Arbitration of disputes by private arbitrators, instead of resolution of a dispute by a trial in Court, is required today by the terms of many business contracts, and also in many consumer transactions, either by a provision in a signed contract or by agreeing electronically to contract terms by a click on a website.
While arbitration can be sometimes quicker and cheaper than Court proceedings, one of its chief disadvantages is that there usually is no right to a typical “appeal” of an arbitration decision, no matter how wrong an Arbitration Award may seem.
Both the California Assembly and the United States Congress have adopted laws providing for limited review of arbitration awards in Court. Both these statues provide a much more limited basis for correcting or overturning an Arbitration Award than there is in an appeal after a trial in Court.
However, in some cases it may be possible for the parties, prior to the arbitration, to limit the powers of the arbitrators in certain ways in the Arbitration Agreement or in the Submission Agreement, which could have the effect of expanding somewhat the otherwise limited statutory grounds for vacating an Arbitration Award. (See related article)
Whether the California Arbitration Act, or the Federal (or United States) Arbitration Act, applies to a particular Arbitration Award depends on a number of factors, including the terms of your arbitration agreement, whether the contract involves Interstate Commerce, whether a Federal Court has jurisdiction, and possibly other legal factors. Which law applies can greatly affect your rights before, during or after the arbitration. (See related article)
If your attempt to get the arbitrator to correct or amend his or her own decision immediately after (within 30 days or less) sending of the Award is unsuccessful (See related article), then you must be ready to immediately proceed in Court.
Under the California Act, a “petition” to correct or vacate the arbitration award must be “filed” with the Court and “served” on the other party to the Award within 100 days after the Award is served on the parties. Codes Civil Proc. § 1288 et seq.
If a Federal Court has jurisdiction and State arbitration law does not apply, a Petition to correct or vacate the Award must be file with the Court and a Motion and Notice of Motion to Vacate or Correct the Award must also be served on the other party by a U.S. Marshall within 90 days after the Award was served on or sent to the parties to the Award.
The grounds for a Court to vacate or correct an Arbitration Award are similar- but not identical- under the California and Federal Arbitration Acts.
In some circumstances the Federal Act may provide a greater or broader grounds for relief.
For purposes of brevity, this article will only discuss grounds for correction or vacation (or “vacatur”) of an Award under the United States or Federal Arbitration Act in situations where there are no express contractual limits on the powers of the arbitrators beyond their power to generally resolve a specific dispute or class of disputes.
(The indented quotations below are from the Federal Act or from published U.S. District Court or U.S. Court of Appeals or other Court decisions.)
A United States Federal District Court has the power under the Act, 9 U.S.C. §§ 10 & 11, to vacate, modify, correct or clarify contractual Arbitration Awards, or in certain instances to order a rehearing or clarification of the award in a further arbitration proceeding.
A "district court must take the award as it finds it and either vacate the entire award using section 10 or modify the award using section 11." Legion Ins. Co. v. VCW, Inc., 198 F.3d 718, 721 (8th Cir. 1999). The deference owed to arbitration awards, however, "is not the equivalent of a grant of limitless power," Leed Architectural Prods., Inc. v. United Steelworkers of Am., Local 6674, 916 F.2d 63, 65 (2d Cir. 1990), and "courts are neither entitled nor encouraged simply to rubber stamp' the interpretations and decisions of arbitrators." Matteson v. Ryder Sys. Inc., 99 F.3d 108, 113 (3d Cir. 1996). Thus, courts may also vacate arbitral awards which are "completely irrational" or "evidence[] a manifest disregard for the law." Hoffman v. Cargill Inc., 236 F.3d 458, 461 (8th Cir. 2001) (internal quotations and citations omitted).” (Emphasis added)
Stark v. Sandberg, Phoenix & von Gontard, P.C. (8th Cir. 2004) 381 F.3d 793, 799.
“The Ninth Circuit has recognized three narrow exceptions to the general rule of deference to an arbitrator's decision: (1) when the arbitrator's award does not "draw its essence from the . . . agreement" and the arbitrator is dispensing "his own brand of industrial justice," Enterprise Wheel & Car Corp., 363 U.S. at 597, 80 S.Ct. at 1361; (2) when the arbitrator exceeds the boundaries of the issues submitted to him, Pack Concrete, Inc. v. Cunningham, 866 F.2d 283, 285 (9th Cir.1989); . . . ..” (Emphasis added)
Teamsters Local 853 v. Paper (N.D. Cal. Feb. 17, 2010) 2010 U.S. Dist. LEXIS 14282, 7-8. See also, Oehmke. Commercial Arbitration (3rd Ed.), Exceeding Contractual Powers, Ch. 146.
