proposed revisions of the uniform arbitration act proposed revisions of the uniform arbitration act

96 Pages·2000·0.47 MB·English

D R A F T
FOR APPROVAL
PROPOSED REVISIONS OF THE
UNIFORM ARBITRATION ACT
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
MEETING IN ITS ONE-HUNDRED-AND-NINTH YEAR
ST. AUGUSTINE, FLORIDA
JULY 28 –AUGUST 4, 2000
PROPOSED REVISIONS OF THE
UNIFORM ARBITRATION ACT
WITH PREFATORY NOTE AND REPORTER’SNOTES
Copyright©2000
By
NATIONALCONFERENCEOFCOMMISSIONERS
ONUNIFORMSTATELAWS
The ideas and conclusions set forth in this draft, including the proposed statutory language and any comments or
reporter’snotes,havenotbeenpasseduponbytheNationalConferenceofCommissionersonUniformStateLawsorthe
DraftingCommittee. TheydonotnecessarilyreflecttheviewsoftheConferenceanditsCommissionersandtheDrafting
CommitteeanditsMembersandReporters. Proposedstatutorylanguagemaynotbeusedtoascertaintheintentor
meaningofanypromulgatedfinalstatutoryproposal.
DRAFTING COMMITTEE TO REVISE
THE UNIFORM ARBITRATION ACT
FRANCISJ.PAVETTI,83HuntingtonStreet,NewLondon,CT 06320,Chair
FRANCISCOL.ACEVEDO,P.O.Box190998,16thFloor,BancoPopularCenter,HatoRey,PR 00919
RICHARDT.CASSIDY,100MainStreet,P.O.Box1124,Burlington,VT 05402
M.MICHAELCRAMER,216N.AdamsStreet,Rockville,MD 20850
BARRYC.HAWKINS,OneLandmarkSquare,17thFloor,Stamford,CT 06901
TIMOTHYJ.HEINSZ,UniversityofMissouri-Columbia,SchoolofLaw,203HulstonHall,Columbia,
MO 65211,NationalConferenceReporter
ROGERC.HENDERSON,UniversityofArizona,JamesE.RogersCollegeofLaw,Mountainand
SpeedwayStreets,Tucson,AZ 85721,CommitteeonStyleLiaison
JEREMIAHMARSH,Suite4300,ThreeFirstNationalPlaza,Chicago,IL 60602
RODNEYW.SATTERWHITE,P.O.Box1540,Midland,TX 79702
JAMESA.WYNN,JR.,CourtofAppeals,OneW.MorganStreet,P.O.Box888,Raleigh,NC 27602
JOANZELDON,SuperiorCourt,500IndianaAvenue,N.W.,Room1640,Washington,DC 20001
EXOFFICIO
JOHNL.McCLAUGHERTY,P.O.Box553,Charleston,WV25322,President
STANLEYM.FISHER,1100HuntingtonBuilding,925EuclidAvenue,Cleveland,
OH 44115-1475,DivisionChair
AMERICANBARASSOCIATIONADVISORS
RICHARDCHERNICK,3055WilshireBoulevard,7thFloor,LosAngeles,CA 90010-1108,
Co-Advisor
JAMESL.KNOLL,1500S.W.TaylorStreet,Portland,OR 97205,TortandInsurancePractice
SectionAdvisor
JOHNK.NOTZ,JR.,3300QuakerTower,321N.ClarkStreet,Chicago,IL 60610-4795,
SeniorLawyersDivisionAdvisor
YARKOSOCHYNSKY,350TheEmbarcadero,6thFloor,SanFrancisco,CA 94105-1250,
RealProperty,ProbateandTrustLawSectionAdvisor
RONALDM.STURTZ,27BadgerDrive,Livingston,NJ 07039,Co-Advisor
MAXZIMNY,Floor3,1710Broadway,NewYork,NY10019-5254,LaborandEmployment
LawSectionAdvisor
EXECUTIVEDIRECTOR
FREDH.MILLER,UniversityofOklahoma,CollegeofLaw,300TimberdellRoad,Norman,
OK 73019,ExecutiveDirector
WILLIAMJ.PIERCE,1505RoxburyRoad,AnnArbor,MI 48104,ExecutiveDirectorEmeritus
CopiesofthisActmaybeobtainedfrom:
NATIONALCONFERENCEOFCOMMISSIONERS
ONUNIFORMSTATELAWS
211E.OntarioStreet,Suite1300
Chicago,Illinois 60611
312/915-0195
www.nccusl.org
PROPOSED REVISIONS OF THE
UNIFORM ARBITRATION ACT
TABLE OF CONTENTS
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7
SECTION 2. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 9
SECTION 3. WHEN [ACT] APPLIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 10
SECTION 4. EFFECT OF AGREEMENT TO ARBITRATE; NONWAIVABLE
PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 12
