The American Arbitration Association and International Centre for Dispute Resolution issue rules allowing parties to appeal the merits of an arbitral award

November 15, 2013

International Arbitration alert

Author(s): Harry P. Trueheart, Christopher M. Mason

Drafters of arbitration agreements must be aware of new American Arbitration Association (AAA) and International Centre for Dispute Resolution (ICDR) rules that enable them to agree to an appeals process. Parties will most likely choose to agree to the appeals process in their underlying contract.

Parties entering arbitration agreements, domestic or international, must bear in mind that by choosing arbitration, they agree to forego the right to appeal an adverse decision on the merits. The Federal Arbitration Act and New York Convention prohibit courts from “reversing” awards on the basis that the arbitrators were incorrect on the facts or law, and limit a court’s review to procedural, due process-type challenges.[1] The policy rationale for this is to foster finality in arbitration, and to prevent courts from interfering in the dispute resolution mechanism to which the parties agreed. However, drafters of arbitration clauses must keep this in mind—a party receiving a large adverse award in an arbitration should not learn then for the first time that it cannot appeal the award on the merits.

Practitioners need now also be aware that the AAA and its international arm, the ICDR, have released new rules that allow parties to agree to an appeals process. To be available, all parties must agree to this option. If it is not included in a contractual arbitration clause, parties may stipulate to submit a dispute to appeal. Interested parties should consider seeking a stipulation far in advance of any potential dispute. Post-award, the losing party will be unlikely to avail itself of appeal.[2]

Under these new rules, the appeal is to a new panel of arbitrators, selected by the parties and the AAA, not to a court. The standard of review a court may apply to arbitration awards under the Federal Arbitration Act and New York Convention remains the same. In that respect, however, it remains to be seen to what extent courts’ review and enforcement of appellate arbitral awards will be complicated.

There has been movement toward review of an arbitration award in other contexts. For example, under the Wireless Industry Arbitration Rules optional review procedure, parties may agree to submit awards for review by a new arbitrator.[3] The review arbitrator may affirm or issue a new award considering the same claims as the original award. The International Institute for Conflict Prevention & Resolution (CPR) also provides for optional appellate review of awards.[4]

The AAA has stated that the Optional Appellate Rules provide for a standard of review “similar to the standard applied by an appellate court when reviewing a trial court’s decision.”[5] The appellate tribunal may vacate or modify an award if it is based on errors of law that are material and prejudicial, or on determinations of fact that are clearly erroneous. The appellate tribunal may also request additional information from the parties in order to render its decision.

While the AAA projects that an arbitral appeal could take less than three months, Nixon Peabody arbitration practitioners are highly skeptical, and project that the process will likely take many months to a year or more to complete.[6] Hence, while the process does afford potential relief from an award that is wrong as a factual or legal matter, it will also lead to delays in the finality of awards.

There are potential benefits and detriments to the process. It is vital that drafters of arbitration clauses are aware of this option, and decide whether to include it or not.

  1. See FAA, 18. U.S.C. § 10; New York Convention, Art. V.

    Some courts have created a “manifest disregard of the law” ground for vacating awards, but it is extreme, and that standard is in doubt. See e.g., Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) (holding that state and federal courts cannot expand the limited scope of judicial review under the FAA even if parties agree to allow a court to review an arbitrator’s decision on the merits); see also Med. Shoppe Int’l Inc. v. Turner Invs., Inc., 614 F.3d 485 (8th Cir. (Mo.) 2010) (holding that, under Hall Street, a court may only vacate an award for the reasons enumerated in the FAA, and even “manifest disregard” for the law is not a sufficient ground to vacate an arbitration award).
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  2. Technically, the parties can agree to the appeal after an award is rendered. However, the frequency in which winning parties will agree to it at that time will roughly equate to the frequency people clean and wax rental cars.
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  3. See AAA Wireless Industry Arbitration Rules, published October 2005 (drafted by Nixon Peabody partner, Christopher M. Mason, and Elizabeth Stong, Judge in the United States Bankruptcy Court, Eastern District of New York), available here.


    The parties may provide by prior agreement for the review of any award. Such review shall be initiated by written notice to the AAA within thirty (30) days after the award is issued. The review will be conducted by a new arbitrator selected in the same manner as the initial arbitrator, subject to any conditions to which the parties have agreed. The review arbitrator may not consider any new or different claims, but may review the original award to the same extent as the original arbitrator. The review arbitrator may either hold hearings or not, and may either confirm the original award or issue a new award, neither of which will be reviewable by any other arbitrator.
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  4. CPR Arbitration Appeal Procedure and Commentary, available here.
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  5. See AAA’s New Optional Appellate Arbitration Rules.
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  6. AAA comments on the Optional Appellate Arbitration Rules, available here.
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The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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