9 U.S.C. § 10 states:
“(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration—
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
(b) If an award is vacated and the time within which the agreement required the award to be made has not expired, the court may, in its discretion, direct a rehearing by the arbitrators.
. . . .” (Emhpasis added)
Vacatur Where Arbitrators Exceed their Contractual Power or Authority
The power of the arbitrators comes from the terms of the Arbitration Agreement or Submission Agreements signed by the parties:
”Section 10 of [9 U.S.C.] permits vacatur "where the arbitrators exceeded their powers." 9 U.S.C. § 10(a)(4). A party has "a right to arbitration according to the terms for which it contracted," W. Employers Ins. Co. v. Jefferies & Co., 958 F.2d 258, 261 (9th Cir. 1992), and arbitrators exceed their powers for purposes of § 10(a)(4) when they "act outside the scope of the parties' contractual agreement," Mich. Mut. Ins., 44 F.3d at 830; see Stolt-Nielsen, 130 S. Ct. at 1772-75. . . .” (Emphasis added)
Lagstein v. Certain Underwriters at Lloyd's (9th Cir. 2010) 607 F.3d 634, 643; Porzig v. Dresdner, Kleinwort, Benson, N. Am. LLC (2d Cir. N.Y. 2007) 497 F.3d 133, 140.
“If an arbitrator exceeded the scope of his authority in issuing an award, and that award is divisible, we may vacate part of the award and leave the remainder in force. See Lyle v. Rodgers, 18 U.S. (5 Wheat.) 394, 409, 5 L. Ed. 117 (1820) (Marshall, C.J.) (stating that "an award may be void in part, and good for the residue"); Barington Capital, 336 F.3d at 1134 ("A federal court may vacate an arbitration award, or a portion thereof, if the arbitrators acted beyond their authority."). . . . ” (Emphasis added)
Comedy Club, Inc. v. Improv West Assocs. (9th Cir. 2009) 553 F.3d 1277, 1288.
“[W]e do not believe that the party challenging the eligibility of a matter for arbitration faces a burden of persuasion when arguing in the district court that an ineligible matter figured in determining an arbitration award. . . . In cases involving multiple claims, however, such awards provide little basis for courts to determine whether an award was based, at least in part, upon claims that the parties never agreed to arbitrate. Imposing a burden of persuasion in this context, therefore, would undermine our basic objective of ensuring that arbitration agreements "are enforced according to their terms". See First Options, 514 U.S. at 947 (internal quotations omitted). In the instant case, it is sufficient for the appellants to show that the Johnsons submitted an ineligible claim for arbitration, and that the arbitration panel may have relied upon that claim in fashioning its award. Accordingly, we hold that the panel exceeded its powers in issuing an award that relied upon an investment not eligible for arbitration. See 9 U.S.C. § 10(a)(4).” (Emphasis added)
Geneva Sec. v. Johnson (7th Cir. 1998) 138 F.3d 688, 692.
“The scope of the arbitrator's authority is determined by the contract requiring arbitration as well as by the parties' definition of the issues to be submitted in the submission agreement. Piggly Wiggly Operators' Warehouse, Inc. v. Piggly Wiggly Operators' Warehouse Indep. Truck Drivers Union, Local No. 1, 611 F.2d 580, 583-84 (5th Cir. 1980) (holding that the court must look at both the contract requiring arbitration as well as the submission agreement to determine the arbitrator's authority); see also Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1323 (5th Cir. 1994) ("The parties may agree to arbitration of disputes that they were not contractually compelled to submit to arbitration."). In other words, the "initial contract to arbitrate may be modified [or expanded] by the submission agreement." Piggly Wiggly Operators' Warehouse, Inc., 611 F.2d at 584. . . .”(Emphasis added)
Schoenduve Corp. v. Lucent Techs., Inc. (9th Cir. 2006) 442 F.3d 727, 732.
“A submission agreement may restrict or broaden the issues contemplated by the arbitration clause. (See O'Malley v. Petroleum Maintenance Co. (1957) 48 Cal.2d 107, 110 [308 P.2d 9]; Hall, at p. 432; National Indemnity Co. v. Superior Court (1972) 27 Cal.App.3d 345, 349 [103 Cal. Rptr. 606].) . . . .” (Emphasis added)
Greenspan v. LADT, LLC (2010) 185 Cal. App. 4th 1413, 1437-1438.
