Imposing Sanctions

In this article, the author explains that arbitrators can craft scheduling orders in ways that will undergird sanctions when necessary. This article explores these avenues and concludes with some practical language for inclusion in a scheduling order.

By amending the sanctions regime in the Employment Arbitration Rules in May 2025, the American Arbitration Association^® (AAA^®) has aligned these rules with the Commercial, Construction, and Payor/Provider Rules. In so doing, the AAA has made explicit what was arguably implicit prior to the amendments. The bases for arbitral proscriptions, however, do not depend solely on the AAA’s rules. The parties’ contract often contains language that supports the imposition of sanctions. Additionally, existing case law provides significant support for a wide variety of sanctions, as do the arbitration statutes of states that have adopted the Revised Uniform Arbitration Act (RUAA) or a similar version. Importantly, arbitrators themselves can craft scheduling orders in ways that will undergird sanctions when necessary. This article explores these avenues and concludes with some practical language for inclusion in a scheduling order.

The Parties’ Contract

Like many other inquiries that explore the reach of an arbitrator’s authority, the sanctions analysis begins with the parties’ agreement. Many arbitration clauses have broad language such as “the Arbitrator has the authority to award any remedy that would have been available had the parties litigated the dispute in court under applicable law.” Courts have used such expansive language to uphold sanctions against a party. In Reliastar Life Ins. Co. v. EMC Nat’l Life Co.,^[1] the court found that broad arbitration clauses give arbitrators “the discretion to order such remedies as they deem appropriate,”^[2] including sanctions (in that case, an award of nearly $4,000,000 in attorney’s fees and costs).^[3]

One could argue that such wording gives an arbitrator even greater authority than the AAA Rules provide.

The AAA’s Rules

Sanctions Generally

There are several AAA Rules that provide a basis for sanctions.

Rule 60 of the Commercial Rules, appropriately entitled “Sanctions,” provides:

(a)  The arbitrator may, upon party’s request, order appropriate sanctions where a party fails to comply with its obligations under these Rules or with an order of the arbitrator. . . . [If] the arbitrator enters a sanction that limits a party’s participation in the arbitration or results in the adverse determination of an issue or issues, the arbitrator shall explain that order in writing, and shall require the submission of evidence and legal argument prior to making an award. The arbitrator may not enter a default award as a sanction.

(b)  The arbitrator must provide a party that is subject to a sanction request with the opportunity to respond prior to making any determination regarding the sanctions application.^[4]

The language here suggests that it would not be appropriate for the tribunal, on its own, to order sanctions under this rule; it must await a request from a party. While the rule does not require a hearing, better practice suggests that holding an evidentiary hearing and giving the parties the opportunity to present both evidence and argument is the more appropriate manner to proceed and will more likely protect the record.

One arguably unsettled issue is the final sentence in subsection (a) of Rule 60. What does the language “[t]he arbitrator may not enter a default award as a sanction” actually mean? Is a “default award” the equivalent of striking a party’s pleadings for misconduct? Does a “default award” require inaction by a party, such as the failure to respond to a sanctions motion? What about non-payment of a sanctions order imposed at some point during the course of discovery which grants attorney’s fees or costs in connection with a motion to compel? This author understands the “default” language to apply when a party or its representative fails to appear or participate at some point in a proceeding. Thus, when the disobedient party is a party without an affirmative claim, it makes sense for the tribunal to require the non-disobedient party (either a claimant or a respondent having a counterclaim) to establish the elements of its causes of action prior to entering a final award.

This logic is consistent with at least one opinion which addressed the interplay between Commercial Rule R-60 and severe sanctions. In Hurt v. Williams,^[5] the arbitrator entered sanctions which prevented the respondent from presenting any evidence or cross-examining witnesses at the final hearing. On appeal, the respondent argued that this amounted to a “de facto default” violating the prohibitions in R-58(a).^[6] The court upheld the arbitrator’s decision, in part because the tribunal heard legal argument from both sides; required the claimant to present evidence; allowed the respondent to voir dire the claimant’s expert and make objections at the final hearing; and considered proposed findings of facts and conclusions of law from both parties.^[7]

