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Posts Tagged ‘Grounds for Vacating Awards’

Arbitration Law FAQ Guide: Challenging Arbitration Awards under the Federal Arbitration Act

September 9th, 2018 Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Awards, Challenging Arbitration Awards, Grounds for Vacatur, Judicial Review of Arbitration Awards, Nuts & Bolts, Nuts & Bolts: Arbitration 3 Comments »

Introduction

This two-part Arbitration Law FAQ guide is designed to provide individuals and businesses with a basic overview of what the Federal Arbitration Act has to say about challenging arbitration awards in court. This is Part I and Part II is here.

It assumes that the award is governed by the Federal Arbitration Act; the challenge is made in a federal district court having subject matter and personal jurisdiction; and venue is proper.

This guide is not legal advice or a substitute for legal advice. If you are an individual or business which wants or has to challenge or defend an arbitration award, or make an application to confirm the award, then you should consult with an attorney or firm that has experience and expertise in arbitration law matters.

  1. I just received an arbitration award against me, which I believe is governed by the Federal Arbitration Act (the “FAA”). Does the FAA allow me to appeal the award to a court?

Challenging Arbitration Awards 1

Challenging Arbitration Awards 1

You cannot—at least in any meaningful sense of the word—“appeal” an FAA-governed arbitration award to a court. An appeal involves judicial review by an appellate court under which a panel of judges reviews trial-court rulings on questions of law independently—that is, as if the appellate court were deciding the question for itself in the first instance. The appellate court generally reviews the trial court’s findings of fact on a “clearly erroneous” or “clear error” standard of review, that is, paying a certain degree of deference to the finder of fact (the jury or, in a bench trial, the judge). Appellate review of a court decision is thus fairly broad and searching, particularly where outcomes turn solely on questions of law.

When a person agrees to arbitrate it gives up the right to appellate review, which focuses on issues relating to the merits of the case the court decided or on important litigation-procedure rulings.

  1. Does the FAA permit a party to challenge an arbitration award?

Challenging Arbitration Awards 2

Challenging Arbitration Awards 2

The Federal Arbitration Act provides some limited remedies for challenging arbitration awards where a party can show certain kinds of unusual and material violations of an arbitration agreement by an arbitrator or an opposing party, or an obvious mathematical, typographical, or technical error that appears on the face of the award. The remedies are orders: (a) modifying or correcting the award; or (b) vacating the award in whole or in part.

To vacate an award means to annul it, that is, to declare it null and void. When an award is vacated, then the parties generally must (absent a settlement) go back and re-arbitrate the matters that were the subject of the award.  When an award is modified or corrected, the correction or modification may be made by the court, or the court may remand the matter back to the arbitrators for that purpose. Continue Reading »

Appellate Division, Fourth Department Vacates Imperfectly Executed Arbitration Award

August 15th, 2018 Authority of Arbitrators, Awards, Exceeding Powers, Imperfectly Executed Award or Powers, Labor Arbitration, New York State Courts Comments Off on Appellate Division, Fourth Department Vacates Imperfectly Executed Arbitration Award
Imperfectly Executed 1

Imperfectly Executed 1

New York Civil Practice Law & Rules (“CPLR”) Section 7511(b)(1)(iii) provides that an arbitration award “shall be vacated” where the arbitrator “so imperfectly executed [the award] that a final and definite award upon the subject matter submitted was not made” CPLR 7511(b)(1)(iii). The Federal Arbitration Act similarly authorizes vacatur “where the arbitrators…so imperfectly executed [their powers] that a mutual, final, and definite award upon the subject matter submitted was not made.” 9 U.S.C. § 10(a)(4).

In Professional, Clerical, Tech. Emps. Ass’n v. Board of Ed. for Buffalo City School Dist., ___ A.D.3d ___, 2018 N.Y. Slip Op. 04128, at *1 (4th Dep’t June 8, 2018), the New York Supreme Court, Appellate Division, Fourth Department, held that the trial court erred by confirming a labor arbitration award that did not adequately explain the basis for the compensation to be awarded or how it should be calculated. Continue Reading »

What Happens when Arbitrators Exceed Clear Limitations on their Authority?

