This is a small business guide to the default method of arbitrator selection under the American Arbitration Association (“AAA”) Commercial Arbitration Rules and Mediation Procedures (the “AAA Commercial Rules”, available here). It picks up where our most recent article—a small business guide to the first few days of an AAA arbitration—left off.
Like our most recent article, it assumes there is a business-to-business dispute governed by AAA Commercial Rules, the parties’ agreement does not prescribe an arbitrator selection regime, and that the AAA has sent the parties a list of potential neutral arbitrators under AAA Commercial Rule R-13.
Arbitrator selection is one of arbitrator’s most important features. More than 20 years ago, U.S. Circuit Judge Richard A. Posner (ret.) explained that the “cornerstone of the arbitral process” was the “[s]election of the decision maker by or with the consent of the parties. . . .” Lefkovitz v. Wagner, 395 F.3d 773, 780 (2005); see also Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 668, 670 (2010) (one of the FAA’s “rules of fundamental importance” is parties “may choose who will resolve specific disputes”) (emphasis added; citations omitted).
An AAA-proffered list of arbitrator candidates is not routine paperwork. The business should treat arbitrator selection as a major strategic decision, begin promptly the process, and work closely with experienced arbitration counsel in an effort to ensure informed, deliberate choices are made throughout it.
The arbitrator will manage the proceeding, resolve discovery and procedural disputes, hear the evidence, apply the governing law and contract, and ultimately decide who wins and what relief, if any, should be awarded to whom. In most cases, judicial review of the resulting award will be extremely limited.
Given the stakes, the parties are likely to disagree on who an ideal candidate should be.
So what should a business do when it receives an AAA list of arbitrator candidates?
Arbitrator Selection—Understand the Rule R-13 Process and the Deadline
Understanding the procedures and process is critical. Under AAA Commercial Rule R-13, if the parties have not appointed an arbitrator and have not agreed on another appointment method, the AAA ordinarily sends each side an identical list of 10 names it selects from its National Roster. The parties are encouraged to agree on an arbitrator but if they cannot, then each side has 14 calendar days from the transmittal date of the list to strike objectionable candidates, rank in preference order the remaining candidates, and return to the AAA the revised list containing its strikes and setting forth the preference order for the remaining candidates.
The 14-day deadline builds in consequences. If a party does not return its list on time, Rule R-13 provides that all listed candidates will be deemed acceptable to the delinquent party. That effectively means that only the party submitting timely their strikes and preference rankings will have meaningful input into the process. And that may mean game over for the delinquent party once the merits are submitted to the arbitrator, who was deemed acceptable to the delinquent party by default.
The AAA Commercial Rules vest the AAA with discretion to limit the number of permitted strikes. The number, if limited, will ordinarily be specified in the AAA’s instructions accompanying the list. Do not assume that every candidate you find undesirable can be stricken.
Whether or not a party fails to submit its list timely, the AAA uses the parties’ approvals and rankings to invite an arbitrator to serve. If an appointment cannot be made from the list, the AAA can appoint someone else from the National Roster without circulating another list. AAA Commercial Rule R-13(a)-(b).
So do not wait until day 13 to begin the analysis. As discussed in the prior article, counsel and the business should start thinking about desired arbitrator qualifications and selection strategy even before the list arrives, and certainly no later than that.
Start With the Dispute, Not the Resumes
Unless the business has effectively a suicidal obsession with arbitrator credentials, the first question should never be “Which candidate has the most impressive biography?”
A technically impressive candidate may be a poor fit for the particular case, while a less prominent candidate may have exactly the experience and case-management skills for which the dispute calls. Or one candidate may have a very impressive background in dealing with the type of dispute at issue but most or all of that experience is focused on advocating positions adverse to the business’s arbitration position. A competing candidate, however, might have more limited experience in the subject matter of your dispute, but that experience may have been focused on advocating positions that align with the business’s expected arbitration position.
Counsel and the client should identify the issues likely to drive the case. Is the dispute principally about contract interpretation? Accounting and damages? Construction practices? Reinsurance or insurance? Software, intellectual property, financial products, distribution, or another specialized industry? Does the governing law present difficult questions? What are the relevant industry customs, practices, and norms that may bear on the dispute and are they in line with case law decided by courts? How are various arbitrators likely (or not) to interpret and apply those customs and practices? Is strict adherence to the law something that will favor or disfavor the businesses’ position? Are there other rules of decision that an arbitrator might (or not) be expected to consider in resolving the dispute? Will credibility be central? Is substantial electronic discovery likely? Are threshold or dispositive motions expected? Is there a genuine need for a hearing that may last several days? Those considerations should help inform what the business is looking for before anyone begins ranking names.