The lesson to be derived from Hurt is that at least as far as Rule 60 is concerned, a claimant still needs to carry its burden of proof before it can obtain an affirmative final award. The author believes the circumstances would be different if a claimant—and not a respondent—was the severely disobedient party. If circumstances exist justifying the most severe sanctions—that is, striking of pleadings or dismissal—against such a misbehaving claimant, there is no need to proceed to a final hearing in the absence of a counterclaim.^[8]

Discovery-Related Sanctions

All of the AAA arbitration rules provide for some—but not identical—information and document exchange. Nearly all of those rules also give the tribunal the power to enforce those rules. For example, R-24 of the Commercial Rules provides that:

[t]he arbitrator shall have the authority to issue any orders necessary to enforce the provisions of R-22 and R-23 and any other rule or procedure and to otherwise achieve a fair, efficient and economical resolution of the case including, without limitation: . . .

(d) in the case of willful non-compliance with any order issued by the arbitrator, drawing adverse inferences, excluding evidence and other submissions, and/or making special allocations of costs or an interim of costs arising from such non-compliance; and

(e) issuing any other enforcement orders which the arbitrator is empowered to issue under applicable law.^[9]

The phrase “under applicable law” is quite broad.

What is the interplay between Rule 24 and Rule 60? Rule 24 is more—but not solely—focused on the exchange of documents and information than is Rule 60. Rule 24 uses the language of “enforcement,” while permitting broad remedies that can be imposed without a motion. R-60 contains the punitive language of “sanctions,” and is more broadly applicable to failures to comply with “obligations under these Rules.” The latter rule permits “appropriate sanctions,” but requires a motion by a party. This author views these rules as complementary, not exclusive, and they may be used in tandem under appropriate circumstances.

In upholding arbitral sanctions, some courts have read AAA’s Commercial discovery rules together with the broad language found in Commercial Rule R-49(a),^[10] which is titled “Scope of the Award.” In Superaudio Ltd. P’ship v. Winstar Radio Prod., LLC.,^[11] the court examined that rule in connection with an ongoing discovery violation and pointed out that:

Noteworthy in these rules is the absence of any language limiting the means by which an arbitrator or arbitration panel may resolve discovery disputes, or language restricting the application of the broad remedial relief of rule 45(a)^[12] to final awards (and precluding the grant of broad remedial relief to interim awards). . . . To give arbitrators control over discovery and discovery disputes without the authority to impose monetary sanctions for discovery violations and noncompliance with discovery orders, would impede the arbitrators’ ability to adjudicate claims effectively in the manner contemplated by the arbitration process.^[13]

Addressing a Possible Gap Between the Old Employment Rules and Their Amended Version

Although the older versions of the Employment Arbitration Rules may have lacked the specific sanctions and enforcement verbiage of the other rules, courts have found other language common to all rules to support sanctions under the older version of the Employment Arbitration Rules. For example, in Seagate, the court upheld the severe sanction of excluding certain evidence based on bad faith discovery conduct of parties. The court upheld the sanctions under AAA’s then-applicable Employment Rule 39.^[14] The court noted that “although the AAA rules for employment disputes do not expressly authorize sanctions, they also do not limit the arbitrator’s authority to impose sanctions.”

Indeed, the Seagate court rejected respondent’s argument that the absence of sanctions language in old rule 39—while the other AAA rules expressly allowed for sanctions—prevented the imposition of sanctions in that case. The court cited a prior Minnesota Supreme Court decision which stated that when “‘the arbitrators are not restricted by the submission to decide according to principals of law, they may make an award according to their own notion of justice and without regard to the law.’”^[15]

Non-Payment Remedies

Commercial Rule 59,^[16] entitled “Remedies for Non-Payment,” permits an arbitrator to issue “remedies”—not sanctions—for failure to pay arbitrator expenses or AAA administrative fees upon the request of a party. These remedies, or “measures,” as the rule calls them, may include “(i) limiting a party’s ability to assert or pursue its claim; and (ii) prohibiting a non-paying party from filing any motion.”^[17] Despite those restrictions, the rule does not preclude a party from defending a claim or counterclaim, even if they have not made payment. Like Rule 60, Rule 59 also requires that the arbitrator afford the subject of any possible remedies the opportunity to respond to any request for such measures.

