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Posts Tagged ‘Industry Tripartite Model’

How Section 5 Arbitrator Appointment Works in Practice | Businessperson’s Federal Arbitration Act FAQ Guide | Nuts and Bolts of Pre-Award Federal Arbitration Act Practice

May 4th, 2020 Application to Appoint Arbitrator, Arbitration and Mediation FAQs, Arbitration Law, Arbitration Practice and Procedure, Arbitrator Selection and Qualification Provisions, Arbitrator Vacancy, Businessperson's FAQ Guide to the Federal Arbitration Act, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 5, Nuts & Bolts, Nuts & Bolts: Arbitration, Pre-Award Federal Arbitration Act Litigation, Section 5, Small Business B-2-B Arbitration, United States Court of Appeals for the Second Circuit 1 Comment »
contract | Section 5 | Appoint Arbitrator

The last instalment of this post discussed Section 5, the circumstances under which Courts can appoint arbitrators under Section 5, what papers are filed on a Section 5 application, and what the application should show.

This segment addresses the FAQ “How does Section 5 Work in Practice?” Next we’ll address the FAQ “Does Section 5 of the Federal Arbitration Act Authorize a Court to Appoint a Replacement Arbitrator if an Arbitrator on a Three-Person Panel Dies Prior to the Panel Making an Award?”    

The Arbitrator Selection Process

Once arbitration is demanded, the arbitrator selection process begins.

Arbitration agreements address arbitrator selection in different ways. Sometimes parties simply agree that the process set forth in arbitrator provider rules applies. Sometimes parties specify their own method of selection, and sometimes by their agreement they modify an otherwise agreed provider-rule-governed selection procedure.

The qualifications of the arbitrators, the number of arbitrators to serve, and the procedures (if any) to apply if the parties reach an impasse, are key components of the selection process.

For illustration purposes only let’s consider how, for example, arbitrator selection may work under what we sometimes refer to as the traditional, industry tripartite arbitrator selection model. While that model may vary according to the parties’ agreement, typically it requires the party demanding arbitration to appoint a party appointed arbitrator, and for the other party to appoint its own party appointed arbitrator within X days.

The two appointed arbitrators then select an umpire. Sometimes the parties agree that the appointed arbitrators select three umpire candidates each, strike two from the other’s list, and resolve the tie by coin flip, Dow Jones pick (last digit odd or even), or a like tie-breaking procedure.   

If the other party fails to appoint timely its arbitrator, then the party demanding arbitration gets to appoint that arbitrator, and the arbitration may proceed even if the other party refuses to participate.

In administered arbitration, single arbitrators are often appointed by the arbitration provider generating a list of an odd number of arbitrator candidates and allowing the parties to strike an even number of candidates, with the remaining candidate being appointed as an umpire. Sometimes provision is made for the arbitration provider to submit an additional list if one or both parties request it.  

These are simply examples of how arbitrator selection may proceed. If you’ve agreed to administered arbitration, be sure to check provider rules, for they typically specify the number of arbitrators to serve, their qualifications, how they are to be selected, in situations where the parties do not otherwise agree.  

How does Section 5 Work in Practice?

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Americo Part II: Sometimes Hard Cases Make Good Law

September 3rd, 2014 American Arbitration Association, Appellate Practice, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitrator Selection and Qualification Provisions, Authority of Arbitrators, Awards, Confirmation of Awards, State Courts, Texas Supreme Court Comments Off on Americo Part II: Sometimes Hard Cases Make Good Law

 

Introduction

On August 5, 2014 we critiqued (here) the Texas Supreme Court’s June 20, 2014 decision in Americo Life, Inc. v. Myer, ___ S.W.3d __, No. 12-0739, slip op. (Tex. June 20, 2014), which held that an arbitration award had to be vacated because it was made by a panel not constituted according to the parties’ agreement. Five Justices of the nine-member Court determined that the parties had agreed that party-appointed arbitrators need not be impartial, only independent. Because the American Arbitration Association (the “AAA”) had, contrary to the parties’ agreement, disqualified the challenging party’s first-choice arbitrator on partiality grounds, the panel that rendered the award was not properly constituted and thus exceeded its powers. See slip op. at 10.   

The Americo award was not a legitimate by product of the parties’ arbitration agreement, and so, ruled the majority, it had to be vacated. The majority resisted a temptation that the four dissenting Justices apparently could not: “interpreting” the parties’ agreement in a hyper-technical fashion to justify confirming the award, even though that outcome, as desirable as it might otherwise seem, would have required the majority to reach a conclusion about party intent that was, at best, implausible.

Make no mistake about it, the Texas Supreme Court was faced with a tough case, and we think the majority made the right call.  Had a similar issue been presented in a garden-variety contract interpretation case, we doubt it would have been such a tough case and would not be particularly surprised if the outcome would have been unanimous, not split.

What made the case so tough was that this was not only an arbitration case, but one where the interpretive issue was justiciable only at the post-award stage. The law says that should make so difference and that, in any event, subject to a few special arbitration-law rules, the Federal Arbitration Act (the “FAA”) requires courts to put arbitration agreements on the same footing as all other contracts. But in post-award practice there a number of objective and subjective considerations that not infrequently result in courts reaching decisions in favor of confirming awards based on very doubtful, and sometimes, as here, implausible, conclusions about party intent.

That did not happen in Americo, and strange as it may seem, the majority’s decision that the award had to be vacated was a very pro-arbitration decision. A majority of the Justices enforced the parties’ arbitration agreement, which is the whole point of the FAA. And by doing so, they made arbitration all the more an attractive alternative to litigation.

Today’s post examines in greater detail what transpired in Americo, including the reasoning the majority and dissent articulated in support of their conclusions, and concludes with a few parting observations.  Continue Reading »