SECTION 5. APPLICATION TO COURT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15
SECTION 6. VALIDITY OF AGREEMENT TO ARBITRATE . . . . . . . . . . . . . . .. 16
SECTION 7. MOTION TO COMPEL OR STAY ARBITRATION . . . . . . . . . . . . .. 23
SECTION 8. PROVISIONAL REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 24
SECTION 9. INITIATION OF ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . .. 29
SECTION 10. CONSOLIDATION OF SEPARATE ARBITRATION
PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 31
SECTION 11. APPOINTMENT OF ARBITRATOR . . . . . . . . . . . . . . . . . . . . . . . .. 36
SECTION 12. DISCLOSURE BY ARBITRATOR . . . . . . . . . . . . . . . . . . . . . . . . . .. 37
SECTION 13. ACTION BY MAJORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 43
SECTION 14. IMMUNITY OF ARBITRATOR; COMPETENCY TO TESTIFY;
ATTORNEY’SFEES AND COSTS . . . . . . . . . . . . . . . . . . . . . . . . .. 43
SECTION 15. ARBITRATION PROCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 48
SECTION 16. REPRESENTATION BY ATTORNEY . . . . . . . . . . . . . . . . . . . . . . .. 51
SECTION 17. WITNESSES; SUBPOENAS; DEPOSITIONS; DISCOVERY . . . . .. 52
SECTION 18. COURT ENFORCEMENT OF PRE-AWARD RULING BY
ARBITRATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 58
SECTION 19. AWARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 61
SECTION 20. CHANGE OF AWARDBY ARBITRATOR . . . . . . . . . . . . . . . . . . .. 61
SECTION 21. REMEDIES; FEES AND EXPENSES OF ARBITRATION
PROCEEDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 63
SECTION 22. CONFIRMATION OF AWARD . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 68
SECTION 23. VACATING AWARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 68
SECTION 24. MODIFICATION OR CORRECTION OF AWARD . . . . . . . . . . . . .. 80
SECTION 25. JUDGMENT ON AWARD;ATTORNEY’SFEES AND
LITIGATION EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 81
SECTION 26. JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 83
SECTION 27. VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 84
SECTION 28. APPEALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 86
SECTION 29. UNIFORMITY OF APPLICATION AND CONSTRUCTION . . . . .. 86
SECTION 30. EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 86
SECTION 31. REPEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 87
SECTION 32. SAVINGS CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 87
1 PROPOSED REVISIONS OF THE
2 UNIFORM ARBITRATION ACT
3 PREFATORY NOTE
4 The Uniform Arbitration Act (UAA), promulgated in1955, has been one of
5 the most successful Acts of the National Conference of Commissioners on Uniform
6 State Laws. Forty-nine jurisdictions have arbitration statutes; 35 of these have
7 adopted the UAA and 14 have adopted substantially similar legislation. A primary
8 purpose of the 1955 Act was to insure the enforceability of agreements to arbitrate
9 inthe face of oftentimes hostile state law. That goal has been accomplished. Today
10 arbitration isa primary mechanism favored bycourts and parties to resolve disputes
11 inmany areas of the law. This growth inarbitration caused the Conference to
12 appoint a Drafting Committee to consider revising the Act inlight of increasing use
13 of arbitration, the greater complexity of many disputes resolved byarbitration, and
14 the developments of the lawinthis area.
