“Remedies for Nonpayment” Rules Create New Challenges for Arbitrators
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Doing justice and finding in favor of the aggrieved party are among the paramount goals of an arbitrator. Of equal and absolute consequence to the American Arbitration Association (AAA) is the sustainability of the arbitral award, which regularly monitors and revises its rules with that paramount goal.
According to the AAA, the recent promulgation of Construction Industry Rule (CIR) 56 and Commercial Rule (CR) 57—captioned “Remedies for Nonpayment” and effected June 1st, 2010, and October 1st, 2013, respectively—was made following a vigorous confab regarding a unique predicament arbitrators face when confronted with a nonpaying party in ADR.
Following extensive focus group and Board of Director discussions, including that of the New York case, Coty Inc. v. Anchor Const. Inc., 601499-02, 2003 WL 139551 (N.Y. Sup. Ct. Jan. 8, 2003) aff’d, 7 A.D.3d 438, 776 N.Y.S.2d 795 (N.Y. App. Div. 2004), the AAA determined its former rules failed aggrieved parties who were faced with nonpaying respondents, namely because:
Pursuant to R-54 of the Construction Rules in effect through June 1, 2010, “[I]f arbitrator compensation or administrative charges have not been paid in full, the administrator may so inform the parties in order that one of them may advance the required payment. If such payments are not made, the arbitrator may order the suspension or termination of the proceedings . . .”; and
Pursuant to R-51, paragraph 3, “[A]ny arrangement for the compensation of a neutral arbitrator shall be made through the AAA and not directly between the parties and the arbitrator.”
Essentially, the former AAA rules of arbitration forced an aggrieved party to either (a) endure the full costs of arbitration itself, or (b) potentially see its judgment delayed, or its cause of action completely dismissed, for failure to compensate the arbitration panel. There simply was no alternative. The panel in Coty drew the ire of the courts for permitting arbitration to continue for the paying petitioner. The Coty panel’s award was vacated on a finding of arbitral misconduct.
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