“"[A]rbitration is a creature of contract, and an arbitration panel has the authority to decide only the issues that have been submitted for arbitration by the parties.") (citing Matteson., 99 F.3d at 114); Fahnestock & Co., Inc. v. Waltman, 935 F.2d 512, 514 (2d Cir. 1991) ("[I]f arbitrators rule on issues not presented to them by the parties, they have exceeded their authority and the award must be vacated.") (internal citations and quotation marks omitted); Courier-Citizen Co. v. Boston Electrotypers Union No. 11, 702 F.2d 273, 281 (1st Cir. 1983) ("While an arbitrator has broad power to fashion remedies on issues the parties have empowered him to resolve, he lacks authority to decide questions the parties have not agreed to submit to him.") (internal citations omitted).” (Emphasis added)
PMA Capital Ins.v. Platinum Underwriters Berm., LTD. (E.D. Pa. 2009) 659 F. Supp. 2d 631, 638, aff’d 400 Fed. Appx. 654 (3d Cir. Pa. 2010)
“Section 10(a)(4) of the FAA provides that a court may vacate an award "where the arbitrators exceeded their powers." 9 U.S.C. § 10(a)(4). Arbitrators exceed their powers when they express a "manifest disregard of law," or when they issue an award that is "completely irrational." Comedy Club II, 553 F.3d at 1290 (citing Kyocera, 341 F.3d at 997). . . . .”
Bosack v. Soward (9th Cir. 2009) 573 F.3d 891, 898-899, cert. den 130 S.Ct. 1522 (2010).
Thus, for example, if an arbitrator has decided an issue or dispute which the parties did not give him the authority - in the arbitration clause or in a Submission Agreement - to resolve or decide, then the Award may be vacated on that grounds.
Vacatur Where the Arbitration Award is “Completely Irrational”
An arbitrator’s decision must be based on the facts in evidence and on the terms of the contract or agreement from which the dispute arises.
If it does not, the Court may vacate the Award.
“An award may be vacated if it is "completely irrational." Comedy Club II, 553 F.3d at 1288. This "standard is extremely narrow and is satisfied only 'where [the arbitration decision] fails to draw its essence from the agreement.'" Id. (citing Hoffman v. Cargill Inc., 236 F.3d 458, 461-62 (8th Cir. 2001)) (alterations in Comedy Club II).”
“An award "draws its essence from the agreement if the award is derived from the agreement, viewed in light of the agreement's language and context, as well as other indications of the parties' intentions." McGrann v. First Albany Corp., 424 F.3d 743, 749 (8th Cir. 2005); see also Coast Trading Co., Inc., v. Pac. Molasses Co., 681 F.2d 1195, 1197 (9th Cir. 1982) (holding that an "arbitrator is confined to the interpretation and application of the parties' agreement" and that an "award is legitimate only so long as it draws its essence from the . . . agreement") (quoting United St1424 (1960) (internal quotation marks omitted)). Under this standard of review, we do not "decide the rightness or wrongness of the arbitrators' contract interpretation, only whether the panel's decision 'draws its essence' from the contract." Pacific Reinsurance Mgmt. Corp. v. Ohio Reinsurance Corp., 935 F.2d 1019, 1024 (9th Cir. 1991) (quoting New Meiji Market v. United Food & Comm'l Workers Local Union 905, 789 F.2d 1334, 1335 (9th Cir. 1986)).” (Emphasis added)
Bosack v. Soward, supra, 573 F.3d at 901.
“However, "[a]n arbitrator is not free to ignore or abandon the plain language of the parties' agreement." Gas Aggregation Servs., Inc. v. Howard Avista Energy, LLC, 319 F.3d 1060, 1065 (8th Cir. 2003); see Keebler Co. v. Milk Drivers & Dairy Employees Union, Local No. 471, 80 F.3d 284, 288 n.4 (8th Cir. 1996).” (Emphasis added)
Williams v. NFL (8th Cir. 2009) 582 F.3d 863, 883.
