As a thank you to all the subscribers and readers who continue fueling Arbitration Nation’s success, this 100th blog post contains my recipe for the Best Arbitration Agreement Ever. (I know, where did the time go?? The blog is growing up so fast!) What should your arbitration agreement include? How can you best take advantage of the new case law under the FAA? Here are some tips.
First, a caveat. I will not include draft language here. That would be what my marketing team calls “giving away the store.” They frown upon that. But, here is a list of items that should be in your arbitration agreement, and others you should at least seriously consider putting in your arbitration agreement.
Ingredients You Must Have
- A clear statement of the types of disputes that should be arbitrated (Think broad! “Any and all disputes arising out of” the contract is a good place to start.)
- A clear statement of whether the Federal Arbitration Act will govern or a particular state’s Uniform Arbitration Act will govern instead (state acts may provide more authority for third-party discovery or judicial review, but the federal act is very strong in enforcing arbitration agreements)
- A separate delegation clause (meaning that even disputes about the validity of the arbitration agreement will be decided by the arbitrator, taking advantage of Rent-A-Center — because in my view, if you are going to arbitrate, arbitrate everything)
- An identification of who will administer the arbitration (AAA? JAMS? CPR? or will the arbitrators self-administer it?) and what rules will govern
- A reasonable limitations period on claims, or an indication of what law will set statutes of limitations
- Clear language about whether class (or even multiple-claimant) arbitration is or is not authorized (taking advantage of Stolt-Nielsen)
- A severability clause (so that if any part of your arbitration agreement itself is invalid, the rest will be enforceable)
- A statement that the prevailing party may turn the arbitration award into a court judgment in a specific court (taking advantage of Section 9 of the FAA)
Considering Sprinkling In:
- A required hearing location
- A required number of arbitrators (a single arbitrator is cheaper, but increases the chance of a wacky award; alternatively some provider’s rules say claims under a certain dollar amount will be heard by a single arbitrator, while those over that amount will be heard by a panel of three)
- Required qualifications of the arbitrators (should it be someone from a particular industry?)
- The availability of emergency equitable relief (with the AAA, this can be done by incorporating the “Optional Rules For Emergency Measures of Protection”)
- A requirement that the arbitrators issue a reasoned award (otherwise you reduce your already limited ability to try and vacate any potential wacky award — but if you anticipate only small claims, this may unnecessarily drive up expense)
- The availability of a quick appeal through the arbitration provider
- Required mediation either before, or during, the arbitration process
- Requiring that the loser pay the prevailing party’s attorneys fees (or other modifications to the default rules as to costs and fees of arbitration)
- If you have chosen an institution to administer the arbitration that is uncommon, you may want to include a statement about what happens if the provider is no longer in business or otherwise unavailable
- A limitation on the types of damages available
- Some parameters on discovery – in all disputes or in certain types of disputes (i.e., no more than X depositions, no interrogatories, no requests for admission, no expert depositions…)
- If your form contract will be used with thousands (or millions) of consumers, and those consumers may have claims that are not economical to pursue on an individual basis, but have significant public benefit, you may want to address the AmEx decision (which refused to compel individual arbitration of antitrust claims because plaintiffs could not “effectively vindicate” their statutory rights via individual arbitrations). That could be accomplished by stating that claims under certain federal statutes (like antitrust statutes) are outside the scope of the arbitration clause
- Similarly, consider allowing low-dollar individual claims to be heard in small claims court
Do you think I missed some key ingredients? Please tell me via email or Twitter and I will consider updating the lists.
If you were hoping for the full, frosted contractual cake, instead of just a recipe, and you aren’t yet ready to hire me, here are some sources you may want to consider visiting, but note that they do not take advantage of the recent case law.
AAA’s “Clause Builder”
Ken Adams, a specialist in contract drafting, has a suggestion for the first few lines of your agreement