State Statutes

State arbitration statutes vary widely in the explicit authority they grant to arbitrators. This is not to say that state courts have been shy in upholding arbitral authority, but many of those decisions are based on the common law, rather than the express statutory language found in the Revised Uniform Arbitration which, at the time of this writing, 23 states have adopted.^[18] For example, New York and California do not have statutes setting forth in explicit language the authority arbitrators may yield. Florida and New Mexico, on the other hand, have robust verbiage supporting sanctions.

Florida’s Arbitration Statute

Florida Statute Section 682.11(3) provides that:

an arbitrator may order such remedies as the arbitrator considers just and appropriate under the circumstances of the arbitration proceeding. The fact that such a remedy could not or would not be granted by a court is not a ground for refusing to confirm an award [ ] or for vacating an award.^[19]

This language grants broad authority to the tribunal.

Revised Florida Arbitration Code Section 682.08(4) grants similar sweeping authority for an arbitrator to address discovery violations: “[T]he arbitrator may order a party to the arbitration proceeding to comply with the arbitrator’s discovery-related orders . . . and take action against a noncomplying party to the extent a court could if the controversy were the subject of a civil action in this state.” Rule 1.380 of the Florida Rules of Civil Procedure specifically addresses the remedies at the circuit courts’ disposal in the event a party fails “to obey an order to provide or permit discovery.” These include, among other things,

[a]n order refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting that party from introducing designated matters in evidence . . . [a]n order striking out pleadings or parts of them . . . or dismissing the action or proceeding or any part of it, or rendering a judgment by default against the disobedient party.^[20]

The court also has the power to treat such disobedience as a contempt of court and may award attorney’s fees and costs in connection with the failure to obey.^[21] This language can be interpreted to give arbitrators even broader authority than the AAA Rules provide, especially if the parties have invoked the Revised Florida Arbitration Code in connection with their arbitration. If the parties have not incorporated the Revised Florida Arbitration Code, the extent to which remedies broader than those available under the AAA’s Rules is unclear, even if the contract contains a broad “remedies” clause.

New Mexico

In Hurt, the arbitrator entered sanctions which prevented that respondent from presenting any evidence or cross-examining witnesses at the hearing. On appeal, the respondent argued that this amounted to a “de facto default” violating due process. Among other matters, the court considered whether the sanctions imposed violated New Mexico’s arbitration law.

The court cited Section 44-7A-18(d) of New Mexico’s Uniform Arbitration Act, which states in pertinent part that an “arbitrator may order a party to . . . comply with the arbitrator’s discovery related orders . . . and take action against a non-complying party to the extent a court could if the controversy were the subject of a civil action in this state.”^[22] The court noted that New Mexico trial courts had the authority to enter a range of sanctions under the applicable Rules of Civil Procedure. These included “limiting a party’s participation in the proceedings based on non-compliance with a discovery order,” as well as—in the case of willful non-compliance—“dismissing the action . . . or rendering a judgment by default against the disobedient party.”^[23] Given the arbitrator’s findings that respondents willfully failed to comply with a discovery order and repeatedly and egregiously abused the discovery process, the court upheld the sanctions. One might expect a similar outcome for those states which have adopted the RUAA or similar language.

The Common Law—Generally

Courts around the country have upheld a wide variety of arbitral sanctions for discovery violations. These include, among other remedies, awards for significant amounts of attorney’s fees, adverse inferences, and exclusion of evidence. Affording arbitrators substantial discretion, courts have declared that in awarding sanctions, “[a]n arbitrator is not bound by principles of substantive law . . . [and] may do justice as he sees it, applying his own sense of law and equity to the facts as he finds them to be and making an award reflecting the spirit rather than the letter of the agreement.”^[24]

In Hamstein Cumberland Music Group v. Williams,^[25] the arbitrator first ordered $500,000 in discovery sanctions for failure to respond to discovery the arbitrator had ordered. At the final hearing, the arbitrator barred the disobedient party from introducing certain evidence based on the failure to comply with the arbitrator’s discovery orders. In upholding these sanctions, the court noted that “arbitrators enjoy inherent authority to police the arbitration process and fashion appropriate remedies to effectuate this authority, including with respect to conducting discovery and sanctioning failure to abide by ordered disclosures.”^[26]

In Reliastar, the court upheld the arbitration panel’s award of nearly $4 million in attorneys’ fees and arbitrator fees. The court held that arbitration panel had “inherent authority” to sanction a party that participated in the arbitration in bad faith. The author notes that few decisions rely upon “inherent authority” in upholding arbitrator-imposed sanctions.

