Introduction: Remedial Powers of Arbitrators under the Federal Arbitration Act
The third issue the Armstrong Panel addressed was: “What jurisdiction, if any, does this Tribunal have to award sanctions?” This was a question of the Panel’s remedial authority — assuming the Panel had the authority to decide the dispute, what remedies were the arbitrators authorized to award?
The Panel determined that Armstrong had committed fraud and testified falsely, and had by those unlawful means procured the Settlement Agreement and Consent Award. All else equal, had the Armstrong Parties testified truthfully, and been prepared to do so from the outset of the dispute, then presumably the Armstrong Parties: (a) would not have claimed the $7.5 million in prize money; or (b) would have submitted to arbitration the question whether the Armstrong Parties’ use of performance enhancing drugs barred them from recovering the prize money under their contracts with the SCA Parties. If the Armstrong Parties chose option (a) above, then the SCA Parties would not have incurred any time or money costs dealing with the Armstrong Parties’ Claims. Had the Armstrong Parties chosen option (b), then the SCA Parties’ time and money costs would likely have been pretty modest, and in any event, nowhere near what they turned out to be.
Given that the Panel identified a breach of duty that caused harm, the next question from the standpoint of the merits was: what (if anything) should be the remedy? The SCA parties apparently argued that the Panel should grant a sanctions remedy, which the Panel apparently viewed as serving both deterrent and compensatory purposes.
Where, as here, an arbitration panel that has the authority to resolve a dispute is considering what relief (if any) it should award to the prevailing party, that raises a remedial authority question: what remedies have the parties authorized the Panel to award? Under a broad arbitration agreement, remedial authority questions are typically not controversial, for parties ordinarily tend to seek standard remedies: damages, declaratory relief or traditional forms of equitable relief (such as rescission or reformation). One party asks for the relief in its submission in the arbitrators and the other party doesn’t object because there is no reason to do so.
But where other non-standard forms of relief are requested—and particularly where the parties’ contract express a clear intent to limit remedial powers—then remedial authority can become more controversial.
The Armstrong Arbitration involved a claim for sanctions arising in unusual circumstances. While the parties’ contracts did not purport to limit the Panel’s remedial authority, the Armstrong Parties challenged the Panel’s authority to award sanctions and the Panel addressed that challenge in a reasoned award.
This segment of our Armstrong-Award Anatomy series focuses exclusively on whether the Panel had the authority to make an award of sanctions. It reviews the general rules concerning arbitrator remedial authority, considers the standard of review that a court reviewing the award will presumably apply if the Armstrong Parties contest the Panel’s remedial authority in court, discusses the Panel’s analysis and conclusions concerning sanctions and explains why we think it unlikely that a court will find that the Panel exceeded its authority by making an award of sanctions.
Our next Armstrong Arbitration Award Anatomy segment will address the related—but analytically distinct—issue whether the Panel had the authority to make a $10,000,000.00 sanctions award in the circumstances.
General Rules Governing Arbitrator Remedial Authority
As a general rule, where the parties have agreed to require each other to submit to arbitration a broad range of a disputes that might arise out of or relate to their legal relationship, the law presumes they intended to confer equally broad remedial powers on the arbitrators. See, e.g., ReliaStar Life Ins. Co. v. EMC Nat’l Life Co., 564 F.3d 81, 86-87 (2d Cir. 2009) (citing cases). Sometimes, arbitration-provider rules—such as Rule 47 of the American Arbitration Association Commercial Rules (formerly Rule 43)—expressly confer broad remedial authority on arbitrators. Rule 47, for example, states: Continue Reading »