15 The UAA did not address many issues which arise inmodern arbitration
16 cases. The statute provided no guidance asto (1) who decides the arbitrability of a
17 dispute and bywhat criteria; (2) whether a court or arbitrators mayissue provisional
18 remedies; (3) how a party can initiate an arbitration proceeding; (4) whether
19 arbitration proceedings maybeconsolidated; (5) whether arbitrators are required to
20 disclose facts reasonably likelyto affect impartiality; (6) what extent arbitrators or
21 an arbitration organization are immune from civilactions; (7) whether arbitrators or
22 representative of arbitration organizations mayberequired to testify inanother
23 proceeding; (8) whether arbitrators have the discretion to order discovery, issue
24 protective orders, decide motions for summary dispositions, hold pre-hearing
25 conferences and otherwise manage the arbitration process; (9) when a court may
26 enforce a pre-award ruling byan arbitrator; (10) what remedies an arbitrator may
27 award, especiallyinregard to attorney’sfees, punitive damages or other exemplary
28 relief; (11) when a court can award attorney’sfeesand costs to arbitrators and
29 arbitration organizations; (12) when a court can award attorney’sfeesand costs to a
30 prevailing party inan appeal of an arbitrator’saward; and (13) which sections of the
31 Revised Uniform Arbitration Act (RUAA) would not bewaivable, a provision
32 intended to insure that the sections of the RUAA which provide fundamental
33 fairness to the parties willbepreserved, particularly inthose instances where one
34 party mayhave significantly lessbargaining power than another. The RUAA
35 examines allof these issues and provides state legislatures with a more up-to-date
36 statute to resolve disputes through arbitration.
37 There are a number of principles that the Drafting Committee agreed upon at
38 the outset of its consideration of a revision to the UAA. First, that arbitration isa
1
1 consensual process inwhich autonomy of the parties who enter into arbitration
2 agreements should begiven primary consideration, so long astheir agreements
3 conform to notions of fundamental fairness. This approach provides parties with the
4 opportunity inmost instances to shape the arbitration process to their own particular
5 needs. In most instances the RUAA provides a default mechanism ifthe parties do
6 not have a specificagreement on a particular issue. Second, the underlying reason
7 many parties choose arbitration isthe relative speed, lower cost, and greater
8 efficiencyof the process. The lawshould take these factors, where applicable, into
9 account. For example, Section 10 allows consolidation of issues involving multiple
10 parties. Such a provision can beof specialimportance inadhesion situations where
11 there are numerous persons with essentially the same claimsagainst a party to the
12 arbitration agreement. Finally, inmost casesparties intend the decisions of
13 arbitrators to befinalwith minimal court involvement unless there isclear unfairness
14 or a denial of justice. This contractual nature of arbitration means that the provision
15 to vacate awards inSection 23 islimited. This isso even where an arbitrator may
16 award attorney fees, punitive damages or other exemplary relief under Section 21.
17 Section 14 insulates arbitrators from unwarranted litigation to insure their
18 independence byproviding them with immunity.
19 Other new provisions are intended to reflect developments inarbitration law
20 and to insure that the process isa fair one. Section 12 requires arbitrators to make
21 important disclosures to the parties. Section 8 allows courts to grant provisional
22 remedies incertain circumstances to protect the integrity of the arbitration process.
23 Section 17 includes limited rights to discovery whilerecognizing the importance of
24 expeditious arbitration proceedings.
25 In light of a number of decisions bythe United States Supreme Court
26 concerning the Federal Arbitration Act (FAA), anyrevision of the UAA must take
27 into account the doctrine of preemption. The rule of preemption, whereby FAA
28 standards and the emphatically pro-arbitration perspective of the FAA control,
29 applies inboth the federal courts and the state courts. To date, the
30 preemption-related opinions of the Supreme Court have centered inlarge part on the
31 two keyissues that arise at the front end of the arbitration process –enforcement of
32 the agreement to arbitrate and issues of substantive arbitrability. Prima Paint Corp.
33 v. Flood & Conklin Mfg. Co., 388 U.S. 35 (1967); Moses H. Cone Memorial Hosp.
34 v. Mercury Constr. Corp., 460 U.S. 1 (1983); Southland Corp. v. Keating, 465 U.S.
35 2 (1984); Perry v. Thomas, 482 U.S. 483, 107 S. Ct. 2520 (1987); Allied-Bruce
36 Terminix Companies v. Dobson, 513 U.S. 265 (1995); Doctor’sAssociates v.
37 Cassarotto, 517 U.S. 681 (1996). That body of caselawestablishes that state law
38 of anyilk, including adaptations of the RUAA, mooting or limiting contractual
39 agreements to arbitrate must yield to the pro-arbitration public policy voiced in
40 Sections 2, 3, and 4 of the FAA.
2
1 The other group of issues to which the FAA speaks definitively lieat the
2 back end of the arbitration process. The standards and procedure for vacatur,
3 confirmation and modification of arbitration awards are the subject of Sections 9,
4 10, 11, and 12 of the FAA. In contrast to the “frontend”issues of enforceability
5 and substantive arbitrability, there isno definitive Supreme Court caselawspeaking
6 to the preemptive effect, ifany, of the FAA with regard to these “backend”issues.