“It is only when [an] arbitrator strays from interpretation and application of the agreement and effectively ‘dispense[s] his own brand of industrial justice’ that his decision may be unenforceable.” . . . In that situation, an arbitration decision may be vacated under § 10(a)(4) of the FAA on the ground that the arbitrator “exceeded [his] powers,” for the task of an arbitrator is to interpret and enforce a contract, not to make public policy. In this case, we must conclude that what the arbitration panel did was simply to impose its own view of sound policy regarding class arbitration.n3"
Stolt-Nielsen S. A. v. Animal Feeds Int'l Corp. (2010) 559 U.S. 662, 130 S.Ct. 1758, 1766-1768.
“However, "the question is whether the award is 'irrational' with respect to the contract, not whether the panel's findings of fact are correct." Id. "Whether or not the panel's findings are supported by the evidence in the record is beyond the scope of our review." Id. at 1105. . . . .”(Emphasis added)
Lagstein v. Certain Underwriters at Lloyd's (9th Cir. 2010) 607 F.3d 634, 641-642.
“Under the "completely irrational" doctrine, the question is whether the award is "irrational" with respect to the contract, not whether the panel's findings of fact are correct or internally consistent. See, e.g., Comedy Club II, 553 F.3d at 1288; Hoffman, 236 F.3d at 462.”(Emphasis added)
Bosack v. Soward (9th Cir. 2009) 586 F.3d 1096, 1106
“[T]he contract must not be "susceptible of the arbitrator's interpretation." Local 970 v. B.F. Nelson Folding Cartons, Inc., 151 F.3d 748, 750 (8th Cir. 1998) (quotation omitted).” (Emphasis added)
Hoffman v. Cargill, Inc. (8th Cir. 2001) 236 F.3d 458, 462.
“We follow the Supreme Court's oft-quoted guidance that "if the arbitrator's award 'draws its essence from the . . . agreement,' and is not merely the arbitrator's 'own brand of industrial justice,' the award is legitimate." Beacon Journal Pub., 114 F.3d at 599 (quoting United Steelworkers of Am. v. Enter. Wheel & Car Co., 363 U.S. 593, 597, 80 S. Ct. 1358, 4 L. Ed. 2d 1424 (1960)). And we have said that: An arbitrator's award fails to draw its essence from the agreement when: (1) it conflicts with express terms of the agreement; (2) it imposes additional requirements not expressly provided for in the agreement; (3) it is not rationally supported by or derived from the agreement; or (4) it is based on "general considerations of fairness and equity" instead of the exact terms of the agreement. Beacon Journal Pub., 114 F.3d at 600 (citations omitted). n4”
“n4 But see Mich. Family Res., Inc. v. SEIU Local 517M, 438 F.3d 653, 2006 U.S. App. LEXIS 2007, at *11 (6th Cir. Jan. 27, 2006) (Sutton J., concurring) (questioning the consistency of the four-part test with Supreme Court precedent).” (Emphasis added)
Solvay Pharms., Inc. v. Duramed Pharms., Inc. (6th Cir. 2006) 442 F.3d 471, 476.
“"[T]he arbitrator is not free merely to dispense his own brand of [] justice."); Subsurfco, 914 F.2d at 1075 ("[Even where] the arbitrator's authority is broad, it is not unlimited. The arbitrator . . . [may not] disregard or modify unambiguous contract provisions.") (internal citations and quotation marks omitted); Inter-City Gas, 845 F.2d at 187 ("[I]f the arbitrator interprets unambiguous language in any way different from its plain meaning, [the arbitrator] amends or alters the agreement and acts without authority.") (internal citations and quotation marks omitted).” (Emphasis added)
PMA Capital Ins. v. Platinum Underwriters Berm., LTD., supra, 659 F. Supp. 2d at 639.
“"[A]n Award that conflicts directly with the contract cannot be a 'plausible interpretation.'" Frederick Meiswinkel, Inc. v. Laborers Local Union 126, 744 F.2d 1374, 1377 (9th Cir. 1984); Pacific Motor Trucking v. Automotive Machinists Union, 702 F.2d 176, 177 (9th Cir. 1983).” (Emphasis added)
Kim-C1, LLC v. Valent Biosciences Corp. (E.D. Cal. 2010) 756 F. Supp. 2d 1258, 1272.
In short, where the arbitrator bases his or her decision on something other than the contract and terms of the agreement between the parties from which the dispute has arisen (such as when the arbitrator’s decision is based on his or her idea of what would be fair or just), or if the arbitrator in the Award effectively ignores or revises important terms of the contract or creates a new kind of agreement between the parties than the contract that they entered into, the award may be vacated.
