Martin C. Weisman on the Revised Uniform Arbitration Act
By Steve Thorpe
sthorpe@legalnews.com
Among the last minute bills passed at the end of the year by the lame duck state legislature was the Revised Uniform Arbitration Act. The new statute, effective July 1, 2013, addresses many issues in private arbitration. Martin C. Weisman has specialized in commercial litigation for more than 40 years, particularly in the areas of partnership, shareholder and banking disputes. He has also lectured in numerous continuing legal education programs, has represented shareholders, partners, borrowers, lenders, buyers and sellers, has testified as an expert witness and has an active practice as a court appointed special master, arbitrator, mediator, and facilitator in commercial disputes.
Thorpe: Why were these changes needed?
Weisman: The objective of the RUAA was to modernize the Michigan Arbitration Act (“MMA”) which was adopted in 1961 and which provided for the enforceability of executor agreements to arbitrate. The RUAA enhances the MMA by including important procedural protections not part of the original regulatory scheme. There were numerous gaps in the prior statute filled in by case law, which, in many cases, were inconsistent, unknown to the users, and for that matter the arbitrators. The goal of this new statute was to design a statute that would preserve the efficiencies of arbitration, incorporate the pertinent law, and facilitate the use of arbitration by offering some predictability. It is very important to note that this legislation does not mandate arbitration but, rather, provides a contemporary framework when and if arbitration is utilized. In short, The MMA was a “bare bones” statute that had not been modified since its adoption in 1961 and these changes were necessary to bring the arbitration statute into the 21st century.
Thorpe: What will be the immediate consequences of the changes?
Weisman: The RUAA does not depart from the foundational provisions of the MAA. Rather, it includes provisions that were previously addressed by arbitrators or courts on a case-by-case basis, resulting in process inefficiencies, increased costs, and disparate results. The RUAA is a qualitatively improved statute that will offer arbitration participants enhanced predictability, lower the costs, shorten the length the proceedings take, and, over time, increase the national uniformity of state arbitration legislation.
Thorpe: What are some of the key new provisions in this act?
Weisman: Electronic Records (Section 1): The MAA was adopted at a time when virtually all commerce was conducted through paper transactions. The RUAA provides for the use of electronic records, contracts and signatures consistent with recent technological advancements and federal law.
Initiating Arbitration (Section 2): The MAA is silent on how to initiate arbitration. The RUAA fills this gap by specifying notice requirements to adverse parties in arbitration.
Non-waivability of Provisions (Section 4): The RUAA recognizes that party autonomy may be trumped by the need to maintain some basic level of fairness. Section 4 embodies the freedom of contract notion up to the point where varying arbitration terms may result in a violation of applicable law. For example, Section 4 identifies provisions that parties may not waive at all, at any time during the proceeding. These include the right to compel or stay arbitration, the right to move to confirm or vacate an award, and the immunity rights of arbitrators and sponsoring organizations of arbitrations.
Determinations of Arbitrability (Section 6): The MAA is silent on how the question of who decides arbitrability and by what criteria. Section 6 makes clear that courts will determine whether or not an agreement to arbitrate exists. An arbitrator, however, will determine procedural issues of arbitrability, such as timeliness, and whether conditions precedents to filing have been met.
Consolidations (Section 10): Current law is schizophrenic on the subject of when separate arbitrations involving the same transaction may be consolidated. Federal courts generally will not order consolidation. Section 10 of the RUAA provides a mechanism for consolidation if a party is not prejudiced by the outcome, and the consolidation reduces time and expense for the parties. A separate provision precludes consolidation if the parties explicitly provided against it in their arbitration agreement.
Arbitral Disclosure (Section 12): The RUAA provides specific disclosure obligations requiring arbitrators to disclose known financial interests or personal relationships that could affect their impartiality. An arbitrator’s failure to a known material interest or relationship may be used to establish “evident partiality,” a ground on which a court may vacate the award.
Arbitral Immunity (Section 14): The general purpose of immunity is to encourage qualified individuals to serve as arbitrators. Section 14 of the RUAA codifies case law that provides both arbitrators and sponsoring organizations immunity from civil liability, tantamount to a judge. (Exceptions are those pertaining to arbitrator fraud or corruption). Section 14 also solidifies arbitral immunity by requiring a court to award to arbitrators and arbitration organizations attorneys’ fees and reasonable litigation expenses against any person unsuccessful in litigation.
Arbitration Process (Section 15): This section preserves the parties’ right to fashion arbitration to best suit their circumstances. However, a new provision in this section authorizes arbitrators to decide matters based on a “request for summary disposition.” Parties may preclude a case from being dismissed on summary disposition grounds by an explicit provision in their agreement.