Several questions bearing on what kind of experience an ideal arbitrator would possess should be considered. These include the legal, industry, arbitration, judicial, case-management and business experience of the arbitrator; the extent to which each type of experience may be more or less likely to yield a desirable result for one party versus the other; whether the arbitrator’s experience is principally representing one particular side of a typical dispute—e.g., consumers versus businesses, small business versus large businesses and conglomerates, global business concerns versus “Main Street” businesses, policyholders versus insurers, and so forth—the institutional and other legitimate predispositions an arbitrator candidate is reasonably believed or known to have; and how those predispositions may bear on resolution of the dispute.
Without attempting to identify the myriad of questions that might legitimately bear on arbitrator selection in any given case, in general there are at least three things concerning individual arbitrator candidates that should be ascertained, analyzed, and considered: (a) what qualifications and experience any arbitrator deciding the particular dispute should have; (b) what qualifications, experience, and characteristics are likely to be shared or exhibited by arbitrators who, on the facts, would most likely to rule in the businesses’ favor; (c) what legitimate institutional and personal preferences are likely shared by arbitrators likely to rule in the business’s favor; and (d) which of the arbitrator candidates on the list have (or at least appear to have) these qualifications, this experience, and these legitimate institutional and personal preferences.
Other Qualifications That May be Material to Arbitrator Selection
There are other qualifications that should also be assessed. Case-management theory and style can be important. Some arbitrators actively narrow issues, control discovery, establish firm schedules, and decide procedural disputes promptly. Others take a more hands-off approach. Neither style is inherently right or wrong, but one—or one midway between the two—may fit a particular dispute far better than another. Some follow rules of evidence and procedural rules more strictly or loosely than others. Some construe contracts and statutes more strictly or loosely than others. And so on.
Counsel should also consider availability. An excellent candidate who cannot schedule a hearing for a long time may not serve well a business concerned about prompt resolution.
Cost belongs in the analysis too. Under Rule R-57, a neutral arbitrator generally is compensated at the stated rate disclosed when the AAA resume is presented to the parties. In a substantial case, differences in hourly rates can become meaningful, especially when lengthy hearings, discovery disputes, or extensive motion practice are anticipated. Cost should not control the selection, but it certainly should not be ignored.
Past Experience With a Candidate Can Be Invaluable in Arbitrator Selection
One of the most valuable sources of information is actual experience with the candidate. A lawyer who has appeared before a proposed arbitrator may know things that cannot be learned from a resume: whether the arbitrator comes prepared, listens carefully, moves the case along, handles discovery efficiently, asks useful questions, gives the parties a fair opportunity to be heard, and issues clear and timely rulings. Even if the lawyer handling the arbitration has had no experience with a particular candidate, feedback can sometimes (with proper attention to confidentiality) be obtained by friends and colleagues.
The client’s experience is likewise very valuable. A business may have encountered a candidate in an earlier arbitration, mediation, transaction, industry matter, or professional setting. That experience may provide useful information about temperament, subject-matter knowledge, communication style, efficiency, and judgment. Counsel should ask the client at the outset whether anyone within the organization knows or has dealt with any of the candidates.
Experience-based information is often more useful than general reputation, but it must be evaluated carefully. A single prior ruling for or against a party says little by itself. Different disputes present different facts, contracts, law, and records. And counsel should distinguish first-hand professional experience from rumor or second-hand speculation. The objective is to obtain reliable information about how candidates work and the extent to which they may be more or less inclined to rule in favor of one party over another.
Research the Candidates – But Use Judgment
The AAA resume is the starting point, not necessarily the ending point. Counsel can review publicly available professional biographies, articles, speaking materials, reported decisions, prior judicial service, and other appropriate sources. Depending on the candidate and the nature of the case, counsel may also be able to obtain useful, non-confidential feedback from lawyers or clients who have had direct experience with the candidate.
The research should focus on fit and professional characteristics. An article expressing a legal view may be relevant if the arbitration is likely to turn on that precise issue, but it should not be given more credit than deserved in the circumstances. Likewise, a published judicial opinion or public arbitration-related ruling may reveal something about analytical style without reliably predicting how the candidate would decide a different dispute.
Read the Disclosures Carefully
Selection does not end when the parties submit their lists. Under Rule R-18, arbitrators, parties, and party-representatives must “disclose to the AAA any circumstance likely to give rise to justifiable doubt as to the arbitrator’s impartiality or independence, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives.” AAA Commercial Rule R. 18(a). This disclosure obligation continues through the arbitration’s conclusion. Id.
A disclosure is not automatically a disqualification. Rule R-18 expressly states that disclosure does not itself mean “the
arbitrator considers the disclosed circumstance likely to affect impartiality or independence.” AAA Commercial Rule R-18(c).
Rule R-19(a) provides that neutral arbitrators must be impartial and independent and permits disqualification on specified grounds. Counsel should therefore analyze each disclosure in context, investigate further where appropriate, and raise any legitimate objection promptly rather than assuming it can be saved for later. (The author does not intend here to discuss meaningfully evident partiality as a ground for vacating an award where arbitrators fail to disclose material relationships or interests. You can read more about evident partiality here, here, and here.)