“[W]e have explained that we will vacate an award when the arbitrators' interpretation was "so wacky that it was no interpretation at all," Tice, 373 F.3d at 854; see also Wise, 450 F.3d at 268-69, or when the arbitrator consciously refused to apply the parties' agreed-upon choice of law when fashioning the award, BEM I, LLC v. Anthropologie, Inc., 301 F.3d 548, 554 (7th Cir. 2002). But in short, we will uphold an arbitral award unless "'there is no possible interpretive route to [it], so a non-contractual basis can be inferred.'" Cuna Mut. Ins. Soc'y v. Office & Prof'l Employees Int'l Union, Local 39, 443 F.3d 556, 562 (7th Cir. 2006) (quoting Arch of Ill. v. Dist. 12, UMW, 85 F.3d 1289, 1293-94 (7th Cir. 1996)).” (Emphasis added)
Prostyakov v. Masco Corp. (7th Cir. 2008) 513 F.3d 716, 723
However, if the arbitrator has based the Award on his or her interpretation or reading of the contract, but that interpretation is clearly wrong or not what the parties actually intended, the Award probably may NOT be vacated, as the Courts do not typically have the power to vacate an Award due to a mere legal error.
Vacatur where the Award Expresses a “Manifest Disregard of Applicable Law”
As noted above, an Arbitration Award may also be vacated where the Award or the Arbitrators decision expresses a "manifest disregard of the law”.
“Manifest disregard of the law means something more than just an error in the law or a failure on the part of the arbitrators to understand or apply the law." Lagstein v. Certain Underwriters at Lloyd's, London, 607 F.3d 634, 641 (9th Cir. 2010) (citing Mich. Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9th Cir. 1995)). "To vacate an arbitration award on this ground, '[i]t must be clear from the record that the arbitrators recognized the applicable law and then ignored it.'" . . . .” (Emphasis added)
Biller v. Toyota Motor Corp. (9th Cir. 2012) 668 F.3d 655, 665; Comedy Club, Inc. v. Improv West Assocs. (9th Cir. 2009) 553 F.3d 1277, 1293. (Relief awarded not allowed under California statute)
“ In some cases, "legally dispositive facts are so firmly established that an arbitrator cannot fail to recognize them without manifestly disregarding the law." Coutee v. Barington Capital Group, L.P., 336 F.3d 1128, 1133 (9th Cir. 2003).”
Kim-C1, LLC v. Valent Biosciences Corp. (E.D. Cal. 2010) 756 F. Supp. 2d 1258, 1272-1273; Ardalan v. Macy's Inc. (N.D. Cal. June 28, 2012) 2012 U.S. Dist. LEXIS 90859, 19-20.
“It is against the backdrop of specific state law that we consider whether the Arbitrator acted in manifest disregard of the law to permit vacatur under the FAA.” (Emphasis added)
Biller v. Toyota Motor Corp., supra, 668 F.3d at 667.
“It is true that we have stated that "a court may infer that the arbitrators manifestly disregarded the law if it finds that the error made by the arbitrators is so obvious that it would be instantly perceived by the average person qualified to serve as an arbitrator." Willemijn, 103 F.3d at 13. However, the meaning of that phrase in the context of Willemijn was that an arbitrator's error in interpreting the legal doctrine relied upon by the parties can constitute manifest disregard if the average person qualified to serve as an arbitrator would not have made such an interpretation. Id. at 14 ("We only need decide whether there is any colorable justification for their decision"; if so, there is no manifest disregard.). n3"
“n3 The phrase was also quoted in Duferco, 333 F.3d at 390; however, in that case the alleged error was an internally inconsistent application of law in the arbitration award, an error that, according to the appellant, would have been obvious to any person qualified to serve as an arbitrator . . . .” (Emphasis added)
D.H. Blair & Co. v. Gottdiener (2nd Cir. 2006) 462 F.3d 95, 111.
“Manifest Disregard of the Law” is therefore more than just a legal error or mistake by the arbitrator in the Award or a misunderstanding of the law.
Those are NOT grounds for vacating an Award.
For this grounds to apply, then, the arbitrator must: (a) have recognized in the Award that a particular law or legal doctrine applied to or governed resolution of the dispute, but (b) then the arbitrator proceeded to ignore or disregard or violate that same law or legal doctrine in issuing his or her decision.
