Sunday, February 26, 2012

What Says the Texas Supreme Court About Whether Arbitration Contract Clauses Trump AAA Rules?

No so much, yet.   In Americo Life v. Myer (12/16/11), it had before it a case where the AAA had disqualified a party-selected arbitrator (selected by Americo) on the basis that he was not "impartial."    After losing the arbitration, Americo sought to set aside the award based on the proposition that the AAA was erroneous in its disqualification of the arbitrator in question, Ernest E. Figari, Jr.  

Americo argued to the AAA (1) that Figari was, in fact, impartial, and (2) even if he was not, he satisfied that contractual basis for an arbitrator, that is, that he merely be "a knowledgeable, independent businessperson or professional."    Notice that the contractual definition does not include impartiality.

The court of appeals held that Americo had waived its complaint by failing to argue number (2) of the arguments listed above before the AAA.    However, the supreme court held that that argument had, in fact, been made before the AAA and was not, therefore, waived.    Accordingly, it remanded to the court of appeals for further proceedings consistent with its opinion.

What about the question raised on its merits?    I think Americo will eventually prevail on that.    Arbitration is a creature of contract.    It is quite possible that parties to a contract might, for instance, value the expertise or knowledge of an arbitrator more than his impartiality.    If they do, the rules of the arbitration forum should give way to the contract.    The rules of the forum are normally viewed simply as "default" rules, to be applied if the parties do not provide otherwise.

You might ask, "why would anyone ever want an arbitrator that was not impartial?"

In the early common law, we did not even have impartial juries.    The juries were selected based on their knowledge of the local dispute--not their lack of knowledge of it.    The people who knew the parties best and who even knew about the dispute itself were deemed better fact finders than total strangers.

On the international level, disputes between old enemies like Greece and Turkey or Ireland and Great Britain have often been mediated by experienced diplomats who have immense personal knowledge of the participants in the disputes, their background, and the history of the disputes.   There is something to be said for knowledge and expertise, even if it might be such that it would affect pure impartiality.    Pure impartiality might require a large degree of ignorance of the issues.

Bodies like the AAA should be viewed merely as vehicles to carry out contractual arbitrations.    Their rules, when they are supplanted by agreements of the parties themselves, should have no effect.

Now, in this case there is also an argument that by adopting the AAA rules, the parties expanded their definition of the qualifications of an arbitrator.   Perhaps, but the better argument is that because the parties spoke to the definition, they spoke fully and in finality.

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