Do Not Communicate Improperly With a Candidate
There is an important boundary between researching a candidate and communicating with one. Rule R-20 generally prohibits a party or someone acting for a party from communicating ex parte with an arbitrator or arbitrator candidate concerning the arbitration. AAA Commercial Rule R-20(a). The Rule contains a limited exception: “a party, or someone acting on behalf of a party, may communicate ex parte with a candidate for direct appointment pursuant to Rule R-14 in order to advise the candidate of the general nature of the controversy and of the anticipated proceedings and to discuss the candidate’s qualifications, availability, or independence in relation to the parties or to discuss the suitability of candidates for selection as a third arbitrator where the parties or party-designated arbitrators
are to participate in that selection.” AAA Commercial Rule R-20(a).
That exception does not mean a party receiving an ordinary Rule R-13 list should simply call the candidates. Unless the applicable agreement, Rules, or AAA instructions authorize contact, counsel should use appropriate research channels and communicate through the AAA when required.
Arbitrator Selection—Use Strikes and Rankings Thoughtfully and Deliberately
Once the research is complete, counsel and the client should compare the candidates against the criteria and considerations previously discussed. A useful approach is to separate genuine reasons for striking a candidate from reasons for preferring one acceptable candidate over another. A material conflict, serious availability problem, a meaningful indication of a probable adverse predisposition concerning an important issue in the case, lack of a qualification essential to the case, or well-founded concern about case management may support a strike. Among the remaining acceptable candidates, rankings can reflect relative fit.
Because the AAA appointment process considers both sides’ lists, ranking is not the same as choosing the arbitrator unilaterally. The business should decide which candidates it would be comfortable having serve as arbitrators, then rank those candidates thoughtfully. Treating the exercise casually—or returning no list at all—surrenders (and squanders) an important opportunity arbitration gives the parties.
Before You Return the AAA List: A Practical Checklist
- Confirm the deadline for returning strikes and rankings and calendar it with time to spare.
- Review the arbitration agreement to make sure Rule R-13 is actually the governing selection method.
- Identify, analyze, and consider the legal, factual, industry, procedural and other characteristics that the business believes to be exhibited by arbitrators who are most likely to be inclined to decide the dispute favorably to the business in the circumstances.
- Review each candidate’s AAA resume, experience, availability, disclosed rate, and relevant public information.
- Ask counsel and others involved in your business whether they have first-hand experience with any candidate—and give reliable first-hand experience substantial weight.
- Consider, analyze, and determine which of the candidates are well suited to act as arbitrators and are also most likely, all else equal, to resolve the dispute in a way that is favorable to the business.
- Review relationships and disclosures carefully, and promptly investigate any legitimate conflict concern.
- Do not contact a candidate ex parte unless the governing agreement, AAA Rules, and applicable instructions permit it.
- Use strikes to remove genuinely unacceptable candidates and rankings to distinguish among acceptable ones.
Conclusion
Choosing an arbitrator is one of the principal advantages commercial arbitration has to offer. For a small business, the best choice will, as a general rule, not necessarily be the person with the most famous name, the most experience, or the best credentials, but will result from carefully and methodically analyzing all pertinent information in an attempt to identify the candidates who are well qualified to decide the dispute and most likely to decide it in a way that aligns with the business’s best interests.
That does not mean that the business will necessarily prevail on the merits if such an arbitrator is chosen, or that there are any guarantees that the analysis discussed in this article will necessarily result in the business selecting the person who, with the benefit of 20-20 hindsight, might actually have been the best candidate.
There is also an element of chance involved. Your strikes and rankings may, for example, result in the AAA making a choice between two candidates, one of whom is a great candidate for the business with the other being an excellent candidate for the business’s adversary. The AAA might end up choosing the candidate that is better from the perspective of your adversary.
At most it is designed to attempt to increase the odds that the business will make wise choices about arbitration selection.
The key is identifying what the dispute requires, researching the candidates carefully, using reliable first-hand experience where available, examining disclosures and practical considerations, and making the strikes and rankings thoughtfully and deliberately.
The Rule R-13 process moves quickly. Experienced arbitration counsel can help the business use that short selection window effectively rather than allowing one of the most consequential decisions in the case to become a last-minute exercise in feckless administrative guesswork—or worse yet, a missed opportunity.
Tags: AAA arbitration, AAA arbitrator selection, AAA Commercial Arbitration Rules, arbitrator conflicts, arbitrator disclosures, arbitrator impartiality, arbitrator list, arbitrator rankings, arbitrator strikes, business-to-business arbitration, Commercial Arbitration, National Roster of Arbitrators, Rule R-13, small business arbitration
