FDIC 1212/03 (6-99)

TYPE AND NUMBER

Circular 5310.1

CONTACT TELEPHONE NUMBER

Henry R.F. Griffin (202) 898-8700

DATE

June 5, 2001

DATE OF CANCELLATION (Bulletins Only)

TO: All Divisions and Offices

FROM: William F. Kroener, III 

General Counsel

SUBJECT: Binding Arbitration

1. Purpose To implement the FDIC’s Arbitration Policy, 66 Federal Register 

18632 (2001), and provide uniform guidance and controls 

regarding the use of binding arbitration by the FDIC. The 

guidance and controls within this directive are critical given the 

limited rights to appeal a binding arbitration award.

2. Scope a. The provisions outlined in this directive apply to the FDIC in all 

capacities and to all Divisions and Offices seeking to use binding 

arbitration. Additionally, the provisions of this directive shall apply 

to Federal court-based arbitration programs. Binding arbitration 

may be used to resolve disputes in a number of situations where 

it is more practical, cost-effective, or efficient than litigation or 

other consensual methods of Alternative Dispute Resolution such 

as negotiation or mediation. 

b. This directive will not be construed as requiring the FDIC to 

participate in binding arbitration. This directive does not address 

the use of binding arbitration in workplace disputes concerning 

management and employees; EEO complaints or any other labor 

and employment disputes (including disputes subject to 

arbitration proceedings under 5 U.S.C. § 7121); state court-based 

arbitration programs; contracts or leases entered into by a 

depository institution prior to the appointment of the FDIC as 

conservator or receiver; or any of the FDIC’s regulatory, 

compliance or enforcement activities.

3. Authority The FDIC may enter into binding arbitration pursuant to the 

Administrative Dispute Resolution Act of 1996 (5 U.S.C. §§ 571-

583) and the Alternative Dispute Resolution Act of 1998 (28 

U.S.C. §§651-658). This directive does not supplant or 

FEDERAL DEPOSIT INSURANCE CORPORATION

DIRECTIVE SYSTEM

 *Name and telephone number has changed to reflect the new Contact.
Circular 5310.1 2 June 5, 2001

Authority 

(cont’d)

supersede any applicable FDIC delegations of authority with 

respect to the compromise or settlement of claims or disputes.

4. Action This directive should be reviewed by employees in Divisions and 

Offices who are considering using binding arbitration, and it will 

be posted and maintained on the FDIC Website for future 

reference. All Divisions and Offices affected by this directive 

should update their operating manuals accordingly.

5. Definitions Terms used in this directive are defined below:

a. Alternative Dispute Resolution (“ADR”). A generic term 

that encompasses a wide range of practices (binding or nonbinding) for managing and resolving disputes other than through 

litigation or administrative adjudication. Binding arbitration is a 

form of ADR. 

b. Administrative Dispute Resolution Act of 1996, 5 U.S.C. 

§§571-583 (“ADRA”). The ADRA authorizes the voluntary use 

of binding arbitration by Federal agencies in administrative 

matters, pursuant to certain restrictions set forth in the Act. 

These restrictions are set forth in paragraphs 7. and 8. of this 

directive.

c. Federal Arbitration Act, 9 U.S.C. §§ 1-14 (“FAA”). This 

statute provides for the enforcement in Federal court of

agreements to arbitrate and arbitration awards. The FAA is 

procedural, not substantive, in nature and creates no 

independent basis for Federal subject matter jurisdiction.

d. Binding Arbitration. A dispute resolution process similar to 

litigation where the parties agree to use a privately selected 

neutral decision-maker to hear their dispute and resolve it by 

rendering a final and binding award. Like litigation, arbitration is 

an adversarial, adjudicative process designed to resolve specific 

issues determined by the parties. Arbitration differs from litigation 

in that it does not require conformity with legal rules of evidence 

and procedure, allows flexibility in timing and choice of decisionmakers, is non-public, and results in awards which have no 

precedential value in other disputes. There are very limited rights 

of appeal from a binding arbitration award. 

e. Court-Based Arbitration. An arbitration procedure annexed 

to a court proceeding and ordered or required by the court. 

