S 1186

112th CONGRESS
1st Session

S. 1186

To amend chapter 1 of title 9, United States Code, to establish fair procedures for arbitration clauses in contracts.

IN THE SENATE OF THE UNITED STATES

June 13, 2011

Mr. SESSIONS introduced the following bill; which was read twice and referred to the Committee on the Judiciary


A BILL

To amend chapter 1 of title 9, United States Code, to establish fair procedures for arbitration clauses in contracts.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the `Fair Arbitration Act of 2011'.

SEC. 2. ELECTION OF ARBITRATION.

    (a) In General- Chapter 1 of title 9, United States Code, is amended by adding at the end the following:

`Sec. 17. Election of arbitration

    `(a) Fair Disclosure- In order to be binding on the parties, a contract containing an arbitration clause shall--

      `(1) have a printed heading in bold, capital letters entitled `arbitration clause', which heading shall be printed in letters not smaller than 1/2 inch in height;

      `(2) explicitly state whether participation within the arbitration program is mandatory or optional;

      `(3) identify a source that a consumer or employee can contact for additional information regarding--

        `(A) costs and fees of the arbitration program; and

        `(B) all forms and procedures necessary for effective participation in the arbitration program; and

      `(4) provide notice that all parties retain the right to resolve a dispute in a small claims court, as provided in subsection (b)(12).

    `(b) Procedural Rights-

      `(1) IN GENERAL- If a contract provides for the use of arbitration to resolve a dispute arising out of or relating to the contract, each party to the contract shall be afforded the rights described in this subsection, in addition to any rights provided by the contract.

      `(2) COMPETENCE AND NEUTRALITY OF ARBITRATOR AND ADMINISTRATIVE PROCESS-

        `(A) IN GENERAL- Each party to the dispute (referred to in this section as a `party') shall be entitled to a competent, neutral arbitrator and an independent, neutral administration of the dispute.

        `(B) ARBITRATOR- Each party shall have a vote in the selection of the arbitrator, who--

          `(i) unless otherwise agreed by the parties, shall be a member in good standing of the bar of the highest court of the State in which the hearing is to be held;

          `(ii) shall comply with the Code of Ethics for Arbitrators in Commercial Disputes of the American Bar Association and the American Arbitration Association and any applicable code of ethics of any bar of which the arbitrator is a member;

          `(iii) shall have no--

            `(I) personal or financial interest in the results of the proceedings in which the arbitrator is appointed; or

            `(II) relation to the underlying dispute or to the parties or their counsel that may create an appearance of bias; and

          `(iv) prior to accepting appointment, shall disclose all information that might be relevant to neutrality (including service as an arbitrator or mediator in any past or pending case involving any of the parties or their representatives) or that may prevent a prompt hearing.

        `(C) ADMINISTRATION- The arbitration shall be administered by an independent, neutral alternative dispute resolution organization to ensure fairness and neutrality and prevent ex parte communication between parties and the arbitrator. The arbitrator shall have reasonable discretion to conduct the proceeding in consideration of the specific type of industry involved.

      `(3) APPLICABLE LAW- In resolving a dispute, the arbitrator--

        `(A) shall be governed by the same substantive law that would apply under conflict of laws principles applicable in a court of the State in which the party that is not drafter of the contract resided at the time the contract was entered into; and

        `(B) shall be empowered to grant whatever relief would be available in court under law or equity.

      `(4) REPRESENTATION- Each party shall have the right to be represented by an attorney, or other representative as permitted by State law, at their own expense.

      `(5) HEARING-

        `(A) IN GENERAL- Each party shall be entitled to a fair arbitration hearing (referred to in this section as a `hearing') with adequate notice and an opportunity to be heard.

        `(B) ELECTRONIC OR TELEPHONIC MEANS- Subject to subparagraph (C), in order to reduce cost, the arbitrator may hold a hearing by electronic or telephonic means or by a submission of documents.

        `(C) FACE-TO-FACE MEETING- Each party shall have the right to require a face-to-face hearing, which hearing shall be held at a location that is reasonably convenient for the party who did not draft the contract unless in the interest of fairness the arbitrator determines otherwise, in which case the arbitrator shall use the process described in section 1391 of title 28, to determine the venue for the hearing.

      `(6) EVIDENCE- With respect to any hearing--

        `(A) each party shall have the right to present evidence at the hearing and, for this purpose, each party shall grant access to all information reasonably relevant to the dispute to the other parties, subject to any applicable privilege or other limitation on discovery under applicable State law;

        `(B) consistent with the expedited nature of arbitration, relevant and necessary prehearing depositions shall be available to each party at the direction of the arbitrator; and

        `(C) the arbitrator shall--

          `(i) make reasonable efforts to maintain the privacy of the hearing to the extent permitted by applicable State law; and

          `(ii) consider appropriate claims of privilege and confidentiality in addressing evidentiary issues.