October 24th, 2014 Arbitrability, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Drafting Arbitration Agreements, Grounds for Vacatur, Judicial Review of Arbitration Awards, New York State Courts, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Small Business B-2-B Arbitration, State Arbitration Law, State Arbitration Statutes, State Courts, United States Court of Appeals for the Second Circuit Comments Off on What Happens when Arbitrators Exceed Clear Limitations on their Authority?

One advantage of arbitration is that parties can define and delineate the scope of disputes they agree to submit to arbitration, the basis on which disputes  can or must be resolved and the scope of the arbitrator’s remedial powers. If parties impose clear limits on an arbitrator’s authority (usually by expressly excluding certain matters from arbitration or expressly providing that an arbitrator cannot or must grant certain remedies), then courts and arbitrators are supposed to enforce those limitations. See, e.g., Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 559 U.S. 662, 680-81 (2010).

Far too frequently, parties simply agree to a broad arbitration agreement that places no limitations on arbitral power, and when they end up on the wrong-end of an award they didn’t expect, they discover to their dismay that they have no judicial remedy. Whether or not they understood that at the time they agreed to arbitrate is, of course, irrelevant. The only relevant consideration is whether their agreement could be reasonably construed to grant the arbitrator that authority, even if it could also be reasonably construed to withhold it. See, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995) (“when a court interprets such provisions in an agreement covered by the FAA, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration”) (quotation and citation omitted).

But suppose the parties take the time to consider whether they desire to limit arbitral authority, and their arbitration agreement unambiguously expresses an intention to limit arbitral authority to resolve certain disputes or impose certain remedies, or to expressly require that the arbitrators grant certain types of relief, such as fee shifting to a prevailing party. Should a court vacate the award if the arbitrator does not abide by the parties’ unambiguously expressed intentions?  Continue Reading »

Faithful to the “First Principle” of Arbitration Law, the Texas Supreme Court Shores up the “Cornerstone of the Arbitral Process”

August 5th, 2014 American Arbitration Association, Appellate Practice, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitrator Selection and Qualification Provisions, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Drafting Arbitration Agreements, Grounds for Vacatur, Judicial Review of Arbitration Awards, Party-Appointed Arbitrators, Practice and Procedure, State Courts, Texas Supreme Court Comments Off on Faithful to the “First Principle” of Arbitration Law, the Texas Supreme Court Shores up the “Cornerstone of the Arbitral Process”

Introduction  

Anyone versed in arbitration-law basics knows that “arbitration is a matter of consent, not coercion.” Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 678-80 (2010) (citation and quotations omitted). That is the “first principle” of arbitration law (the “First Principle”) set forth in the Steelworkers’ Trilogy.[1] See, e.g., Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287, 295 & n.7, 294 n.6 (2010); AT&T Technologies, Inc. v. Communications Workers, 475 U. S. 643, 648 (1986).

The First Principle is integrally intertwined with “the central or primary purpose of the [Federal Arbitration Act (“FAA”)][,]” which is “to ensure that  private agreements to arbitrate are enforced according to their terms.” Stolt-Nielsen, 559 U.S. at 679 (citations and quotations omitted). To “enforce” an arbitration agreement “courts and arbitrators must give effect to the contractual rights and expectations of the parties.” Id. When courts do not give effect to the parties’ contractual rights and expectations, they violate the First Principle.

Courts and arbitrators are supposed to apply the First Principle faithfully and rigorously whenever  they interpret or apply material arbitration-agreement-terms, and in “doing so [they] must  not lose sight of the purpose of the exercise: to give effect to the intent of the parties.” See Stolt-Nielsen, 559 U.S. at 679-81. And if that admonition applies with special force in any particular context, it would be in the interpretation and enforcement of arbitrator selection and qualification provisions.

