Optional Appellate Rules in Arbitration Are, Well, Optional

The American Arbitration Association rules for arbitration include a section titled "Optional Appellate Rules." One might think this obvious, but it took a Pennsylvania appellate court to point out to one party that, if the arbitration agreement did not specify the optional rules, those rules were not incorporated into the arbitration clause.

After litigation was underway between general contractor and subcontractor, the parties agreed to private arbitration. (The underlying contract apparently did not have an arbitration clause.) The arbitration agreement entered into stated “The Arbitrator shall conduct the hearing in the manner that he deems reasonable and appropriate. The arbitrator will require witnesses to testify under oath. The Arbitration will be conducted in accordance with the Arbitration Rules of American Arbitration Association."

The sub prevailed in arbitration, the prime argued against confirmation, but the trial court confirmed the award. On appeal in the court system, the prime contractor argued that the lower court should not have taken action on the award until the parties had pursued an appeal through the arbitration appellate rules.

The higher court noted that the prime contractor’s position “is fatally flawed as the agreement does not state that the optional appellate rules applied. Without such an agreement, the optional rules clearly do not apply. Moreover, the title of the AAA optional appellate rules clearly suggests these appellate rules do not automatically apply and must be elected by the parties.” (emphasis in original)

If parties want to invoke the AAA appellate procedures, or any arbitration forum appellate procedures, this election must be clearly stated. That is why such rules are labeled “optional.” The case is Pellman Elec., Inc. v. Parrot Constr. Corp., 2017 Pa. Super. Unpub. LEXIS 494 (Feb. 9, 2017). (LEXIS subscription required)

About Stan Martin

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Stan Martin holds a law degree and an undergraduate degree in architecture. He has been involved with the construction industry for more than 45 years, working in construction prior to law school and beginning his construction law practice. Over the course of his career, he has served on boards and committees for organizations including the Associated General Contractors of Massachusetts, the Boston Society of Architects, and the Massachusetts Building Congress.

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