Spoliation Remedies/Sanctions

The Common Law

The courts have developed a fairly robust common law to address spoliation of evidence.^[27] As with other discovery violations, when faced with conduct amounting to spoliation and an arbitration agreement which gives the arbitrator authority to resolve any dispute arising out the agreement, courts have held that tribunals have the discretion to award “remedies they determine appropriate. . . .”^[28] In Americredit, the court upheld the arbitrator’s dismissal of respondent’s counterclaim when the evidence demonstrated that respondent had spoliated evidence. Moreover, the Americredit court also pointed out that then-applicable Commercial Rule R-43^[29] gave the arbitrator authority to enter such relief.

The AAA Rules

Common law is not the only source of an arbitrator’s authority to act when spoliation occurs. R-23 of the Commercial Rules, entitled “Pre-Hearing Exchange and Production of Information,” provides that in managing the exchange of information between the parties, the arbitrator shall be engaged in “promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.” The other AAA rules referenced herein have identical language.^[30] This language arguably applies if spoliation (whether accidental or intentional) has deprived the other party of loss of the ability to prosecute or defend its case or a portion thereof.

Moreover, Rule 24 of the Commercial Rules, which addresses arbitral enforcement powers, provides that in the case of willful non-compliance with any order (which would include an order compelling discovery), the tribunal has the power to draw adverse inferences and exclude evidence, two remedies often deployed when a party spoliates evidence.

Sanctions Against Counsel in Arbitration

While egregious or disobedient conduct by an attorney might prompt arbitrators to consider sanctioning counsel, one must tread extremely carefully. R-60 only uses the word “party” when discussing sanctions.^[31] Additionally, the relatively few available decisions in this area are split.^[32]

Other Possible Sources of Sanctions

Occasionally courts may suggest or hint that attorney misconduct could be the subject of a bar referral.^[33] Given that arbitrators are bound by arbitral confidentiality, such a referral would be problematic, to say the least. One could consider invoking the AAA/ICDR Standards of Conduct for Parties and Representatives. These standards, however, are fairly limited in terms of scope (e.g., addressing repeated filing of frivolous pleadings, motions) and remedies. The standards do permit AAA to decline to further administer a case.

Practical Suggestions

The Scheduling Order can serve as a means to implement or support sanctions in arbitration. Two clauses that can be put into scheduling orders are:

Failure to Comply with Deadlines/Motions

No party should expect to appear at the final hearing to present evidence without having first complied timely with the undersigned’s orders to ensure a fair and equitable process. If there is any reason that a party is unable to comply with these deadlines, then the party should contact opposing counsel to see if they can resolve the matter and, if so, submit a proposed agreed order to the undersigned. If they cannot resolve the matter, they should file a motion and no later than five business days before the deadline and request a conference call with the Arbitrator. Stated another way, any requests to vary a deadline must be submitted in a timely manner before the deadline passes.

This language is particularly helpful when counsel for one party: (1) fails to comply with the tribunal’s orders; (2) does not confer (sometimes repeatedly) before filing motions, or (3) files motions outside the required deadlines.

Other helpful verbiage includes:

Arbitration Hold: Counsel for the parties are directed to inform their clients that the Arbitrator has ordered an arbitration hold which applies to this action, and that the clients must take steps to prevent the destruction of all documents, both paper and electronic, which reasonably relate to the parties or the claims at issue in this Arbitration. If any party has an automatic document destruction/deletion program in place, that system should be overridden until this action is completed. Failure to abide by this hold order may result in sanctions, including but not limited to the granting of an inference that the documents destroyed were harmful to the person or entity destroying them.

Conclusion

Arbitrators have a wide range of sanctions at their disposal. Of course, it is extremely important to lay the proper foundation for entry of such an order. It starts with helpful wording in a scheduling order and can conclude with an evidentiary hearing and oral argument (which can be very useful if transcribed). While arbitrators should not be timid about employing sanctions when necessary, overreach is not difficult and tribunals must give strong consideration to the process they provide arbitration participants before imposing sanctions.^[34]