Vacatur Where The Arbitration Award is Not a “Reasoned Award”
Certain private associations which administer arbitrations and provide arbitrators - such as the American Arbitration Association, as one example - allow the parties to require the arbitrators to issue a “reasoned award”, explaining how the arbitrators arrived at their decision based on the contracts, evidence, etc.
The parties themselves could also include such a requirement - or a similar one - in the arbitration provisions of their business contracts, or in their Arbitration Submission Agreements in which they agree to submit certain specific disputes to arbitration.
There are a number of legal and other reasons why the parties might want such an explanation from the arbitrators, including its possible binding effect on any related or any later cases, its effect on the relationships of the parties going forward (“res judicata” or “collateral estoppel”, in legal parlance), for insurance purposes, or simply to allow the parties to understand what they might have to do differently in the future, or to satisfy themselves as to the rationality or reasonableness of the Award
According to explanatory materials published by the American Arbitration Association and still available on its website www.adr.org, a “reasoned award” at the AAA includes “Findings of Fact and Conclusions of Law”. Raymond G. Bender, Jr., “Critical First Steps in Complex Commercial Arbitration”, 64 Dispute Res. Jour. (Feb.-April 2009) 28, 35-36.
“Webster's defines "reasoned" as "based on or marked by reasoning," and "provided with or marked by the detailed listing or mention of reasons." Webster's Third New Int'l Dictionary: Unabridged 1892 (1993). Relatedly, "reason"—as used in this context—is defined as "an expression or statement offered as an explanation of a belief or assertion or as a justification of an act or procedure." Id. at 1891. Strictly speaking, then, a "reasoned" award is an award that is provided with or marked by the detailed listing or mention of expressions or statements offered as a justification of an act—the "act" here being, of course, the decision of the Panel.” (Emphasis added)
Cat Charter, LLC v. Schurtenberger (11th Cir. 2011) 646 F.3d 836, 844.
(However, Cat Charter, LLC, supra, 646 F.3d at 843-844, quoted a definition of a “reasoned award” from another Federal case, which definition was not based on any American Arbitration Association explanatory materials or publications.)
Where Findings of Fact and Conclusions of Law are required by the Arbitration or Submission Agreement, but not made, an Award should be vacated, as the arbitrators exceeded their authority.
“By failing to provide Western with findings of fact and conclusions of law, the NASD panel clearly failed to arbitrate the dispute according to the terms of the arbitration agreement. In so doing, the panel exceeded its authority under 9 U.S.C. § 10(d). We recognize that we have traditionally vacated arbitration awards under this provision in cases where the arbitrators somehow alter the parties' contractual obligations, see Coast Trading Co., Inc. v. Pacific Molasses Co., 681 F.2d 1195 (9th Cir. 1982), and that Jefferies has fulfilled all of its obligations to Western. However, arbitrators can also "exceed their powers" under 9 U.S.C. § 10(d) when they fail to meet their obligations, as specified in a given contract, to the parties. See Western Canada S.S. Co. v. Cia. De Nav. San Leonardo, 105 F. Supp. 452 (S.D.N.Y. 1952)” (Emphasis added)
W. Emplrs Ins. Co. v. Jefferies & Co. (9th Cir. 1992) 958 F.2d 258, 262.
At least in Court proceedings, Findings of Fact and Conclusions of Law are issued so as to:
“[(1)] to aid the appellate court by affording it a clear understanding of the ground or the basis of the decision of the trial court; (2) to make definite just what is decided by the case to enable the application of res judicata and estoppel principles to subsequent decisions; and (3) to evoke care on the part of the trial judge in ascertaining the facts. Barron and Holtzoff, Federal Practice and Procedure, § 1121 (1961), 5 Moore, Federal Practice, P52.06(2) (2d ed. 1951). Of course, the general intent of Rule 52(a) is that of avoiding possible prejudice to any of the parties in the prosecution or defense of the controversy . . .” (Emphasis added)
LEIGHTON ex rel. One William St. Fund, Inc. v. ONE WILLIAM ST. FUND, INC. (2d Cir. N.Y. 1965) 343 F.2d 565, 567.
While these Court holdings regarding Findings of Fact and Conclusions of Law might not apply directly to Arbitration Awards where and similar findings and conclusions are requested and required, similar purposes would be served by such Findings in arbitration.
Thus, arbitral Findings and Conclusions logically also should be detailed enough to be sufficient for the some reasons and purposes as they are in Court.
An Award should at least be “reasoned” in its most important aspect, as to the “relief” Awarded, and why that relief was ordered based on the evidence before the arbitration.
