Arbitration Information Print “Know the rules” handwritten with white chalk on a blackboard Rules Update: Improved AAA Commercial Rules

NAF Rules Not An Obstacle To Enforcing Arbitration

On October 1, new Commercial Arbitration Rules became effective at
the American Arbitration Association (AAA).  These rules are likely to
apply to all commercial arbitrations filed on and after October 1
(unless an arbitration agreement specifically provides for old rules). 
The AAA posted its own summary of the changes.  Four of the most notable include:

  • Greater specificity about allowable discovery, as well as clear
    authority for arbitrators to enforce discovery orders or sanction those
    who do not comply;
  • Specific authority for arbitrators to hear dispositive motions if
    “the moving party has shown that the motion is likely to succeed and
    dispose of or narrow the issues in the case”;
  • Authority for parties to seek emergency relief (even without having
    provided for it separately in the arbitration agreement) from an
    emergency arbitrator within specific timelines; and
  • The parties and their counsel now have a separate duty to disclose
    “any circumstance likely to give rise to justifiable doubt as to the
    arbitrator’s impartiality or independence” including past dealings with
    the parties and their representatives.

In my view, these are all very positive changes.

Speaking of rules, two recent courts compelled arbitration when the
arbitration agreement provided for administration by the defunct NAF.  
The definite trend now is to enforce arbitration agreements calling for
administration by the NAF, albeit with some procedural “fixes” to the

In one case, the Seventh Circuit compelled arbitration even though
the parties’ loan agreement provided for “binding arbitration by one
arbitrator by and under the Code of Procedure of the National
Arbitration Forum [NAF]“ and the NAF had not accepted consumer cases
since July of 2009.  Green v. U.S. Cash Advance Illinois, LLC,
__ F.3d ___, 2013 WL 3880219 (7th Cir. July 30, 2013).  (Curiously, the
agreement was signed in 2012, so there was plenty of time to revise it
after the NAF stopped taking cases.)  The district court had refused to
compel arbitration, finding the NAF was an “integral part of the
agreement” and without it the arbitration agreement was void.  Noting a
circuit split in which the 3d and 11th Circuits have compelled
arbitration, despite selection of the NAF, while the 5th Circuit has
declared agreements calling for the NAF unenforceable, the 7th Circuit
sided with those compelling arbitration.  The decision engaged in a
lengthy analysis suggesting that the line of cases finding one aspect of
an arbitration clause “integral” contradicts Section 5 of the FAA and
does not come from a general state law principle allowable under Section
2.  The Green decision has a dissent from Judge Hamilton,
largely relying on the fact that the NAF Code itself “provides for
arbitration by the Forum or by nobody.  Since the Forum made itself
unavailable, that should mean arbitration by nobody.”

In a less contentious case, the Sixth Circuit also enforced an
arbitration clause that referenced the NAF.  In that arbitration clause,
however, the drafters had inserted a Plan B: “The National Arbitration
Forum will be the Administrator unless…” the lender chose the AAA under
certain circumstances.  The court concluded that even though the NAF was
the preferred forum, that language could be excised pursuant to the
note’s severability clause, which left the language authorizing
arbitration before the AAA.   Smith v., Inc., 2013 WL 4406999 (6th Cir. Aug. 16, 2013).

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By Liz Kramer 

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