Improving Arbitration By Private Right of Appeal

The belief that there can be no appellate remedy for erroneous arbitration awards is widespread but mistaken. Granted, the Federal Arbitration Act (FAA) and many state arbitration statutes provide limited judicial relief from a final arbitration award.¹ Indeed, the FAA does not allow for any judicial appellate review of an award, even by agreement of the parties.² However, neither the FAA nor state arbitration codes prohibit parties from contracting for the right to a full appellate review of an arbitration award, on the merits, via a private panel of appellate arbitrators. On the contrary, parties have the right to agree to this option in their original arbitration contract or by written stipulation at any time after a dispute arises.³

Parties may be surprised to discover that they need not sacrifice the finality, cost savings or speed of arbitration by preserving their appellate rights. The appellate rules established by JAMS, AAA and CPR – although each slightly different – generally empower the parties to design a fast, cost effective and final process, with many advantages over judicial appeals. 

For example, the finality of JAMS appellate review may surprise those who fear the delays of vacatur or remand as the reward for reversal of judgment on appeal. Instead, JAMS procedures prohibit remand for further hearing or “retrial” and limit the appellate panel’s authority to affirming, reversing or modifying an award.⁴ Even if a panel re-opens the record to receive any evidence excluded in error, at most, the panel will issue a new, final award.

Brevity of the time necessary for this appellate process is not only baked into the short deadlines proscribed by the applicable rules, but may be furthered by the parties’ agreement to shorten deadlines, limit briefing or waive oral argument. Additionally, in the right case, the parties can save time and expense by agreeing to an interlocutory appeal of a key issue, such as which party is in breach or the existence of insurance coverage, before incurring the – possibly unnecessary – additional expense of proving the amount of damages.

Further cost savings may result if the parties follow the lead of the European Court of Arbitration,⁵ by having a single arbitrator decide the underlying case, subject to the right of a subsequent review on the merits by three highly experienced, specially chosen appellate arbitrators. Obviously, using one arbitrator to manage and hear a dispute will significantly reduce the cost of the underlying arbitration, which cost savings will be much less than the fees for the appellate panel, which meets relatively briefly. 

The right of the panel and parties to customize the appellate process itself is another plus: arbitration appeals need not follow any hard and fast rules. The parties and panel may agree to several hours of oral argument. The panel may request additional information after initial briefing or argument, including submission of clarifying evidence to supplement the record. If the parties want the results of the appeal to be confidential outside the confines of the arbitration, that usually can be agreed to as well.

In summary, by assuring the review of awards finally, quickly, inexpensively, and fairly, by a hand-picked tribunal with specialized knowledge and experience, “… appellate arbitration enhances the benefits of arbitration itself.”⁶

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1 See e.g., Patton v. Signature Insurance Agency, Inc., 441 F.3d 230, 234 (4th Cir. 2006). Additionally, in Hall Street Associates, LLC. v. Mattel Inc., 552 U.S. 576 (2008), the U. S. Supreme Court limited vacation of an award to statutory grounds such as “evident impartiality”, “fraud”, “corruption”, refusing to hear “pertinent and material” evidence, and acts exceeding the powers of the arbitrator. Note, however, some states have statutory arbitration procedures, promulgated as alternatives to litigation, which allow for judicial appeals of the resulting award judgments. See e.g., Florida Statutes, 44.104, which preserves the parties’ appellate rights to the state intermediate appellate court, although the scope of review is limited to essentially legal rather than factual issues.^↩
2 Hall Street Associates, supra.^↩
3 For a scholarly discussion of the legal bases for contractual, legislative and other ways of overcoming concerns about the limited standards of review allowed for most arbitration awards, see Philip L. Bruner, The Appeal of Appellate Arbitration, in 35 INTERNATIONAL LAW REVIEW, Pt. 4, 436, 444 et seq. (2018) (“Bruner”). For example, JAMS suggests the following model contract provision: “The Parties adopt and agree to implement the JAMS Optional Arbitration Appeal Procedure” with respect to any arbitration award “arising out of or related to this [arbitration] agreement”. JAMS Comprehensive Arbitration Rules and Procedures rule 34 also allow parties to “agree at any time” during an arbitration to adopt the JAMS optional appellate procedures as an optional remedy in that proceeding. CPR and the AAA have their own, slightly different model contract language and rules.^↩
4 Thus, providing a remedy for the lament voiced in Enforcement of the Arbitration Award and Limited Rights of Appeal, in ARBITRATION AND THE SURETY, 79, 80 (A. Belleau, et al. eds. Am. Bar Ass’n 2020), that after vacatur of an arbitration award, the remedy is often no better than a costly “do over”.^↩
5 See, Attempts to Set Aside an Award, in THE PRINCIPLES AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION, 216, 217 (Margaret L Moses, 3rd ed. 2017).^↩
6 Bruner, p. 448.^↩

Author Patricia H. Thompson, Esq., FCIArb, is  a full-time neutral at JAMS, with experience conducting virtual and in-person mediations, arbitrations and other ADR proceedings in construction and other complex commercial disputes.