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American Arbitration Association Creates Right to Appeal

Tuesday, November, 19, 2013


Traditionally, the term ‘binding arbitration’ clearly implied the lack of an appeal process, as the ability to appeal arbitration decisions would naturally undermine the authority and enforceability of arbitration agreements.  It would also remove one of the key advantages to arbitration: The lack of court costs and delays.  If any arbitration agreement could be appealed, it would simply become one more component of a lengthy court battle.


However, in response to hesitation on the part of larger corporations to enter into arbitration agreements when the issues being arbitrated would be worth millions or even billions of dollars (for example, the recent Starbucks-Kraft arbitration ruling that was valued at $2.79 billion), the American Arbitration Association (AAA) has drafted new rules that allow for a limited appeals process under strict guidelines.  The new rules allow for appellate panels staffed by experienced, certified arbitrators or former judges.  These panels will be empowered to review awards only when there are allegations of errors in the law being applied or grievous factual errors.


Importantly, the new rules do not make the appeals process automatic: It must be written into the arbitration agreement itself, or it will not be an option.


The hope is that the new option will encourage wider adoption of arbitration as a solution, because aggrieved parties who feel they were treated unfairly in the arbitration process in terms of how the law was interpreted or how the facts of the case were presented will have at least some option to seek redress.  At the same time the built-in limitations of the new rules are designed to keep the appeals process a rare one, so as not to undermine what’s seen as the key advantage of arbitration agreements: Avoiding the courts and the associated costs and delays.