Discovery (Section 17): The RUAA recognizes that parties in arbitration may require some form of evidence to advance their case. Section 17 authorizes arbitrators to order pre-hearing discovery but to do so only when “appropriate in the circumstances, taking into account the needs of the parties to the arbitration proceeding and other affected persons and the desirability of making the proceeding fair, expeditious, and cost effective.” It clear provides that arbitrators may limit discovery and therefore a decision by the arbitrator in doing so cannot be used as grounds to overturn the award. Section 17 also facilitates the process of securing necessary information in an arbitration involving persons located outside the state by providing for a single enforcement action, in the state where the arbitration occurred.
Change of Award by Arbitrators (Section 20): The RUAA permits parties to seek clarification (in case of ambiguity or technical/computational error) directly with the arbitrator, rather than having to petition a court to re-instate the arbitrator’s authority for this purpose.
Remedies (Section 21): Section 21 retains the general proposition that arbitrators may award broad forms of relief. Such broad forms may exceed the type of relief a court grants. However, under the RUAA, limits are placed on the arbitrators’ remedial power to award attorneys’ fees and punitive damages. With respect to punitive damages, RUAA places further constraints on arbitrators. An award of punitive damages may be made only where the evidence at the arbitration hearing meets the legal standard that otherwise would apply to the claim. As an additional safeguard, the arbitrator must specify in the award the basis in law and fact supporting a punitive damages award, and to state such an award separately from other grants in the award.
The Michigan ADR Section Council specifically approved the following language on punitive damages, to substitute for the RUAA language:
“21(a) An arbitrator may not award punitive damages or other exemplary relief unless such an award is authorized by statute in a civil action involving the .same claim and the evidence produced at the hearing justifies the award under the legal standards otherwise applicable to the claim.”
“21(e) If an arbitrator awards punitive damages or other exemplary relief under subsection (a), the arbitrator shall specify in the award the statutory and factual basis justifying and authorizing the award and slate separately the amount of punitive damages or other exemplary relief.”
Thorpe: One of the critical points seems to surround arbitral disclosure. Why and how was this dealt with?
Weisman: Section 12 of the RUAA provides specific disclosure obligations requiring arbitrators to disclose any material interest or relationship. Under current Michigan Rules MCR 3.602 (J) provides that an arbitration decision can be overturned if the award was procured by fraud, evident partiality, exceeding his/her powers, or refusing to postpone a hearing after a showing of sufficient cause. There was nothing that provided for Vacatur for failure to disclose a material interest or relationship. In the RUAA ( Section 23 and Section 12 (e)) such a failure to disclose can be considered misconduct on the part of the arbitrator that can be a potential ground for overturning an award. The key to the arbitration process is independent decision-making by knowledgeable neutrals. These neutrals must be able to judge impartially and independently. This guarantees to the participants the ability to monitor the due process and fairness of the arbitration process.
Thorpe: Records are treated a bit differently under the new law. Tell us about that.
Weisman: The MAA was adopted at a time when virtually all commerce was conducted through paper transactions. A key revision in the RUAA recognizes electronic, digital and other means of communication. Section 6 (a) requires that the arbitration agreement be contained in a record defined not only as a written document but also “information…. That is stored in an electronic or other medium and is retrievable in perceivable form.” It provides that testimony can be received through modern means of communication, therefore allowing video conferencing, etc. Finally the RUAA provides that the award itself must be in a “record” which also includes an e document. Therefore the use of the Internet and other electronic recording devices will streamline the process, and in many cases minimize costs.
Thorpe: How does this statute impact how parties initiate arbitration?
Weisman: Currently the MAA does not provide a mechanism on how to start arbitration if the parties have not provided for a reasonable means of notice in their arbitration agreement. No one really knew how to do it. The RUAA provides a means of notice and that the initiating party must provide enough information with respect to the claim and the remedy to put the responding party on notice. Section 9 of the RUAA requires the use of either certified or registered mail with a return receipt request. If the parties had not stipulated to use one of the existing arbitration providers like the American Arbitration Association or JAMS, which have their own rules, there was no formal way to start arbitration other than through petitioning a court. This takes time and additional costs. This is now a thing of the past.
Thorpe: Do you foresee the legislature or courts taking more actions to streamline or clarify the arbitration process and how will this legislation reduce litigation, if at all?
Weisman: There is always the possibility with new legislation that Courts will be called upon to interpret its provisions. However, since this is a uniform statute adopted in multiple states, many of which have been in force for several years, there is a framework of case law already in place. So I do not see very much in the way of this type of case. I do not think the legislature will move into this arena for many years to come. It took 50 years to get them to make this change. But because they did, this legislation will streamline the arbitral process, give the arbitrators the discretion that they need to manage the arbitration process without fear of having their decisions reversed. They will be able to become more managerial in making sure that the purposes of arbitration are upheld, i.e. a streamlined, efficient, less costly, yet fair method of dispute resolution. By knowing the rules of the game, the game will be played on a much higher level.
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