7 This dimension of FAA preemption of state arbitration lawisfurther complicated by
8 the strong majority view among the U.S. Circuit Courts of Appeals that the Section
9 10(a) standards are not the exclusive grounds for vacatur.
10 Nevertheless, the Supreme Court’sunequivocal stand to date asto the
11 preemptive effect of the FAA provides strong reason to believethat a similar result
12 willobtain with regard to Section 10(a) grounds for vacatur. If it does, and ifthe
13 Supreme Court eventually determines that the Section 10(a) standards are the sole
14 grounds for vacatur of commercial arbitration awards, FAA preemption of
15 conflicting state lawwith regard to the “backend”issues of vacatur (and
16 confirmation and modification) would becertain. If the Court takes the opposite
17 tack and holds that the Section 10(a) grounds are not the exclusive criteria for
18 vacatur, the preemptive effect of Section 10(a) would belimited, most likelyto the
19 rule that state arbitration acts cannot eliminate, limit or modify anyof the four
20 grounds of party and arbitrator misconduct set out inSection 10(a). Anydefinitive
21 federal “commonlaw,”pertaining to the nonstatutory grounds for vacatur other
22 than those set out inSection10(a), articulated bythe Supreme Court or established
23 asa clear majority rule bythe U.S. Courts of Appeals, likelywould preempt
24 contrary state law. A holding bythe Supreme Court that the Section 10(a) grounds
25 are not exclusive would also free the States to codify other grounds for vacatur
26 beyond those set out inSection 10(a). These various, currently nonstatutory
27 grounds for vacatur are discussed at length inthe Reporter’sNote Cto Section 23.
28 An important caveat to the general rule of FAA preemption isfound inVolt
29 Information Sciences, Inc. v. Stanford Univ., 489 U.S. 468 (1989) and
30 Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995). The focus in
31 these casesison the effect of FAA preemption on choice-of-law provisions
32 routinely included incommercial contracts. Volt and Mastrobuono establish that a
33 clearly expressed contractual agreement bythe parties to an arbitration contract to
34 conduct their arbitration under state lawrules effectively trumps the preemptive
35 effect of the FAA. If the parties elect to govern their contractual arbitration
36 mechanism bythe lawof a particular State and thereby limit the issues that they will
37 arbitrate or the procedures under which the arbitration willbeconducted, their
38 bargain willbehonored –aslong asthe state lawprinciples invoked bythe
39 choice-of-law provision do not conflict with the FAA’sprime directive that
40 agreements to arbitrate beenforced. See, e.g., ASW Allstate Painting & Constr. Co.
41 v. Lexington Ins. Co., 188 F.3d 307 (5th Cir. 1999); Russ Berrie & Co. v. Gantt,
3
1 988 S.W.2d 713 (Tex. App. 1999). It isinthese situations that the RUAA willhave
2 most impact. Section 4(a) of the RUAA also explicitly provides that the parties to
3 an arbitration agreement maywaive or vary the terms of the Act, to the extent
4 otherwise permitted bylaw. Thus, when parties choose to contractually specifythe
5 procedures to befollowed under their arbitration agreement, the RUAA
6 contemplates that the contractually-established procedures willcontrol over
7 contrary state law, except with regard to issues designated as“nonwaivable”in
8 Section 4(b) of the RUAA.
9 The contractual election to proceed under state lawinstead of the FAA will
10 behonored presuming that the state lawisnot antithetical to the pro-arbitration
11 public policy of the FAA. Southland and Terminix leave no doubt that
12 anti-arbitration state lawprovisions willbestruck down because preempted bythe
13 federal arbitration statute.