“[A]merican Postal stands for the unexceptional proposition that a federal court will not confirm an arbitration award that is legally irreconcilable with the undisputed facts. Moreover, American Postal recognizes that because facts and law are often intertwined, an arbitrator's failure to recognize undisputed, legally dispositive facts may properly be deemed a manifest disregard for the law.” (Emphasis added)
Coutee v. Barington Capital Group, L.P. (9th Cir. 2003) 336 F.3d 1128, 1133; Elem Indian Colony of Pomo Indians v. Pac. Dev. Partners X, LLC (N.D. Cal. May 19, 2010) 2010 U.S. Dist. LEXIS 57820. See also, Oemke, Commercial Arbitration, supra, Award Contents, § 117.5.
“A court may find intentional disregard if the reasoning supporting the arbitrator's judgment "strains credulity," id., or does not rise to the standard of "barely colorable," see Willemijn, 103 F.3d at 13; Fahnestock, 935 F.2d at 516 (confirming Award so long as "any colorable justification" supports the decision); Siegel v. Titan Indus. Corp., 779 F.2d 891, 894 (2d Cir. 1985) (confirming an arbitration award of damages even though the tribunal did not explain the calculus used to arrive at the damages amount, because the moving party submitted an affidavit explaining how the tribunal may have arrived at its damages Award without violating the governing law).” (Emphasis added)
Westerbeke Corp. v. Daihatsu Motor Co. (2d Cir. 2002) 304 F.3d 200, 218.
However, the law on these points is not well-settled and still in evolution, so its application is still uncertain.
But, where the parties have requested - in their arbitration clause or Submission Agreement - a “reasoned award” or “Findings of Fact and Conclusions of Law”, or some other type of explained decision - and the arbitrators issue an Award in which there is no discussion of the facts and the evidence and/or no reasoned or logical explanation for the relation or connection between the evidence and the decision or relief reached or ordered by the arbitrators, it should be possible to seek vacation of the Award on this basis, as the arbitrators have effectively “exceeded their powers” by failing to do what the parties contractually required them to do: logically explain how they reached their decision.
Vacatur Where the Award is Obtained by “Fraud, Corruption, or Undue Means”
Under 9 U.S.C. § 10(a)(1), an arbitration award may be vacated where it was “procured by fraud, corruption, or undue means”.
“"The term 'undue means' has generally been interpreted to mean something like fraud or corruption." Three S Delaware, 492 F.3d at 529; see also Nat'l Cas. Co. v. First State Ins. Group, 430 F.3d 492, 499 (1st Cir. 2005) ("The best reading of the term 'undue means' under the maxim noscitur a sociis ["it is known from fellows or allies"] is that it describes underhanded or conniving ways of procuring an award that are similar to corruption or fraud, but do not precisely constitute either."). . . .” (Emphasis added)
MCI Constructors, LLC v. City of Greensboro (4th Cir. 2010) 610 F.3d 849, 858; A.G. Edwards & Sons, Inc. v. McCollough (9th Cir. 1992) 967 F.2d 1401, 1403-1404.(“undue means” refers to “behavior that is immoral if not illegal”)
Perjured testimony by a witness during an arbitration constitutes one type of “fraud” under 9 U.S.C. § 10(a)(1). Dogherra v. Safeway Stores, Inc. (9th Cir. 1982) 679 F.2d 1293, 1297, cert. denied, 459 U.S. 990, 103 S. Ct. 346 (1982) Bonar v. Dean Witter Reynolds, Inc. (11th Cir. Fla. 1988) 835 F.2d 1378, 1383 (collecting cases); MidAmerican Energy Co. v. IBEW Local 499 (8th Cir. 2003) 345 F.3d 616, 622-623. ( Perjury by ex-employee).
“"[Fraud] will not justify the vacation of an award if it concerns an issue remote from the question to be decided." Newark Stereotypers' Union No. 18 v. Newark Morning Ledger Co., 397 F.2d 594, 600 (3d Cir. 1968). Instead, to obtain vacatur of an arbitration decision due to fraud, the challenging party must show that the alleged fraud caused the arbitrators' decision. See, e.g., A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9th Cir. 1992) (per curiam). The challenging party must further show that the fraud was not discoverable by due diligence before or during the proceeding. Id. at 1404 . . . .”
