Pending Construction Arbitration Rules Changes. The AAA and NCDRC are considering some changes to the Construction Arbitration Rule, including the following possible changes:

1. Raising the threshold for Large Complex cases to $1,000,000.

2. Expressly permitting the parties to elect to use any track of the rules.

3. Modification of the R-7 consolidation rules.

4. Describing items that arbitrators might cover in preliminary telephone hearings.

5. Discouraging exceptions to the no-discovery rule.

6. Allowing the arbitrator to overrule party agreements on extension of time.

7. Adding remedies for non-payment.

8. Requiring that at least one member of a three-member panel be a construction lawyer and another be an industry professional, unless the parties agree otherwise.

The revised rules are expected to be finalized and published on the AAA website before July 1. The AAA expects to annotate the new Rules with links to explanatory and "how to" material that will be of help to users of the Rules.

Continuing Concerns. The AAA continues to be concerned about the impact of discovery on arbitrations and about increasing the use of industry professionals (non-lawyers) on panels. They also plan to review the qualifications of each of the 1900 members of their Construction Arbitration Panel.

Generally, while the AAA experienced a financial loss last year, it was the result of investment losses (join the club) and not operations. Arbitration filings have generally remained steady, and mediation filings have increased.

That 91% of 2007 American Arbitration Association (AAA) construction arbitration awards involving cases with only one claim were outside the mid-range of the parties' claims? This is similar to arbitral award trends in the past two decades, and debunks the myth that arbitrators "split the baby."

The AAA analyzed 2007 construction arbitration awards with only one claim, which means no counterclaim was filed. Statistics showed that out of 574 cases analyzed, only 9% (54 cases) were awarded in the mid-range, or "split" down the middle (41% to 60%).

Of 247 cases, 43% were awarded more than 80% of the claims. At the other end of the spectrum, the claims of 13% (73 cases) were totally denied. This shows that in spite of common misperceptions, arbitrators do not divide monetary awards down the middle. The AAA has conducted similar research in the past 20 years, and each year, the research has yielded similar results.

Here are the results of the analysis of the 2007 construction arbitration awards with only one claim:

The technical requirements of arbitration demands are governed by statute, RCW 7.04A.090. The statute provides that a party initiating an arbitration must give the notice in accordance with the parties' agreement. If there is none, the notice must be sent via certified or registered mail, return receipt requested and obtained, or by service authorized for initiation of a lawsuit (i.e. via process server). The notice must describe the nature of the controversy and the remedies sought. In this case, the developer, Westcott Homes, LLC, sought to initiate an arbitration against homeowners, the Chamnesses. Westcott requested arbitration by email stating that "Westcott is going to want to proceed to arbitrate this dispute between it and the Chamnesses." The email notice did not describe the nature of the controversy or the remedies sought by Westcott. The Court of Appeals held that the email notice did not satisfy the statute, and dismissed Westcott's claim because it did not timely initiate arbitration within the period specified in the parties' agreement.

The lesson to attorneys and clients is that although arbitrations are a less formal procedure for dispute resolution, specificity and proper service is nonetheless required for arbitration demands. It is recommended that you consult an attorney before demanding arbitration.

The Court of Appeals held that the award could not be modified absent an evident mathmatical miscalculation or error of law on the face of the arbitration award.  Powell failed to establish either and the Court denied Powell's request to modify the award.

 

Fluor Daniel, Inc. and the Department of Corrections ("DOC") entered into a contract for the development of the Stafford Creek Corrections Center. A lawsuit arose between Fluor and the DOC. The parties agreed to stay the litigation and submit their remaining disputes to binding arbitration. On January 18, 2005, the arbitrator issued his decision that Fluor was entitled to payment of approximately $6 million. Three days later, Fluor moved for an order confirming the arbitration award and for entry of judgment. Fluor characterized the arbitrator's award as a liquidated sum, and asked for prejudgment interest from the date of the arbitrator's award. The Superior Court granted Fluor's motion on February 8, 2005, and awarded prejudgment interest dating back to January 18. The DOC appealed. The Court of Appeals reversed.