Arbitrator selection provisions are what Circuit Court Judge Richard A. Posner once dubbed the “cornerstone” of the parties’ agreement: “Selection of the decision maker by or with the consent of the parties is the cornerstone of the arbitral process.” Lefkovitz v. Wagner, 395 F.3d 773, 780 (2005) (Posner, J.); see, e.g., 9 U.S.C. § 5 (“If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed.  .  .  .”); Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. V(1)(d), June 10, 1958, 21 U.S.T. 2519, T.I.A.S. No. 6997 (a/k/a the “New York Convention”) (implemented by 9 U.S.C. §§ 201, et. seq.) (award subject to challenge where “[t]he composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties”); Stolt-Nielsen, 559 U.S. at 668, 670 (one of the FAA’s “rules of fundamental importance” is parties “may choose who will resolve specific disputes”) (emphasis added; citations omitted); Encyclopaedia Universalis S.A. v. Encyclopaedia Brittanica, Inc., 403 F.3d 85, 91-92 (2d Cir. 2005) (vacating award by panel not convened in accordance with parties’ agreement); Cargill Rice, Inc. v. Empresa Nicaraguense Dealimentos Basicos, 25 F.3d 223, 226 (4th Cir. 1994) (same); Avis Rent A Car Sys., Inc. v. Garage Employees Union, 791 F.2d 22, 25 (2d Cir. 1986) (same).

Americo Life, Inc. v. Myer

On June 20, 2014, a divided Texas Supreme Court in Americo Life, Inc. v. Myer, ___ S.W.3d __, No. 12-0739, slip op. (Tex. June 20, 2014), adhered to and correctly applied the First Principle by holding that an arbitration award had to be vacated because it was made by a panel not constituted according to the parties’ agreement.  Five Justices of the nine-member Court determined that the parties had agreed that party-appointed arbitrators need not be impartial, only independent. Because the American Arbitration Association (the “AAA”) had, contrary to the parties’ agreement, disqualified the challenging party’s first-choice arbitrator on partiality grounds, the panel that rendered the award was not properly constituted and thus exceeded its powers. See Slip op. at 10. Continue Reading »

No Good Deed Should Go Unpunished: Functus Officio and Merion Constr. Mgt., LLC v. Kemron Environmental Serv., Inc.—Part I

May 3rd, 2014 American Arbitration Association, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Arbitration Provider Rules, Authority of Arbitrators, Awards, Construction Industry Arbitration, Final Awards, Functus Officio, Grounds for Vacatur, Judicial Review of Arbitration Awards, New Jersey State Courts, Practice and Procedure, State Arbitration Statutes, State Courts, Uncategorized Comments Off on No Good Deed Should Go Unpunished: Functus Officio and Merion Constr. Mgt., LLC v. Kemron Environmental Serv., Inc.—Part I

Courts usually err in favor of not vacating awards in close cases. As a result, Courts usually vacate awards only where there is a very clear, fundamental disconnect between the award and the parties’ arbitration agreement. Vacating an award in those circumstances enforces the parties’ agreement to arbitrate, which is exactly what the Federal Arbitration Act (“FAA”) and state arbitration codes are supposed to do. (See, e.g., L. Reins. & Arb. L. Forum post here.)

Today’s case, Merion Constr. Mgt., LLC v. Kemron Environmental Serv., Inc., No. A-2428-12T4, slip op. (N.J. App. Div. March 13, 2014), involved two disputed awards: the original arbitration award (the “Original Award”) and a subsequent, modified award (the “Modified Award”). The arbitrator (the “Arbitrator”) issued the Modified Award to correct a mistake in the Original Award, which had inadvertently omitted items of claimed damage that one of the parties had requested the Arbitrator to award. The Arbitrator said he intended to include those damage items in the Original Award. The Modified Award thus accurately reflected the parties’ agreement and submission and the Original Award did not.

Which Award should have been confirmed? Relying on the functus officio doctrine, and an American Arbitration Association (“AAA”) Rule concerning arbitral modification and correction of awards, the intermediate state appellate court reversed a trial court judgment confirming the Modified Award, and held that the Original Award should have been confirmed.

A few years back the Chief Justice of the United States Supreme Court prefaced one his opinions with the following truism: “People make mistakes. Even administrators of ERISA plans.” Conkright v. Frommert, 559 U.S. 506, 509 (2010) (Roberts, C.J.). Had Merion Construction been decided correctly, then the New Jersey appellate court might have prefaced its opinion with a similar truism: “People make mistakes. Even arbitrators.” But based on how the case was decided a more fitting preface would have been: “No good deed should go unpunished. Even those perpetrated by arbitrators.” Continue Reading »