14 Besides arbitration contracts where the parties choose to begoverned by
15 state law, there are other areas of arbitration lawwhere the FAA does not preempt
16 state law, inthe absenceof definitive federal law, set out inthe FAA or determined
17 bythe federal courts. First, the Supreme Court has made clear its beliefthat
18 ascertaining when a particular contractual agreement to arbitrate isenforceable isa
19 matter to bedecided under the general contract lawprinciples of each State. The
20 sole limitation on state lawinthat regard isthe Court’sassertion that the
21 enforceability of arbitration agreements must bedetermined bythe same standards
22 asare used for allother contracts. Terminix, 513 U.S. at 281 (1995)(quoting Volt,
23 489 U.S. at 474 (1989)) and quoted inCassarotto, 517 U.S. 681, 685 (1996); and
24 Cassarotto, 517 U.S. at 688 (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506,
25 511 (1974)). Arbitration agreements maynot beinvalidated under state laws
26 applicableonly to arbitration provisions. Id. The FAA willpreempt state lawthat
27 does not place arbitration agreements on an “equalfooting”with other contracts.
28 During the course of its deliberations the Drafting Committee considered at
29 length another issue with strong preemption undertones –the question of whether
30 the RUAA should explicitly sanction contractual provisions for “opt-in”review of
31 challenged arbitration awards beyond that presently contemplated bythe FAA and
32 current state arbitration acts. “Opt-in”provisions of two types are inlimited use
33 today. The first variant permits a party dissatisfied with the arbitral result to petition
34 directly to a designated state court and stipulates that the court mayvacate
35 challenged awards, typically for errors of lawor fact. The second type of “opt-in”
36 contractual provision establishes an appellate arbitral mechanism to which
37 challenged arbitration awards can besubmitted for review, again most typically for
38 errors of lawor fact.
4
1 Asexplained indetail inSection B of the Reporter’sNotes pertaining to
2 Section 23, the current uncertainty asto the legality of a state statutory sanction of
3 the “opt-in”device, coupled with the “disconnect”between the Act’spurpose of
4 fostering the use of arbitration asa finaland binding alternative to traditional
5 litigation ina court of lawand a statutory provision that would permit the parties to
6 contractually render arbitration decidedly non-final and non-binding, resulted inthe
7 decision not to include statutory sanction of the “opt-in”device for expanded
8 judicialreview inthe RUAA. Simply stated, the potential gain to berealized by
9 codifying a right to opt-into expanded judicialreview that has not yet been
10 definitively confirmed to exist does not outweigh the potential threat adoption of an
11 opt-in statutory provision would create for the integrity and viabilityof the RUAA
12 asa template for state arbitration acts.
13 Unlike the “opt-in”judicialreview mechanims, there are few, ifany, legal
14 concerns raised bystatutory sanction of “opt-in”provisions for appellate arbitral
15 review. Nevertheless, asexplained inthe Section B of the Reporter’sComments to
16 Section 23, because the current, contract-based view of arbitration establishes that
17 the parties are free to design the inner workings of their arbitration procedures in
18 anymanner they seefit, the Drafting Committee determined that codification of that
19 right inthe RUAA would add nothing of substance to the existing lawof arbitration.
20 The decision not to statutorily sanction either form of the “opt-in”device in
21 the RUAA leavesthe issue of the legal propriety of this means for securing review
22 of awards to the developing caselawunder the FAA and state arbitration statutes.
23 Parties remain free, within the constraints imposed bythe existing and developing
24 law, to agree to contractual provisions for arbitral or judicialreview of challenged
25 awards.
26 It islikelythat matters not addressed inthe FAA are also open to regulation
27 bythe States. State lawprovisions regulating purely procedural dimensions of the
28 arbitration process (e.g., discovery [RUAA Section 17], consolidation of claims
29 [RUAA Section 10], arbitrator immunity [RUAA Section 14]) likelywillnot be
30 subject to preemption. Less certain isthe effect of FAA preemption with regard to
31 substantive issues likethe authority of arbitrators to award punitive damages
32 (RUAA Section 21) and the standards for arbitrator disclosure of potential conflicts
33 of interest (RUAA Section 12) that have a significant impact on the integrity and/or
34 the adequacy of the arbitration process. These “borderline”issues are not purely
35 procedural innature but unlike the “frontend”and “backend”issues they do not go
36 to the essence of the agreement to arbitrate or effectuation of the arbitral result.
37 Although there isno concrete guidance inthe caselaw, preemption of state law
38 dealing with such matters seems unlikely aslong asit cannot becharacterized as
39 anti-arbitration or asintended to limit the enforceability or viabilityof agreements to
40 arbitrate.
5