Drafting an Enforceable Mandatory Arbitration Agreement ... - ALI CLE
Drafting an Enforceable Mandatory Arbitration Agreement ... - ALI CLE
Drafting an Enforceable Mandatory Arbitration Agreement ... - ALI CLE
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M<strong>an</strong>datory <strong>Arbitration</strong> 41<br />
<strong>Drafting</strong> Tip<br />
Providing for “adequate” discovery is <strong>an</strong> ambiguous<br />
concept, <strong>an</strong>d it c<strong>an</strong> be difficult to differentiate<br />
between appropriately streamlined discovery<br />
<strong>an</strong>d unenforceable, insufficient discovery.<br />
However, it is advisable to either incorporate<br />
the discovery provisions of a reputable <strong>an</strong>d<br />
respected arbitration service, such as the Americ<strong>an</strong><br />
<strong>Arbitration</strong> Association, or, in the alternative,<br />
concurrently provide for a limited amount<br />
of discovery <strong>an</strong>d a me<strong>an</strong>s for seeking more discovery<br />
after the arbitrator’s approval.<br />
Written <strong>Arbitration</strong> Award<br />
<strong>an</strong>d Judicial Review<br />
To ensure that arbitrators comply with the<br />
statutes at issue in arbitration, m<strong>an</strong>datory arbitration<br />
agreements must not limit judicial review.<br />
Since the court was not presented with<br />
the precise issue of whether or not a particular<br />
arbitration award was enforceable in the<br />
Armendariz case, it declined to articulate a precise<br />
st<strong>an</strong>dard of judicial review required for<br />
m<strong>an</strong>datory arbitration agreements. However,<br />
the court did hold that, for successful <strong>an</strong>d<br />
me<strong>an</strong>ingful judicial review, the arbitrator<br />
would have to issue a written decision that reveals<br />
“the essential findings <strong>an</strong>d conclusions<br />
on which the award is based.”<br />
<strong>Drafting</strong> Tip<br />
This drafting mistake is also easily remedied.<br />
When preparing a m<strong>an</strong>datory arbitration agreement,<br />
clearly state that the arbitrator will be required<br />
to issue a written ruling regarding the<br />
dispute, <strong>an</strong>d do not attempt to limit a court’s review<br />
of that decision.<br />
M<strong>an</strong>datory Employee Payment<br />
of Unreasonable Costs <strong>an</strong>d Fees<br />
The largest portion of the court’s Gilmer factors<br />
discussion was devoted to the employee’s<br />
payment of unreasonable costs <strong>an</strong>d fees. The<br />
agreement at issue in Armendariz provided that<br />
the employee “pay his pro rata share of the expenses<br />
<strong>an</strong>d fees of the neutral arbitrator, together<br />
with other expenses of the arbitration incurred<br />
or approved by the neutral arbitrator,” as<br />
set out in California Code of Civil Procedure<br />
section 1284.2.<br />
The court devoted considerable attention to<br />
Cole v. Burns Intern. Security Services, 105 F.3d<br />
1465 (D.C. Cir. 1997), <strong>an</strong>d quoted its discussion<br />
regarding arbitration fin<strong>an</strong>cing at length, noting<br />
that possible costs include arbitrators’ fees r<strong>an</strong>ging<br />
from $500-$1,000 per day or more, a $500 filing<br />
fee, <strong>an</strong>d $150 per day for administrative<br />
fees, in addition to room rental <strong>an</strong>d court reporter<br />
fees. Although some of these fees mirror<br />
costs required of a plaintiff when filing a claim<br />
in court, <strong>an</strong>d were thus reasonable, the court<br />
pointed out that <strong>an</strong> employee would never be<br />
required to pay for a judge in order to have<br />
claims heard.<br />
Finally, the holding pointed out that other<br />
courts, including the Tenth <strong>an</strong>d Eleventh Circuits<br />
in particular, had reached essentially the<br />
same decision regarding arbitration fin<strong>an</strong>cing,<br />
concluding that when m<strong>an</strong>datory arbitration<br />
agreements are signed as a condition of employment,<br />
the employer must bear the arbitrators’<br />
fees.<br />
<strong>Drafting</strong> Tip<br />
Do not include <strong>an</strong>y provisions that may ultimately<br />
require the employee to pay the arbitrators’<br />
fees, even as part of <strong>an</strong> award of damages.<br />
Consider including other provisions clearly<br />
stating that each party will be required to pay its<br />
own other costs, such as witness fees, filing fees,<br />
or other amounts which they would be required<br />
to pay as part of litigating a claim in court.<br />
Lack of Mutuality<br />
In determining whether or not the Armendariz<br />
agreement was unconscionable, the court re-