In 1962, just before the
Vietnam War began to escalate, the State of Arizona (which was smaller and less
busy than today) adopted the Uniform Arbitration Act, A.R.S. §12-1501-1518. The
UAA [1] had been conceived in 1956 and quickly adopted in
35 states in the Nation (and in substantially similar form in 14 more states).
For 45 years, the UAA provisions have controlled the arbitration of construction
disputes, business disputes, and the like, which are held under Arizona State
Statutes.
In 2001, the State Bar of
Arizona's Alternative Dispute Resolution Section began urging that Arizona adopt
the update to the UAA. The Revised Uniform Arbitration Act ("RUAA") had been
finalized by the Uniform Laws Commissioners (after three years of study) in 2000
and was slowly being adopted in states across the Nation. To this date, the RUAA
has been adopted in 14 states and 7 other states are in the process of adoption.
There are several reasons
why the ADR Section had to return to the Arizona Legislature eight out of nine
years since 2001 to obtain the enactment of this new legislation. In the past
decade, our Legislature has become very wary of adopting uniform laws. The State
Bar is viewed with suspicion by the legislators in many respects. The insurance
lobby was concerned about one or two provisions. Then, the banking lobby became
concerned about aspects of the RUAA. Finally, the 2008 - 2009 budget crises led
to a year hiatus in the ADR Section's pressing for the bill. However, due to a
compromise with the insurance and securities and banking sectors, the RUAA was
adopted in April 2010 by the Legislature and made part of our state's statutes
by the Governor's signature that month. The law will become effective on January
1, 2011, as explained below.
The new law will
"co-exist" with the old law, as the old law continues to apply in insurance /
securities / banking disputes. The new law is responsive to a number of trends
and modernizations of arbitration, which have occurred over the last 45 years,
as you will see below.
The new law will also
have to co-exist with the Federal Arbitration Act ("FAA") [2].
The FAA applies to essentially all arbitrations that impact in any way
interstate commerce. Unless parties act to make their arbitration subject to the
RUAA, the FAA will likely apply to any disputes. The provisions of the FAA
carefully deal with front-end rights (such as the right to have access to
arbitration) and with back-end issues (such as the right to vacate an award
procured by fraud). The FAA generally leaves the managing the process of
arbitration to state laws, so long as the state laws do not impede a federal
provision. So, if the FAA applies, there may still be scope for the RUAA to
apply, if the RUAA provisions as to the processing of an arbitration are not
inconsistent with the FAA.
The RUAA has been
endorsed by the American Bar Association's House of Delegates, the American
Arbitration Association, and the National Academy of Arbitrators.
Now, let's go to the
specifics as to how most arbitrations in Arizona (the ones subject to the
RUAA) will be regulated by our state statute after January 1, 2011.
II. THE "JUDICIALIZATION"
STRUGGLE SETS THE STAGE
During the 45 years that
have passed since Arizona adopted the UAA in 1965, the use of arbitration has
expanded throughout the United States. More issues and more disputes are being
submitted to arbitration each year, and more and more of those disputes involve
increasingly complex (and larger dollar) problems. At the same time, Arizona has
grown from a state economy based essentially on the six "C's" -- copper, cotton,
citrus, climate (tourism), construction and cattle -- to an Internet-age
economy. Now, computer chip manufacturing, bio-medical research, aircraft
manufacturing, and international trade in electronic devices dominate Arizona's
business climate in a way that they did not in 1962.
While the economy was
changing and arbitration was supplanting courthouse litigation, trends were
evolving concerning arbitration procedures. Discovery (depositions and document
disclosures), motion practice, lengthening hearings, interim and provisional
remedies, punitive damages, appellate review possibilities, arbitrator
disclosure, and subpoena powers were all being modified and addressed in rules
being adopted by organizations, such as the American Arbitration Association and
JAMS. These developments were arcing over our 1962 UAA state statutes on
arbitration -- and it was time for Arizona to deal with these new aspects of
arbitration. The struggle over these modern aspects of arbitration is one that
writers in the field have termed the attempted "judicialization" [3]
of arbitration.
