision creates a whole new rule that mandates mediation in arbitration cases that amount to over $100,000. It sounds intimidating, but read more closely. There is an opt-out provision in the new rule that only requires a party to give notice to the AAA and other parties involved in order to opt out of the mandatory mediation. Still, if your arbitration agreement mandates mediation, you cannot opt out. In the end, the revision is an added hoop to jump through and another provision to read.
Rule R-23: From Mandatory to Discretionary
Rule R-23 concerns preliminary hearings and the topics to be discussed during these hearings. Originally, preliminary hearings were mandated by Rule R-23, but the revisions now leave it up to the discretion of the arbitrator to decide whether a preliminary hearing will be held or not and the timing of that hearing. Concerning the subject matter of the hearing, the new rule states
At the preliminary hearing, the parties and the arbitrator should be prepared to discuss and establish a procedure for the conduct of the arbitration that is appropriate to achieve a fair, efficient, and economical resolution of the dispute. Sections P-1 and P-2 of these rules address the issues to be considered at the preliminary hearing.
Section P-1 is more of a guideline focusing on the purpose of the hearing. Section P-2 presents a very specific list of topics to be discussed. That being said, the new rule gives a lot more leeway for arbitrators to control these preliminary hearings and what is discussed at them.
Expanding Arbitrators Power in Rule R-24
The revision of Rule R-24 expands the arbitrators power to control “exchange of information among parties.” The old rule allowed for arbitrators to direct and resolve disputes arising out of the process of exchanging information. Now, the arbitrator is free to
i. require the parties to exchange documents in their possession or custody on which they intend to rely;
ii. require the parties to update their exchanges of the documents on which they intend to rely as such documents become known to them;
iii. require the parties, in response to reasonable document requests, to make available to the other party documents, in the responding party’s possession or custody, not otherwise readily available to the party seeking the documents, reasonably believed by the party seeking the documents to exist and to be relevant and material to the outcome of disputed issues; and
iv. require the parties, when documents to be exchanged or produced are maintained in electronic form, to make such documents available in the form most convenient and economical for the party in possession of such documents, unless the arbitrator determines that there is good cause for requiring the documents to be produced in a different form. The parties should attempt to agree in advance upon, and the arbitrator may determine, reasonable search parameters to balance the need for production of electronically stored documents relevant and material to the outcome of disputed issues against the cost of locating and producing them.
This revision can turn exchanging information and documents during arbitration into a more discovery type process found in normal litigation. The reason I say “can” is because none of this is required of the arbitrator. The rule specifically says the arbitrator “may require.” In a practical sense, this new rule makes the process of choosing the right arbitrator that much more important.
Rule R-25 and R-60: The Bite Behind the Bark
The arbitrator shall have the authority to issue any orders necessary to enforce the provisions of rules R-23 and R-24 and to otherwise achieve a fair, efficient and economical resolution of the case.Rule R-25 is a new rule proposed to allow arbitrators to enforce Rules R-23 and 24. Rule R-25 allows arbitrators to issue orders “without limitation” to enforce these two rules. The outcome of this is simple. Not only do arbitrators have the legal authority, they now have the muscle to back it up. The rule does not limit the power just to this rule either. The provision states arbitrators are still allowed to issue “any other enforcement orders which the arbitrator is empowered to issue under applicable law.” This certainly does not mean the arbitrator is now Oz the all powerful, but it is a fact to keep in the back of your head when dealing with arbitrators. They can make life very difficult for you.
Even more expansive is Rule R-60. This new rule gives the arbitrator power to enforce the entirety of the rules by imposing sanctions on parties that do not comply. The rule allows the arbitrator to limit the non-complying parties participation in the arbitration or result in an adverse determination on an issue or issues. The new provision does not, however, allow an arbitrator to hand down a default award adversely to the non-complying party. This rule further gives arbitrators the muscle to enforce these rules and control the process.
Getting Picky in Rule R-34
This new rule exemplifies what arbitration is all about: offering an efficient and less expensive alternative to litigation. Rule R-34 allows arbitrators to dispose of part or all of the claim submitted upon written application. The arbitrator may also narrow the issues of the case. Although this rule expands arbitrators’ power, the real goal is very much inline with the reasoning behind arbitration. The rule gives the arbitrator the power to get to the meat and potatoes of the case. Of course, leaving the decision up to an arbitrator what the meat and potatoes are can be a bit daunting depending on what side your are on.
Rule R-39 Just In Case of Emergencies
Rule R-39 creates a new expedited arbitration process that will most likely apply to mid-project disputes. The rule allows for parties to call upon the AAA to appoint an emergency arbitrator within one day of request. The emergency arbitrator shall then conduct an expedited process while still allowing each party fair time to present their side. There is recourse for decisions by emergency arbitrator that a party has a dispute with, but this process is a good way to settle a dispute in an extremely quick way. Disputes in the construction industry can hold a project up and affect every party involved. This new emergency arbitration provision can be very beneficial to all construction parties by expediting mid-project disputes.
How Does It Affect You?
These eight changes highlight the major revisions and additions to the Construction Industry Arbitration Rules and Mediation Procedures. There are other minor changes that all construction parties should familiarize themselves with. These rules are essential to construction parties such as ones in Utah, where a new amendment passed this year basically mandating arbitration. Chapter 558 of the Florida Code requires an alternative dispute resolution for construction defect disputes. New Jersey mechanics lien law requires an arbitration process to determine the value of the lien for residential construction projects. The point is sometimes arbitration is unavoidable. Even if your state laws do not mandate alternative dispute resolutions, arbitration and meditation clauses are rather common in construction contracts. Because you will run into these clauses throughout the construction industry, it is important to understand the rules for arbitration and mediation. These revisions can greatly affect your mechanics lien rights, contract disputes, and other legal disputes that may arise during a construction project.