Federal court-based arbitration programs are operated pursuant 

to the Alternative Dispute Resolution Act of 1998 (28 U.S.C.§§ 

651-658). 
Circular 5310.1 3 June 5, 2001

Definitions 

(cont’d)

f. Evaluation. Usually a non-binding, outcome-determinative 

process in which a third-party neutral provides an advisory 

opinion to the parties as to the merits of the dispute, including an 

opinion as to the strengths and weaknesses of each party’s case.

g. Mediation. A non-binding, voluntary process involving the 

use of a third-party neutral who assists the disputants in 

attempting to resolve their disputes. Unlike arbitrators, mediators 

have no decision-making authority and cannot impose an award 

on the parties. 

h. Negotiation. The primary form of dispute resolution in which 

the parties communicate or bargain to settle a dispute with no 

assistance from a third-party neutral. 

i. Pre-Dispute Agreements to Arbitrate. Agreements in which 

the parties may agree at the time a contract is entered into to 

submit a dispute arising from the contract to binding arbitration. 

The agreements typically set forth the arbitration procedures that 

will be followed if a dispute arises. 

j. Post-Dispute Agreements to Arbitrate. Agreements to 

arbitrate entered into after a dispute has arisen and where no 

previous contractual dispute resolution mechanism was provided.

6. Background 

of FDIC 

ADR Program

The FDIC ADR Program is an organization-wide effort 

implementing ADR processes such as negotiation, mediation, 

evaluation, and arbitration (when authorized and when 

appropriate) for resolving disputes (see FDIC ADR Policy at 

62 Federal Register 66370). This directive reiterates the FDIC’s 

commitment and full support for using ADR and sets forth a 

framework for continuing and expanding the use of ADR by 

providing for the use of binding arbitration in appropriate cases as 

a means of dispute resolution. Although the FDIC encourages 

non-binding, consensual forms of ADR, the FDIC views the use 

of binding arbitration in appropriate circumstances as an 

additional ADR technique to accomplish its business in an 

efficient, economical, and productive manner.

7. Requirements 

for Use of 

Binding 

Arbitration

To use binding arbitration, the following statutory requirements 

must be met:

a. All agreements to arbitrate disputes must be in writing and 

must specify the subject matter to be submitted to the arbitrator 

for decision (5 U.S.C. § 575(a)(2));
Circular 5310.1 4 June 5, 2001

Requirements 

for Use of 

Binding 

Arbitration 

(cont’d)

b. All agreements to arbitrate must include a maximum award 

amount that may be granted by the arbitrator (5 U.S.C. 

§ 575(a)(2));

c. Any officer or employee of the FDIC offering to use binding 

arbitration in resolution of a dispute must have either the authority 

to enter into a settlement concerning the matter, or the specific 

authority to consent to binding arbitration on behalf of the FDIC 

(5 U.S.C. § 575(b)(1) and (2)); 

d. There may be no requirement that anyone consent to binding 

arbitration as a condition to contracting with the FDIC (5 U.S.C. 

§ 575(a)(3)); and 

e. The agreement to use binding arbitration must be voluntary on 

the part of all parties (5 U.S.C. § 575(a)(1)).

8. Restrictions on 

Use of Binding 

Arbitration

a. Binding forms of ADR such as arbitration shall not be used 

(except in exceptional circumstances) if the dispute:

(1) Requires an authoritative determination as precedent for 

other cases;

(2) Involves a significant question of government policy;

 (3) Significantly impacts persons who are not parties to the 

proceedings;

(4) Requires a public record of the proceedings;

 (5) Must be monitored on an on-going basis by a court or an 

administrative body to ensure compliance; and

(6) Must be adjudicated to establish a body of law. 

b. In addition to these considerations, this directive places the 

following limits on the use of binding arbitration at the FDIC, 

absent waiver by delegated authority: 

 (1) All agreements to arbitrate shall explicitly exclude any 

award of punitive, consequential, special or exemplary 

damages by the arbitrator. 

 (2) All agreements to arbitrate shall explicitly state that the 

parties to the arbitration proceedings must each bear their 

respective arbitration costs, including all attorneys fees and 

expenses. The agreement to arbitrate shall explicitly exclude 

any award of attorneys’ fees or arbitration costs by the 

arbitrator.
Circular 5310.1 5 June 5, 2001

Restrictions on 

Use of Binding 

Arbitration 

(cont’d)

 (3) No arbitrator can serve as counsel, advisor, witness or 

representative to any party to the arbitration proceedings. 

Potential conflicts of interest of arbitrators selected pursuant to 

this directive must be reviewed by the Legal Division’s 

Conflicts Committee. The Conflicts Committee will grant or 

deny, in writing, waivers of arbitrator conflicts in appropriate 

circumstances. 