An arbitration award is not the same thing as a final judgment of a court. The Court reached this conclusion primarily because Washington's statutory scheme for arbitration, RCW 7.04, provides an elaborate process for the confirmation, vacation, correction, or modification of an arbitration award in court and for the entry of a judgment which conforms with the Court's final determination. The Court determined that the Legislature did not consider an arbitration award to be the equivalent of a final judgment of a court from which interest may run. RCW 4.56.110(4). The Court determined that an arbitrator's award is more analogous to a jury verdict. Significant to the Court's decision was that Fluor and the DOC agreed the damages awarded by the arbitrator were unliquidated, and Fluor did not seek prejudgment interest for the period prior to the arbitration award.

The points below summarize some of the key provisions in the new law.

1. Nonwaivable Provisions The right to apply for judicial relief by motion. The right to arbitrate pursuant to an arbitration agreement, except upon a ground that exists in law or in equity for revocation of the arbitration contract. The right to seek provisional remedies in court before an arbitrator is appointed and is authorized and able to act, or after an arbitrator is appointed and is authorized and able to act, if the matter is urgent. The right of an arbitrator to issue subpoenas for the attendance of a witness and for the production of records and to permit a deposition of any witness. The jurisdiction of the court to enforce an agreement to arbitrate and that an agreement to arbitrate confers exclusive jurisdiction on the court to enter judgment on an award. The right to appeal a court order denying a motion to compel arbitration, granting a motion to stay arbitration, confirming or denying confirmation of an award, modifying or correcting an award, vacating an award without directing a rehearing, or a final judgment on an arbitration award. Unreasonably restricting the required disclosure of facts by a neutral arbitrator. The right of a party to be represented by a lawyer at any proceeding. The effective date provisions of the Act. A person's right to compel or stay arbitration. The immunity of an arbitrator. A party's obligations to timely serve objections to a motion to modify or correct an award or for the court to submit a motion to it to modify or correct an award to the arbitrator to consider whether to modify or correct the award. A party's right to have the court confirm an arbitration award. A party's right to vacate an arbitration award under the terms of the Act. A party's right for modification or correction of an award under the Act. A party's right to obtain a judgment on an award.

2. Waivable Issues The right of a court to decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate. Note that AAA Construction Industry Arbitration Rule 8 provides the arbitrator the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement.

3. Provisional Remedies. Provisional remedies are expressly included whereby a party may obtain relief both in court and before an arbitrator. These include injunctive relief.

4. Consolidation of Arbitration Proceedings. Consolidation is expressly allowed assuming there are separate agreements to arbitrate and the claims arise in substantial part from the same transaction or series of related transactions, existence of a common issue of law or fact creates the possibility of conflicting decisions, and prejudice will result from a failure to consolidate which is not outweighed by the risk of undue delay or prejudice the rights to parties opposing consolidation. Certain claims may be consolidated and others may not be consolidated. A court may not order consolidation of the claims of a party to an agreement to arbitrate that prohibits consolidation.

5. Disclosure by Arbitrator. Before accepting an appointment, an arbitrator, after making reasonable inquiry, is required to disclose to all parties and any other arbitrators any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator, including a financial or personal interest in the outcome of the arbitration and an existing or past relationship with any of the parties, their counsel or representatives, witnesses, or the other arbitrators. An arbitrator has a continuing obligation to disclose to the parties and other arbitrators any facts that the arbitrator learns after accepting an appointment that a reasonable person would consider likely to affect his or her impartiality. If an arbitrator discloses a fact required to be disclosed, and a party timely objects to the appointment or continued service of the arbitrator, the objection may be grounds to vacate any arbitration award. If an arbitrator does not disclose a fact required to be disclosed, upon timely objection by a party, an award may be vacated. An arbitrator who does not disclose a known, direct, and material interest in the outcome of the arbitration, or a known, existing, and substantial relationship with a party is presumed to act with evident partiality.

6. Immunity of Arbitrator. An arbitrator is immune from civil liability to the same extent as a judge acting in a judicial capacity. Failure to make required disclosure does not cause a loss of immunity.

7. Attorneys' Fees. Attorneys' fees may be awarded to the prevailing party in a contested judicial proceeding involving the confirmation of an award, the vacation of an award, or the modification or correction of an award. Posted in Arbitration, Recent Legislation