In crafting the RUAA a
decade ago, the Uniform Laws Commissioners were going to have to "walk a line"
between adherents of the old theory (i.e., arbitration must be an informal,
speedy, cheap, quick process to resolve disputes, with no right of appeal)
versus those who seek to import into arbitration some of the due process
safeguards present in courthouse litigation in order to instill greater
confidence in arbitration, as it is used in increasingly complex cases. The
clash between informal, cost-effective versus more deliberate and thorough
process has occupied authors in the field of Social Policy for Arbitration for
the last two decades, at least.
III. THE
SEVEN KEY PROVISIONS IN THE NEW RUAA (AND FOUR FOOTNOTES)
In a 15-year-old opinion,
First Options of Chicago, Inc. vs. Kaplan, 514 U.S. 939, 115 S.Ct. 1920
(1994), the U.S. Supreme Court considered the FAA and stated that, unless the
contract of arbitration itself decides [4] the question,
when the arbitrability of a dispute is challenged, a court, not an arbitrator,
decides the question of whether the dispute is, in fact, one that is arbitrable,
as opposed to one that will be resolved in the courthouse. Only if the contract
clause directs such to occur will an arbitrator decide on arbitrability. Key in
all of this is that state statutes on arbitration are in a default position.
They are relevant only when the FAA does not apply. For the last decade,
the FAA has been seen as reaching into nearly every walk of life, since it
reaches every activity that bears upon interstate commerce.
State law only reaches a
dispute, such as a business dispute, when state law (i) is expressly made
applicable, and (ii) is not in conflict with the FAA. The Uniform Law
Commissioners attempted to fashion the RUAA in such a way that it did not
conflict with the FAA.
A. The First Key
Provision: Who Is Deciding Arbitrability? Courts Will!
In the Arizona version of
RUAA, §12-3006 (B) states that, when challenged, a court (not the arbitrator)
shall decide whether an agreement to arbitrate a particular dispute exists,
and whether a particular controversy is subject to a binding agreement for
arbitration. However, questions as to whether the binding agreement to arbitrate
is enforceable or whether a condition precedent to arbitration has been
fulfilled are expressly left to the arbitrator by the RUAA.
The upshot of this
important provision in the RUAA is to set up the process under the RUAA so that
cases will likely see more court involvement as to the question of arbitrability,
if arbitrability is challenged. There is some reason to believe that there may
be an attempt to revise this portion of the RUAA by our Legislature during 2011.
B. The Second Key
Provision: Non-Waivability
You may have thought, as
you read just above about the court deciding arbitrability, that it is not often
going to be an issue, as the AAA rules will just put the arbitrator back in the
position of deciding arbitrability. See AAA Commercial Rule No. 7. Unlike the
UAA, the RUAA has a prominently placed provision (§12-3004 (B)) which neuters
any such possibility. A.R.S. §12-3004 (B) says that many provisions of this new
state law cannot be waived in a contract clause by the parties. The non-waivable
provisions of the RUAA include:
-
§12-3006, regarding
who decides arbitrability;
-
§12-3008, regarding
the right of arbitrators to grant interim remedies, like temporary
restraining orders or prejudgment garnishments;
-
§12-3017, regarding
the right of the arbitrator to allow discovery, issue orders controlling
discovery, and issue subpoenas in state and out of state; and
-
§§12-3026, -3005 and
-2101, regarding the state's right to enforce arbitration awards in
§12-3005, its courts.
The purpose behind
labeling these requirements as non-waivable seems to have been to avoid the
problems created by powerful retailers, who were including in consumer contracts
arbitration clauses which incorporated waivers of fundamental rights, thereby
harming consumers. See Armendariz v. Foundation Health Psycare Services,
Inc., 24 Cal. 4th 83, 99 Cal Repts. 2nd 745, 6 P.3d 669 (2001).