9. Exclusions The provisions of this directive do not apply to the following:

a. State Court Arbitration Programs. The FDIC should 

carefully consider whether to engage in binding arbitration in 

state court. In the rare situation where the FDIC in either a 

receiver or conservator capacity is in state court and the court 

arbitration program is either mandatory or binding, careful 

assessment of the case and options to arbitration (including 

removal of the case to Federal jurisdiction) is recommended.

b. Labor and Employment Arbitration. Conflicts that arise 

during the course of employment, such as wrongful termination, 

sexual harassment, and discrimination based on race, color, 

religion, sex, national origin, age, and disability, union grievances 

and collective bargaining agreement disputes may be candidates 

for arbitration. However, the arbitration of these disputes is 

covered by specific labor statutes, regulations, and FDIC policies 

and procedures. Questions concerning labor and employment 

arbitration should be directed to the Labor, Employment and 

Administration Section, Legal Division.

c. Arbitration Clauses in Contracts Entered into by 

Depository Institutions Prior to Failure. Contracts entered into 

by depository institutions prior to the appointment of the FDIC as 

conservator or receiver are not subject to the provisions of this 

directive. For those situations, the Legal Division should be 

consulted to assist in determining whether it is in the best 

interests of the conservatorship or receivership to repudiate or to 

perform under the contract.

d. FDIC’s Regulatory, Compliance and Enforcement 

Activities. The policy and this directive are not intended to 

authorize the FDIC’s use of binding arbitration in connection with 

its regulatory, compliance, and enforcement activities.

10. Delegations of 

Authority

The decision to use binding arbitration, whether pre- or postdispute (see paragraph 11., below), is similar to decisions to 

contract, to initiate litigation, or to settle or compromise a 
Circular 5310.1 6 June 5, 2001

Delegations of 

Authority 

(cont’d)

dispute. Each of these decisions requires the written approval of 

one or more officers of the FDIC with the necessary delegated 

authority. The FDIC’s practice is to treat binding arbitration as 

either the compromise of a claim or the settlement of litigation, 

with approvals required at the appropriate level for both the 

compromise or settlement activity and for the dollar amount. 

Authority to determine the maximum award amount for any given 

arbitration is reflected in the expenditure and/or compromise and 

settlement delegations.

11. Pre- and 

Post- Dispute 

Agreements to 

Arbitrate

a. Form of Agreement:

 (1) Binding arbitration is a complete dispute resolution 

mechanism which has few, if any, rights of appeal. It is 

imperative that any arbitration provisions for use by the FDIC 

(whether in a pre- or post-dispute agreement) be carefully 

drafted and reviewed to ensure that all pertinent arbitration 

issues have been addressed for the particular transaction.

 (2) The Legal Division has developed standard or model 

arbitration provisions and clauses that may be used for form 

contracts and which may be tailored to suit the needs of 

particular situations. Divisions and Offices of the FDIC 

considering the use of binding arbitration shall use the forms 

and language provided by the Legal Division. Any language 

intended to invoke the use of binding arbitration where 

the FDIC is a party must be reviewed and approved by the 

Legal Division.

b. Case Approval for Binding Arbitration Provisions:

 (1) Pre-Dispute Agreements:

(a) The FDIC is a party to a wide range of contracts and 

agreements in all its capacities. FDIC pre-dispute clauses 

to arbitrate arise in agreements or contracts where the 

FDIC has agreed to binding arbitration as a dispute 

resolution mechanism. The FDIC recognizes that the 

optimal time for determining contract dispute resolution 

provisions is often at the inception or drafting of the 

contract.

(b) Binding arbitration clauses may be drafted to be 

voluntarily invoked as agreed to by the parties when a

dispute arises during performance of the contract. The 

decision to invoke voluntary binding arbitration clauses 

must be reviewed and approved by the Legal Division in 

accordance with this directive. Binding arbitration clauses 
Circular 5310.1 7 June 5, 2001

Pre- and 

Post-Dispute 

Agreements 

to Arbitrate 

(cont’d)

may also be written to require the parties, starting from 

the time the contract is executed, to resolve any disputes 

that may arise through binding arbitration. Clauses 

requiring the use of binding arbitration to resolve any 

disputes between the parties must be prepared in 

accordance with the procedures set forth in this directive 

and applicable Delegations of Authority.