      `(7) CROSS EXAMINATION- Each party shall have the right to cross examine witnesses presented by the other parties at a hearing.

      `(8) RECORD OF PROCEEDING- Any party seeking a stenographic record of a hearing shall make arrangements directly with a stenographer and shall notify the other parties of these arrangements not less than 3 days before the date of the hearing. The requesting party shall pay the costs of obtaining the record. If the transcript is agreed by the parties, or determined by the arbitrator to be the official record of the proceeding, it shall be provided to the arbitrator and made available to the other parties for inspection, at a date, time, and place determined by the arbitrator.

      `(9) TIMELY RESOLUTION-

        `(A) IN GENERAL- Upon submission of a complaint by the claimant, the respondent shall have not more than 30 days to file an answer.

        `(B) EVIDENCE- After the answer is filed by the respondent, the arbitrator shall direct each party to file documents and to provide evidence in a timely manner so that the hearing may be held not later than 90 days after the date of the filing of the answer.

        `(C) EXTENSIONS- In extraordinary circumstances (including multiparty, multidistrict, or complex litigation) the arbitrator may grant a limited extension of the time limits under this paragraph, or the parties may agree to such an extension.

        `(D) DECISION- The arbitrator shall notify each party of its decision not later than 30 days after the hearing.

      `(10) WRITTEN DECISION- The arbitrator shall provide each party with a written explanation of the factual and legal basis for the decision. This written decision shall describe the application of an identified contract term, statute, or legal precedent. The decision of the arbitrator shall be subject to review only as provided in subsection (c)(2) of this section and sections 10, 11, and 16 of this title.

      `(11) EXPENSES- The arbitrator or independent arbitration administration organization, as applicable, shall have the authority to--

        `(A) provide for reimbursement of arbitration fees to the claimant, in whole or in part, as part of the remedy in accordance with applicable law or in the interests of justice; and

        `(B) waive, defer, or reduce any fee or charge due from the claimant in the event of extreme hardship.

      `(12) SMALL CLAIMS OPT OUT-

        `(A) IN GENERAL- Each party shall have the right to opt out of binding arbitration and to proceed in any small claims court with jurisdiction over the claim. For purposes of this paragraph, no court with jurisdiction to hear claims in excess of $50,000 shall be considered a small claims court.

        `(B) EXCEPTION- If a complaint in small claims court is amended to exceed the lesser of the jurisdictional amount of that court or a claim for $50,000 in total damages, the small claims court exemption of this paragraph shall not apply and the parties shall proceed by arbitration.

    `(c) Denial of Rights-

      `(1) DENIAL OF RIGHTS BY PARTY MISCONDUCT-

        `(A) IN GENERAL- At any time during an arbitration proceeding, any party may file a motion with the arbitrator asserting that another party has deprived the movant of a right granted by this section and seeking relief.

        `(B) AWARD BY ARBITRATOR- If the arbitrator determines that the movant has been deprived of a right granted by this section by another party, the arbitrator shall award the movant a monetary amount, which shall not exceed the reasonable expenses incurred by the movant in filing the motion, including attorneys' fees, unless the arbitrator finds that--

          `(i) the motion was filed without the movant first making a good faith effort to obtain discovery or the realization of another right granted by this section;

          `(ii) the opposing party's nondisclosure, failure to respond, response, or objection was substantially justified; or

          `(iii) the circumstances otherwise make an award of expenses unjust.

      `(2) DENIAL OF RIGHTS BY ARBITRATOR-

        `(A) IN GENERAL- A losing party in an arbitration proceeding may file a petition in the United States district court in the State in which the party that did not draft the contract resided at the time the contract was entered into to assert that the arbitrator violated a right granted to the party by this section and to seek relief.

        `(B) REVIEW- A United States district court may grant a petition filed under subparagraph (A) if the court finds clear and convincing evidence that an action or omission of the arbitrator resulted in a deprivation of a right of the petitioner under this section that was not harmless. If such a finding is made, the court shall order a rehearing before a new arbitrator selected in the same manner as the original arbitrator as the exclusive judicial remedy provided by this section.

    `(d) Limitation on Claims- Except as otherwise expressly provided in this section, nothing in this section may be construed to be the basis for any claim in law or equity.

    `(e) Definitions- In this section--

      `(1) the term `contract' means a contract evidencing a transaction involving commerce; and

      `(2) the term `State' includes the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, and the Virgin Islands.'.

    (b) Technical and Conforming Amendment- The table of sections at the beginning of chapter 1 of title 9, United States Code, is amended by adding at the end the following:

      `17. Election of arbitration.'.

    (c) Effective Date- The amendments made by this section shall apply to any contract (as that term is defined in section 17 of title 9, United States Code, as added by this Act) entered into after the date that is 6 months after the date of enactment of this Act.

END