As first noted by my colleague Steve Lapatin in his recent summary of the 2024 Rhode Island Legislative session, Rhode Island’s Arbitration Act set forth in title 10, chapter 3 of the Rhode Island General Laws (the “Arbitration Act”) was recently amended in several material ways that likely affects arbitration provisions adopted by numerous Rhode Island businesses/employers. If your business utilizes arbitration provisions, you need to be aware of these changes to the Arbitration Act, or risk losing the right to arbitrate your business’s disputes.
These amendments are primarily focused on ensuring that, in arbitration agreements involving consumers or employees, the party that drafts the arbitration provision (referred to in the amendments as the “drafting party”) makes timely payment to the arbitrator/arbitration provider, and the ramifications for failure to make timely payment are both wide-ranging and severe, not to mention potentially outcome determinative. Per the amended statute, invoices related to an arbitration are typically “due upon receipt,” and the drafting party is in “material breach” of the arbitration agreement if it does not make payment “within thirty (30) after the due date.” A drafting party that fails to make timely payments faces a variety of consequences under the amended Arbitration Act, including not only forfeiting the right to arbitrate the dispute, but also the entry of default judgment. Upon the drafting party’s material breach, the non-drafting party has the option of continuing with arbitration or returning to court. Regardless of which option the non-drafting party selects, the drafting party faces additional, major sanctions. The list of potential sanctions consists of not only discovery and/or evidentiary-related sanctions, but also “terminating sanctions,” which includes “[a]n order rendering judgment by default against the drafting party.” Imposition of some type of sanction appears to be presumed under the amended Arbitration Act, but that presumption can be overcome by a finding of “substantial justification or [] other circumstances mak[ing] imposition of the sanction unjust.”
In addition to the potential loss of the ability to arbitrate the dispute and/or the entry of default judgment, a drafting party who fails to make a timely payment also can be made to pay some or all of the attorneys’ fees and costs (including arbitration costs) of the non-drafting party. If the non-payment relates to an initial filing fee, and the non-drafting party opts to continue with the arbitration, the drafting party can be made to “pay all reasonable attorneys’ fees and costs related to the arbitration.” If the non-payment relates to the arbitration fees and costs incurred during the pendency of the arbitration, and the non-drafting opts to forgo arbitration and return to court, the drafting party can be made to pay “all attorneys’ fees and costs associated with the abandoned arbitration.”
In stark contrast with these extreme penalties aimed at the drafting party’s failure to make timely payment, the Arbitration Act as recently amended is silent as to a non-drafting-party’s failure to make timely payment in relation to the arbitration, and any related penalties or consequences. The Arbitration Act’s concerns regarding timely payment of arbitrators only relate to a drafting party’s failure to make payment.
The amendments to the Arbitration Act concern issues other than a drafting party’s failure to make timely payment. A notice of intention to arbitrate filed by any party must now include a statement that, if a party wishes to object to proceeding with arbitration, that party must apply to stay arbitration within 20 days of service of that notice. The notice of intention must also state affirmatively the rights that will be waived if the party fails to seek a stay of the arbitration. Also, a party to an arbitration now has a right to be represented by counsel, and that right cannot be waived. Similarly, any arbitration agreement cannot “discriminate or penalize a party for retaining the services of counsel.” The Arbitration Act does not establish severe consequences for failure to adhere to these other, newly adopted statutory provisions.
Every Rhode Island business likely has been late in making a payment at one time or another. Thus, any Rhode Island business that utilizes arbitration provisions in its contractual relationships should be asking counsel whether the punitive aspects of the Arbitration Act somehow can be avoided. The answers to those questions implicate complex legal issues related to preemption of state law under the Federal Arbitration Act, which establishes a firm federal public policy in favor of enforcing arbitration provisions and encouraging arbitration, as well as the scope of the federal government’s Commerce Cause power. Adler Pollock & Sheehan, P.C. is ready and willing to answer these questions for your business and help navigate these amendments to the Arbitration Act.