C. The Third Key
Provision: Interim Remedies and Interim Awards
For the last 30 years,
debate has raged over whether arbitrators have the right under the UAA to issue
interim awards (before final award), whether an arbitrator can grant or order
attachments and garnishments, restraining orders, and (if it is done) how can
such orders be enforced?
A related question has
been, if a party goes to court to get a needed interim remedy, for example, to
enforce a Mechanic's Lien, does the party thereby waive and abandon the right to
go to arbitration?
In §12-3008, the RUAA
addresses this. It expressly provides that, in the period before an arbitrator
is first appointed (or after appointment, if there is some reason - practical or
legal - creating an impediment to a party getting speedy or adequate interim
relief), the party may go into court to get interim relief, and such
foray into the courthouse will not to be a waiver of the party's right to
arbitrate.
D. The
Fourth Key Provision: Disclosures By Arbitrators, Pre-Appointment and After
RUAA §12-3012 codifies
the results of over a decade of consumer litigation in California and other
states. Before accepting appointment, a selected arbitrator must make a
reasonable inquiry and disclose to all involved in the arbitration any known
facts that a reasonable person would view as likely to affect the impartiality
of the arbitrator in the proceedings. The obligation to disclose continues as
the arbitration proceeds, in the event that the arbitrator learns of such facts
when evidence or a witness, etc. is placed before him. Failure to disclose a
relationship with a party, a witness, an issue, etc. can be grounds for vacating
the award.
E. The
Fifth Key Provision: Discovery, Depositions, Motion Practice, etc.
An extensive (but
waivable) section of the RUAA, §12-3015, empowers the arbitrator to:
-
hold pre-evidentiary
hearing conferences, so as to reduce or focus the issues or the evidence
presentation, for example;
-
consider a Motion for
(partial or complete) Summary Judgment; and
-
rule out certain
hearing evidence.
These are all means by
which to shorten the time to get to an evidentiary hearing; to reduce the
expense of proceeding to hearing; and to reduce the expense of a hearing. As
part and parcel of these powers, the arbitrator can allow, under §12-3017,
depositions and discovery, enforce his discovery orders, grant protective
orders, and take other actions to make the arbitration hearing fair,
expeditious, and cost effective.
This is a step in the
direction of "judicializing" arbitration. It was hotly debated by the Uniform
Laws Commissioners and the theory was that this set of tools would permit
arbitrators to keep down the costs and lessen the delays in
getting to and through hearings.
A side-effect of this
move may be to reduce the use of non-lawyer arbitrators or to encourage
organizations to train more intensively those arbitrators who are not lawyers.
F. The Sixth Key
Provision: Attorneys' Fees and Punitive Damage Awards
These two clauses,
principally, sparked resistance to the adoption of the RUAA in Arizona, as the
insurance industry, the banking industry, and the securities industry all feared
that the provision of §12-3021 (B), which allows an arbitrator to award lawyers'
fees, for example, as if the arbitrator were a court under A.R.S. §12-341.01
(regarding contract claims), or §33-420 (false liens), or §33-998 (attorneys'
fees related to mechanics' liens) would hurt the industry. In addition, for
years, judges and authors have debated whether an arbitrator could award
exemplary (punitive) damages under the UAA. RUAA §12-3021 (F) now resolves that
question by allowing such punitive damage awards, if law and fact findings are
made, showing that punitive damages were allowable by a court. This is another
feature of the RUAA that may require less use of, or more training for,
non-lawyer arbitrators.
G. The
Seventh Key Provision: Subpoenas
For years under the UAA,
a disadvantage inherent in taking matters into arbitration (rather than to the
courthouse) has been that subpoenas issued under the UAA by arbitrators were
only operable inside Arizona, and only for the purposes of bringing a
witness and his documents to the evidentiary hearing. It is expressly
stated in §12-3017 (D) and (F) that, an arbitrator can issue subpoenas and
Subpoenas Duces Tecum for depositions and enforce those subpoenas.
