When Is an “arbitration” Not an Arbitration?
| Publication year | 2017 |
| Pages | 28 |
ALTERNATIVE DISPUTE RESOLUTION
By JOHN A. CRISWELL.
This article offers suggestions to help counsel achieve cost-effective and successful arbitrations by making the arbitrator's job easier.
Both state and federal statutes apply to an "agreement to arbitrate," by which parties to a dispute typically agree to submit evidence and argument to a selected neutral who issues a binding decision resolving a dispute.
However, some parties enter into agreements for "non-binding arbitration," pursuant to which the selected neutral does not issue a binding decision, but merely makes a recommendation for settlement of the dispute that the parties may either accept or reject. This article discusses whether such an agreement is an "agreement to arbitrate" under either a state or the federal statute.
Governing Statutes
The public policy of Colorado has always favored arbitration as a means of settling disputes in lieu of litigation before the courts. From the initial adoption of the Colorado Constitution, the General Assembly has been under an obligation to enact laws allowing the parties to a controversy, who have mutually consented to using arbitration as their chosen "mode of adjustment," to select arbitrators to "decide differences" between them.[1] Initially, this legislative obligation was fulfilled by the adoption of a fairly simple statute,[2] which was later superseded by a virtually identical court rule when the Colorado Supreme Court adopted the Colorado Rules of Civil Procedure.[3]
The Colorado Supreme Court determined that these statutory and rule provisions were not the exclusive standards to be applied to arbitration proceedings; rather, parties could elect either to have their arbitration proceedings governed by these provisions or to engage in a "common law arbitration."[4]
More recently, however, the General Assembly adopted, with a few revisions, the Revised Uniform Arbitration Act (RUAA),[5] which regulates the authority of the arbitrator and the procedures to be followed in arbitration proceedings. On its face the RUAA governs agreements to arbitrate made on or after August 4,2004.[6] Given this specific provision, it may well be that every agreement to "arbitrate" will be subject to this statute, so that it is no longer possible for parties to agree to engage in a common law arbitration. In addition, the General Assembly has adopted a number of statutes authorizing or requiring parties to a dispute arising under a substantive statute to settle those disputes through arbitration.[7]
Among its other provisions, die RUAA
■ grants courts die authority to determine whether an agreement to arbitrate exists, and grants arbitrators the authority to determine whether a condition precedent to arbitration has occurred;[8]
■ authorizes the court, before an arbitrator is appointed, and the arbitrator thereafter, to issue an order for provisional remedies;[9]
■ authorizes die court to consolidate "separate arbitration proceedings" if certain specific conditions are met;[10]
■ requires the person who is requested to serve as an arbitrator to disclose to the parties any matter that a "reasonable person would consider likely to affect" that person's impartiality;[11]
■ renders an arbitrator "immune from civil liability to the same extent as a judge" would be immune from such liability;[12]
■ authorizes the arbitrator to issue subpoenas for witnesses and for the production of records and other evidence and to require such prehearing discovery as die arbitrator deems appropriate (such subpoenas and discovery orders are subject to all provisions of die law that are applicable in a judicial proceeding);[13] and
■ provides that an award entered by the arbitrator maybe confirmed, modified, or vacated by die court under the circumstances set forth in the RUAA.[14]
In addition to the RUAA, the Federal Arbitration Act (FAA)[15]applies to arbitration proceedings under any "contract evidencing a transaction involving commerce."[16] The FAA was enacted pursuant to congressional authority to regulate interstate commerce, and it preempts the application of any inconsistent state law.[17]
The FAA makes an agreement to arbitrate enforceable by either the state or federal courts; it grants arbitrators the right to issue subpoenas; and it authorizes courts to confirm, modify, or vacate arbitration awards. Otherwise, the FAA contains few provisions specifying the procedures to be followed in arbitration proceedings.
Non-Binding Arbitration Agreements
While both die RUAA and die FAA refer to an agreement to "arbitrate" and to "arbitration" proceedings, neither term is defined in either statute. But unless the alternative dispute resolution procedure that the parties' agreement calls for is "arbitration" the provisions of these statutes are inapplicable to the dispute resolution process. This lack of definition becomes an issue when parties agree to "non-binding arbitration."
Under the typical agreement for non-binding arbitration, parties select a neutral to act as the "arbitrator," and the neutral holds a hearing and takes testimony and other evidence in much the same manner as the arbitrator would under a typical arbitration agreement. However, the neutral under this type of agreement does not render an "award." Rather, the neutral renders a non-binding "report," which may summarize the factual basis for the report, and which contains a non-binding recommendation for settlement of the dispute. This recommendation is not a "decision," and it becomes effective only if both parties, per their later mutual consent, accept that recommendation. From this perspective, this procedure resembles "fact finding," as that term is defined in Colorado's Dispute Resolution Act.[18]
In Colorado, non-binding arbitration is most commonly seen in agreements between a local government and a labor organization that represents its employees. This method of dispute resolution was likely adopted by these parties shortly after the Colorado Supreme Court's 1962 decision in Fellows v. Latronica,[19]which appeared to hold that a provision for binding arbitration in a contract between a local government and a labor organization constituted an unlawful delegation of legislative authority by that local government. However, in 1983 the Supreme Court overruled Fellows, and clarified that arbitration of disputes involving the interpretation or implementation of an existing agreement between such parties is permissible and legally enforceable.[20] Of course, one or both parties to such an agreement may be reluctant to grant a third party the authority to render a binding decision with respect to the meaning of provisions in the agreement, which might be precedential in a later dispute. As a result, non-binding arbitration provisions have continued to appear in agreements between local governments and labor organizations.
Is "Non-Binding Arbitration" Arbitration?
The question thus arises whether an agreement calling for non-binding arbitration is an "agreement to arbitrate" under either the RUAA or the FAA, so that the provisions of those statutes are applicable to that agreement.
Both statutes contain provisions for the confirmation, modification, or vacation of an arbitration "award." These provisions seem to reflect the overall legislative intent that the statutes were meant to apply only to decisions of neutrals that are binding on the parties. Because the neutral in a non-binding arbitration proceeding does not render a binding award, there is nothing for the court to...
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