Nordahl Dev. Corp. v. Salomon Smith Barney (D. Or. 2004) 309 F. Supp. 2d 1257, 1268; Hernandez v. Smart & Final, Inc. (S.D. Cal. June 16, 2010) 2010 U.S. Dist. LEXIS 60755.
Dogherra v. Safeway Stores, Inc., supra, 679 F.2d at 1297, states and cites authority that “The fraud must be established by clear and convincing evidence”, but that authority was based upon cases decided under Federal Rule of Civil Procedure, Rule 60(b), and not the requirements of the Federal Arbitration Act.
Other Federal Circuit Courts of Appeal have also so held, on a similar basis or following the Rule 60(b) cases. See e.g., MCI Constructors, LLC v. City of Greensboro, supra, 610 F.3d at 858.
There are other kinds of fraud other then perjury by a witness. And “undue means” could include bribing witnesses, improper contracts with the arbitrator, and other illegal or immoral conduct.
Grounds for Correction or Modification of An Arbitration Award by The Court
The United States Arbitration Act also provides (9 U.S.C. § 11) that the Court may correct or modify certain aspects of an Arbitration Award in certain limited situations.
“§ 11. Same; modification or correction; grounds; order “In either of the following cases the United States court in and for the district wherein the award was made may make an order modifying or correcting the award upon the application of any party to the arbitration-- (a) Where there was an evident material miscalculation of figures . . . .
(b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.
(c) Where the award is imperfect in matter of form not affecting the merits of the controversy.”
“The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.” (Emphasis added)
Also, under Section 11(b):
“a federal court may modify or correct an award "where the arbitrators have awarded upon a matter not submitted to them." 9 U.S.C. § 11(b). A court may "strike all or a portion of an award pertaining to an issue not at all subject to arbitration." Kyocera Corp., 341 F.3d at 997-98. This limited review "is designed to preserve due process" without "unnecessary public intrusion into private arbitration procedures." Id. at 998.”
“[T]he scope of the arbitrator's authority is determined by the contract requiring arbitration as well as by the parties' definition of the issues to be submitted in the submission agreement. . . . In other words, the "initial contract to arbitrate may be modified [or expanded] by the submission agreement." Piggly Wiggly Operators' Warehouse, Inc., 611 F.2d at 584. . . .” (Emphasis added)
Schoenduve Corp. v. Lucent Techs., Inc. , supra, 442 F.3d at 731.
Correction or modification of an Award by the District Court is also appropriate under 9 U.S.C. § 11(a), where “there was an evident material miscalculation of figures” in the Award, resulting in a double or triple recovery of damages, or an Award of a duplicative or excessive relief.
“When an arbitration award orders a party to pay damages that have already been paid or which are included elsewhere in the award, a court may modify the award. Double recovery constitutes a materially unjust miscalculation which may be modified under section 11 of the Federal Arbitration Act. Transnitro, Inc. v. M/V Wave, 943 F.2d 471 (4th Cir. 1991);] Ellis, 849 F.2d at 272.” (Emphasis added)
Eljer Mfg. v. Kowin Dev. Corp. (7th Cir. 1994) 14 F.3d 1250, 1254; Priority One Servs. v. W&T Travel Servs. (D.D.C. 2011) 825 F. Supp. 2d 43, 56-57, aff’d in part, and revs’d in part on other gds. 2013 U.S. App. LEXIS 5944 (D.C. Cir. Mar. 25, 2013)
As an example of such a modification in Eljer Mfg. the Court of Appeals affirmed a District Court order which modified the award to eliminate a duplicate Award of damages, and then went on to also further modify or correct the Award and eliminate an item of damages which the arbitrator Awarded on an issue which was not previously submitted to arbitration by contract.
N.B. The contents of this Article are only a very incomplete, simple and general discussion of just a small portion of the law pertaining to the vacatur or modification of Arbitration Awards, and the actual law governing such proceedings is extremely complex and in some cases is still unclear or unsettled. Vacation or modification of awards is very difficult.
This article thus do not constitute legal advice or create an attorney-client relationship with our firm, and you may NOT rely on it without seeking legal advice regarding your particular situation from a competent Arbitration lawyer or Litigation attorney.
Please also note that contracts and factual situations vary, and statutes and case law are frequently changing and evolving, and therefore this article also may be or may become outdated or incorrect.
For further information on this topic and how the current law may apply to your particular contract, arbitration and legal issues, Contact Us via email, phone (415)788-1881 or visit our website at www.wolfflaw.com for other contract information.
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