Better yet, ending a
controversy (and a huge practical problem), §12-3017 (G) permits an arbitrator
in an Arizona arbitration under the RUAA, to issue a subpoena to an out-of-state
witness to attend a deposition there and to bring records to that deposition. In
the event that the distant witness fails to comply, a party in the Arizona
arbitration may go to a court and get the court to enforce the arbitrator's
subpoena, subject to the court's setting conditions to make the Arizona
arbitration fair, expeditious, and cost-effective.
This feature makes
feasible the use of RUAA arbitration in multi-state disputes, something that
used to present a host of legal and practical problems.
H. Four
Footnotes and Caveats
Many of the features of
the UAA are, in effect, kept in place by the RUAA, such as the obligations of
impartiality, the process for initiating an arbitration, the limited five
channels through which any award can be attacked, the correction of an erroneous
award by the arbitrator, the ability of the parties working with the arbitrator
to sculpt the procedures to be used in arbitration, as long as due process is
assured, etc. In the RUAA, there are included some new provisions providing for
a form of judicial immunity for arbitrators.
First, what is odd is
that we will now have two separate statutes in Arizona governing arbitrations!
The old UAA continues in effect for the categories of disputes that are excluded
from the RUAA:
-
banking disputes
between a national banking association or federal savings association and
the customers;
-
disputes related to
insurance contracts; and
-
arbitrations
involving certain securities and commodities acts.
It will be interesting to
see if, in two or three years, some of these industries will want to see the
RUAA (instead of the UAA) apply to these sorts of disputes.
Second, I have written
elsewhere before, there is a struggle between forces seeking to turn arbitration
into "arbigation;" forces seeking to over-judicialize arbitration. Even under
the RUAA, the arbitrator has great discretion in allowing motion practice or
discovery games to take over the arbitration. Clients and practitioners will
need to be educated to evaluate the arbitrators whom they select by rating the
arbitrators on a continuum of "hostile to discovery and motion games" to "too
easy on allowing discovery and motions."
Third, the airwaves and
e-mail servers are full of the news of E-Discovery these days. Every lawyer is
studying Rule 26.1 (a)(9) of the Rules of Civil Procedure, and the costs of
electronic discovery are soaring. A.R.S. §12-3017 (C) and (E) permit an
arbitrator to fashion novel and cost-effective ways of dealing with electronic
evidence, e-mails, text messages, and the like. This feature of the RUAA may
militate in favor of using computer-savvy arbitrators or training arbitrators in
E-Discovery, now that such discovery is becoming more common in litigation and
in arbitrations under the RUAA.
Fourth and finally, there
is likely to be some friction or slippage along two fault lines. Exactly how the
RUAA interfaces with the FAA and how the RUAA interfaces with contract clauses
incorporating rules like the AAA Commercial and Construction Rules may provide
practitioners the opportunity to make some small caliper adjustments as time
goes on.
For now, we are on the
cusp of new procedures for the great majority of the commercial and construction
arbitrations that will be handled in Arizona concerning the garden-variety
commercial and construction business problems with which our community grapples.
■
[1]
The Uniform Act, the UAA, had first been created in 1956 by the National
Conference of Commissioners on Uniform Laws.
[3]
Stipanowich, Arbitration and Choice: Taking Charge of the 'New
Litigation?" 7 DePaul Business & Commercial Law Journal. 401
(6/30/09); and Stipanowich,
Arbitration, the 'New Litigation' 2010 Univ. of Illinois Law Review,
1 (1/11/10)
[4]
For this reason, many arbitration providers then inserted in their rules
(to be incorporated in contracts) a provision that the arbitrator was
empowered to decide questions of arbitrability. See AAA Commercial Rule
No. 7 (6/01/09).
These materials
are designed to provide general information prepared by professionals in regard
to the subject matter covered. It is provided with the understanding that the
author is not engaged in rendering legal, accounting, or other professional
service. Although prepared by professionals, these materials should not be
utilized as a substitute for professional service in specific situations. If
legal advice or other expert assistance is required, the service of a
professional should be sought.
