Michigan's New Arbitration Law
This article contains a description of the Revised Uniform Arbitration Act (RUAA) written by William L. Weber and a description of some of the key substantive changes in the new law written by Martin C. Weisman.
History
More than seven years ago the Alternate Dispute Resolution Section of the State Bar of Michigan concluded that the Michigan arbitration law was grossly inadequate and provided only a bare-bones enabling of the practice of arbitration. The current Michigan statute had been passed in 1961 and was based upon the original Uniform Arbitration Act that was approved in 1955 by the National Uniform Law Commissioners.
Today, arbitration is a vital alternative to litigation and it is a process chosen by numerous parties to resolve disputes in many areas of the law. The council of the ADR Section created the Effective Practices and Procedures Act Committee (EPP) with the specific purpose of monitoring proposed ADR legislation in Michigan as well as reviewing the ADR laws of other states. Mr. Weber, a former lobbyist for General Motors Corporation, was the first chair of the EPP.
Mary Bedikian, Director of the ADR program at Michigan State University College of Law, and Weber decided to recommend to the Council that Michigan should adopt the majority of the provisions of the Revised Uniform Arbitration Act. The strategy developed by Weber and Bedikian was to take this proposed legislation before the State Bar of Michigan (SBM), ride the coattails of the State Bar and simply pass the needed legislation. It sounded easy but it wasn't.
Problems were encountered early on when a "white paper" created by Professor Bedikian was sent to all Sections of the State Bar asking for their support. Several of the sections, and most prominently the Consumer Law Section, strongly opposed the proposed legislation on the grounds, among others, that due process rights to courts would be jeopardized.
Richard Morley Barron, a member of the Representative Assembly of SBM as well as a member of the EPP, presented arguments on April 18, 2009, in favor of adopting the legislation. Rather than accomplishing the expected "slam dunk," the proposed legislation was diverted to the Special Issues Committee of the SBM where it languished for nearly two years.
So Weber and a new Chair of the EPP, Weisman, were scheduled one more time to testify before the Representative Assembly. On the day of their testimony, they were informed by the Chair of the Representative Assembly that if they proceeded toward seeking a favorable vote, the RUAA would fail. For this reason, they decided to withdraw RUAA from consideration by the Representative Assembly.
At this point, some monumental decisions had to be made. If they were going to obtain a new arbitration law, they would have to do it themselves through the ADR Section. Several Chairs of the ADR Council supported the financial commitment to lobby for passage of the RUAA legislation. The first Chair was Donna Craig, followed by A. David Baumhart III and then Robert E. Wright. Bill Kandler, a lobbyist with Cusmano Kandler and Reed in Lansing, was hired to do the job.
Kandler arranged for Senator Tonya Schuitmaker to be the sponsor. Senator Schuitmaker has held many legislative appointments, including her current position as vice-chair of the Senate Judiciary Committee. Kandler also obtained the support of the Michigan Chamber of Commerce, Michigan Manufacturers Association and the Michigan Retailers Association, all of whom helped provide the business case for this legislation.
The RUAA legislation consisted of three Senate bills (901 through 903). It is extremely helpful in moving legislative bills to have a sponsor who is a member of the leadership of the respective house that is sponsoring the legislation. Weisman and Weber testified before both the Senate Judiciary Committee and the House Judiciary Committee regarding these bills.
The Elder Law and Negligence Law Sections opposed SB 901 through 903 on the grounds that it was likely to result in mandating arbitration provisions in nursing home contracts. Cathy Jacobs, a former ADR Council member as well as an elder law practitioner, strongly disputed the testimony of the Elder Law and Negligence Law sections and, along with Weber and Weisman, helped convince the Judiciary Committee to vote unanimoously in favor of passage. The House passed a slightly modified version of SB 901 through 903 by a measure of 108 to 0.
Before the legislation got to the Governor, it had to compete with the Right to Work legislation that was a priority on the minds of all Michigan legislators. The skill of Mr. Kandler really came into play at that time.
If the bills were passed by both houses, but time ran out in the calendar year of 2012 without the Governor's signature, it would have been necessary to start all over again. Fortunately, that problem was avoided because Mr. Kandler managed to keep the legislation on schedule and Governor Snyder signed the bills into law on December 14, 2012. (See MCL 691.1681, PA 371 of 2012, effective July 1, 2013.
Substantive Changes
The objective of the RUAA was to modernize the Michigan Arbitration Act (MAA), which was adopted in 1961 and provided for the enforceability of executory agreements to arbitrate. The RUAA enhances the MAA 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 that 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 MAA 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. Some of the key features of this legislation are:
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 arbitrators.
Determinations of Arbitrability (Section 6): The MAA is silent on 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 precedent 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 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 the arbitration agreement.
Arbitral Disclosures (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 disclose 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 clearly 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 reinstate 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 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 State Bar 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 state separately the amount of punitive damages or other exemplary relief."
Vacatur (Section 12): 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 12 and Section 12(e) such a failure to disclose can be considered misconduct on the part of the arbitrator that can be 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.
Conclusion
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 of time needed for proceedings and over time, increase the national uniformity of state arbitration legislation.
This article appeared in the August 2013 issue of PREMI, THE PREMIer SOURCE…For Dispute Resolution, A Publication of Professional Resolution Experts of Michigan LLC (“PREMi”) and was reprinted in PREMI with permission from the Oakland County Bar Association Laches publication dated May 2013. ______________________________________
William L. Weber, Jr. is the Executive Director of the Professional Resolution Experts of Michigan, LLC (PREMi) an organization of 16 independent mediators and arbitrators.
Martin C. Weisman is a member of Bingham Farms law firm of Weisman, Young & Ruemenapp, PC and Professional Resolution Experts of Michigan, LLC (PREMi). He also is a member of the American Arbitration Association Panel of Neutral Arbitrators for Complex Commercial Disputes. He is recognized as a Michigan "Super Lawyer" and Michigan "dBusiness Top Lawyer" with more than 43 years of experience in the areas of alternative dispute resolution, banking, finance, partnership and shareholder issues, real estate and construction matters, and general commerce contract disputes. He has served as a neutral, court or party-appointed arbitrator, mediator and/or case evaluator in hundreds of commercial matters and is an ADR trainer, lecturer and author. Mr. Weisman is a member of the State Bar of Michigan ADR Section Council. Reprinted with permission from the Oakland County Bar Association Laches publication dated May 2013. _______________________________________
The opinions of the author are not necessarily those of other Associates of Professional Resolution Experts of Michigan, LLC.
Copyright pending by Professional Resolution Experts of Michigan 2013.