(c) Binding arbitration clauses in contracts intended to be 

used by the FDIC in any capacity must be accompanied 

by a case requesting authority for approval to engage in 

binding arbitration. The case recommending the use of 

such arbitration clauses must contain the following 

information:

 1. The nature or substance of the transaction where 

the arbitration provision is intended to be used;

 2. The nature of disputes intended to be resolved by 

the provision;

 3. Potential dollar amounts in controversy or at risk 

(maximum award amount);

 4. Whether other forms of ADR have been or will be 

used;

 5. The advantages or benefits for the transaction of 

using binding arbitration; and

 6. A draft arbitration clause or agreement proposed 

to be used in the transaction.

 (2) Post–Dispute Agreements:

FDIC post-dispute agreements to arbitrate typically arise 

from newly arising or ongoing claims, disputes, or 

litigation. The FDIC shall consider arbitration in the postdispute context on a case-by-case basis. The decision to 

use binding arbitration should be in accordance with the 

existing corporate procedures for requesting the authority 

to settle or compromise a case. The case memorandum 

requesting authority to enter into a post-dispute 

agreement is similar to the pre-dispute case approval 

authority in subparagraph 11.b.(1), above, and shall 

contain:

(a) The nature or substance of the transaction where the 

dispute arose;
Circular 5310.1 8 June 5, 2001

Pre- and 

Post-Dispute 

Agreements 

to Arbitrate 

(cont’d)

(b) If in litigation, a description of the case and the status 

of the litigation;

(c) Potential dollar amounts in controversy or at risk 

(maximum award amount);

(d) The advantages or benefits to the FDIC and the 

transaction of using binding arbitration versus the use of 

litigation (this statement should include a discussion on 

the ability to withdraw from the litigation, to pursue 

settlement, establish precedent, have open records, and 

pursue an appeal); 

(e) Estimated costs to the FDIC in arbitrating the matter, 

including arbitrator costs, FDIC personnel costs, outside 

counsel costs, and case administration compared with the 

costs to litigate;

(f) Whether other forms of ADR have been or will be 

used; and 

(g) A draft arbitration agreement proposed to be used in 

the transaction.

c. Summaries:

In all pre- and post-dispute agreements where binding arbitration 

is used, the responsible FDIC Division or Office must, at the 

cessation of arbitration proceedings, complete a summary. This 

summary shall be an assessment of the use of arbitration and 

shall:

(1) Indicate the final costs of the arbitration;

 (2) Reflect the total amount awarded by the arbitrator;

 (3) Show the date of the decision; 

 (4) Estimate the costs to the FDIC had it litigated the matter; 

and 

(5) Include the arbitrator’s summary of decision and award 

and an evaluation of the arbitrator’s performance.

This summary shall be forwarded to the ADR Team of the Legal 

Division and the Division or Office Director or his designee 

participating in the arbitration proceeding.
Circular 5310.1 9 June 5, 2001

12. Responsibilities a. All Divisions and Offices considering the use of binding 

arbitration shall:

(1) Identify subject areas and transactions where arbitration 

may be appropriate to resolve disputes; 

(2) Develop plans and strategies for the implementation of 

binding arbitration in general and this directive specifically in 

identified subject areas; and

(3) Work with the Legal Division to identify legal issues that 

may affect the substantive transaction/subject area and the 

implementation of the use of binding arbitration. 

b. The Legal Division shall:

(1) Provide consultation and assistance in the development of 

each case for use of binding arbitration in pre- and postdispute agreements; 

(2) Review and concur in each case of binding arbitration; 

(3) At the request of a Division or Office, address legal issues 

that may occur if arbitration is used to resolve disputes arising 

in a transaction;

(4) Provide a requesting Division or Office with standard 

forms (model agreements, clauses, and the like) to use 

binding arbitration where approved;

(5) Assist in arbitration design;

(6) Assist in selection of arbitrators when requested; and

(7) Assist in the enforcement of arbitration agreements or 

awards pursuant to the terms of the Federal Arbitration Act.

Note: For purposes of this directive, references to the Legal 

Division shall, in the case of the Office of Inspector General, be 

deemed to be references to the Office of Counsel to the Inspector 

General.

13. Contact Questions regarding this directive should be directed to the ADR 

Team of the Legal Division in Washington.
Circular 5310.1 10 June 5, 2001

14. Effective Date The provisions of this directive are effective immediately.