More On The Federal Arbitration Act By: Sam K. Abdulaziz
As we have previously written, the Federal Arbitration Act can be used in almost any kind of dispute, if the dispute involves “commerce” and as I previously pointed out, the courts have interpreted “commerce” to be extremely broad. In this case, the issue dealt with an arbitrator’s orders dealing with attorneys fees. Although this case did not involve construction, the results would probably be the same.
Premier Diabetic Services, Inc. had a contract dispute with Lifescan Inc. The contract between them had a clause requiring arbitration before the American Arbitration Association. Before the final hearing, Premier stated that it could no longer afford to pay its pro-rata share of the arbitration fees. The arbitrators gave Lifescan the option of advancing the fees owed by Premier so the final arbitration hearings could continue. It was expected that Lifescan would recoup the payment it advanced as part of any award. Lifescan refused to pay the fees of Premier and instead asked that the arbitration go forward with Premier being kept from presenting any evidence. The American Arbitration Association declined to proceed without payment and suspended proceedings.
Lifescan then asked the U.S. District Court to require the arbitration to go forward and order Premier to pay its pro-rata share of the fees. The District Court granted Lifescan’s request to compel Premier to continue in the arbitration and ordered Premier to pay its pro-rata share of the fees. The District Court did not agree. The three judge appellate panel overturned the decision.
The panel stated, “Arbitration provides a forum for resolving disputes more expeditiously and with greater flexibility than litigation.” The Federal Arbitration Act gives Federal Courts only limited authority to review arbitration decisions, because any broad judicial review would diminish the benefits of arbitration. The Federal Arbitration Act limits the court’s discretion and the court must order the parties to proceed to arbitration only in accordance with the terms of their agreement. Therefore, the role of the court is limited to determining if there is a valid arbitration agreement and if so, if the dispute is covered by that agreement. Once those two questions are answered “yes,” then the court can only enforce the agreement. The court found the answer to both those questions was “yes.” Note that here the court talks in terms of the agreement and not the law because the arbitration is commenced by agreement.
The American Arbitration Association rules, which are incorporated into the Arbitration Agreement allow for flexibility. This is one of the benefits of arbitration. The rules allow arbitrators broad discretion to allocate fees and expenses amongst the parties. Another rule allows the arbitrator to reduce or defer administrative fees in the face of extreme hardship. Absent any such rulings, the cost of the arbitration shall be borne equally by the parties unless they agree otherwise or unless the arbitrator in the award assesses such expenses or any part thereof against any specified party or parties.
The court held that the decision of the arbitrators was not an ideal solution to the problem but it was well within the discretion provided to the arbitrators through the American Arbitration Association rules. The court went on to state, “There is, of course, no totally satisfactory solution in such circumstances, which is doubtless why the AAA rules give arbitrators the flexibility to make the best of a bad situation.”
The moral is, read your arbitration agreement
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