Thanks for your insightful comment. It is flattering that a member of the California bar of your stature has taken an interest in this case and this post.

In these FAA Section 10(a)(3) and state-law equivalent cases, I think the answer is “it depends.” These statutory provisions provide a saftey valve of sorts to ensure that parties are not prejudiced by evidentiary rulings that are, for all intents and purposes, irrational. There are a number of cases interpreting these provisions, and their holdings tend to boil down to this: when parties agree to arbitration they cannot expect the same degree of procedural due process that they would receive in court, but they are entitled to a “fundamentally fair hearing.” As they always do when considering whether an award should be vacated, in determining whether evidence material to the controversy was not heard, and whether a party was prejudiced as a result, courts quite correctly accord the rulings of the arbitrators a great deal of deference.

When there is a colorable argument for the immateriality of the evidence based on a substantive law determination made by the arbitrators, then courts usually defer to the arbitrator’s decision on immateriality. I guess that’s pretty much the same thing as saying arbitrators get to decide materiality in most cases.

But where, in view of the arbitrators’ substantive law rulings, there was no colorable basis for excluding the evidence, then the court makes the materiality determination (or at least gets to second guess the arbitrators’ materiality determination). Support for the court’s role in reviewing materiality can be gleaned from the language of Section 10(a)(3) and its state law equivalents: Section 10(a)(3) authorizes vacatur where a party is prejudiced by the arbitrator’s exclusion of evidence “pertinent and material to the controversy,” and Cal. Civ. Code Section 1286.2(a)(5) says that a court “must” vacate an award where a party is prejudiced by the exclusion of “material” evidence. Because only courts decide whether awards should be vacated, it follows that courts must declare what is “material” or “pertinent” to the controversy, at least where there is no objective basis for finding that the evidence was immaterial.

As explained in more detail in the post, our view is that the evidence of post-closing events was inarguably material to the issue of the amount of damages, even if you accept all other aspects of the arbitrator’s award, and that the seller was prejudiced as a result of its exclusion.

Let me know if you are interested in reading other cases on the subject, and I’ll gather some illustrative ones and e mail them to you.

Phil