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Posts Tagged ‘Vacate’

Corruption, Fraud or Undue Means | Vacating, Modifying, and Correcting Awards | Businessperson’s Federal Arbitration Act FAQ Guide

September 16th, 2020 Bad Faith, Businessperson's FAQ Guide to the Federal Arbitration Act, Challenging Arbitration Awards, Corruption or Undue Means, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Fraud, Fraud or Undue Means, Grounds for Vacatur, Judicial Review of Arbitration Awards, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Small Business B-2-B Arbitration, Vacatur No Comments »

corruption, fraud and undue meansSection 10(a)(1) of the Federal Arbitration Act authorizes courts to vacate awards where “the award was procured by corruption, fraud, or undue means. . . .” 9 U.S.C. § 10(a)(1). Cases vacating awards on Section 10(a)(1) grounds are rare, presumably because the circumstances that would trigger relief are relatively rare.

Section 10(a)(1) is an excellent example of how Section 10 is designed to provide relief in situations where putting a court’s imprimatur on an award would deprive one of the parties of the benefit of its freely-bargained-for arbitration agreement. It says that corruption, fraud, or undue means in the procurement of an award, whether perpetrated by the arbitrators or a party, spoils the award (assuming the aggrieved party timely moves to vacate). See 9 U.S.C. § 10(a)(1).    

There is nothing particularly controversial about that. Persons who agree to arbitrate do not implicitly consent to awards procured through chicanery. And who would want to agree to arbitrate if they would have no recourse against such an award? (See here.) 

“Fraud” and “corruption” describe dishonest, illegal, and deceptive conduct, whereas “undue means” arguably broader in scope. But “[t]he term ‘undue means’ must be read in conjunction with the words ‘fraud’ and ‘corruption’ that precede in the statute.” PaineWebber Group, Inc. v. Zinsmeyer Trusts P’ship, 187 F.3d 988, 991 (8th Cir. 1999) (citing Drayer v. Krasner, 572 F.2d 348, 352 (2d Cir. 1978)). To establish “undue means” courts therefore require “proof of intentional misconduct” or “bad faith,” interpreting “undue means” as “connoti[ing] behavior that is immoral if not illegal.” PaineWebber, 187 F.3d at 991 (quotations and citations omitted).

The burden for obtaining relief under Section 10(a)(1) is heavy. It must be “abundantly clear that [the award] was obtained through ‘corruption, fraud, or undue means.’” Karppinen v. Karl Kiefer Machine Co., 187 F.2d 32, 34 (2d Cir. 1951); accord Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust, 729 F.3d 99, 106-07 (2d Cir. 2013). That “abundantly clear” requirement is often described as one of “clear and convincing evidence of fraud or undue means. . . .” International Bhd. of Teamsters, Local 519 v. United Parcel Serv., Inc., 335 F.3d 497, 503 (6th Cir. 2003); accord Renard v. Ameriprise Fin. Servs., Inc., 778 F.3d 563, 569 (7th Cir. 2015); MCI Constructors, LLC v. City of Greensboro, 610 F.3d 849, 858 (4th Cir. 2010); A.G. Edwards Sons, Inc. v. McCollough, 967 F.2d 1401, 1404 (9th Cir. 1992); Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378, 1383 (11th Cir. 1988).

In addition to establishing “corruption, fraud or undue means” by clear and convincing evidence, a Section 10(a)(1) claimant must demonstrate: (a) “that that the fraud [, corruption or undue means] materially relates to an issue involved in the arbitration[;] and [b] that due diligence would not have prompted the discovery of the fraud [corruption or undue means] during or prior to the arbitration.” United Parcel Serv., 335 F.3d at 503; Renard, 778 F.3d at 569; MCI Constructors, 610 F.3d at 858; A.G. Edwards, 967 F.2d at 1404; Bonar, 835 F.2d at 1383; see Karppinen, 187 F.2d at 35.

A party will ordinarily be deemed to waive the right to vacate the award under Section 10(a)(1) if it failed to exercise due diligence in discovering the corruption, fraud or undue means during the arbitration; if it discovered the improper conduct during the arbitration but did not seek relief from the arbitrators; if it unsuccessfully sought relief and failed to object to the arbitrator’s pre-final-award denial of relief; or if the denial of relief was first made in the final award, to preserve its objection by informing the arbitrators that a failure to grant relief would constitute grounds for vacating the award. 

As respects the materiality requirement, Section 10(a)(1) says that the “award” must be “procured” by “corruption, fraud or undue means,” which arguably suggests a causal nexus between the proscribed conduct and the award. While the conduct must “materially relate to an issue in the arbitration,” must it also be outcome determinative? In other words, must the party seeking relief show that the award would have been different but for alleged fraud, corruption or undue means, or is it enough to show that it tainted the proceedings simply because it related materially to an issue at stake?

The circuits are split on this point. Some courts require the challenger to show that the corruption, fraud or undue means “caused the award to be given.” See PaineWebber, 187 F.3d at 994 (“there must be some causal relation between the undue means and the arbitration award”); A.G. Edwards & Sons, Inc., 967 F.2d at 1403 (“the statute requires a showing that the undue means caused the award to be given”). Others say that the challenger is required to show a “nexus” between the conduct and the award—that is, materiality—but need not “establish that the result of the proceedings would have been different had the fraud[, corruption, or undue means] not occurred.” See, e.g., Odeon Capital Grp. LLC v. Ackerman, 864 F.3d 191, 196  (2d Cir. 2017) (citing cases); Bonar, 835 F.2d at 1383.

Section 10(a)(1) is probably the least commonly invoked ground for vacating an arbitration award. That said, it provides an important safety valve to address rare, but extremely important cases where an award is the product of corruption, perjured testimony or other egregious, dishonest misconduct, and where the challenger was unable to address the problem adequately before the arbitrators.

The next instalment of this series shall address a more commonly invoked ground for vacatur: evident partiality.

Please note. . .

This guide, including prior instalments, and instalments that will follow in later posts, does not purport to be a comprehensive recitation of the rules and principles of arbitration law pertinent or potentially pertinent to the issues discussed. It is designed to give clients, prospective clients, and other readers general information that will help educate them about the legal challenges they may face in arbitration-related litigation and how engaging a skilled and experienced arbitration attorney can help them confront those challenges more effectively.

This guide is not intended to be legal advice and it should not be relied upon as such. Nor is it a “do-it-yourself” guide for persons who represent themselves pro se, whether they are forced to do so by financial circumstances or whether they elect voluntarily to do so.

If you want or require arbitration-related legal advice, or representation by an attorney in an arbitration or in litigation about arbitration, then you should request legal advice from an experienced and skilled attorney or law firm with a solid background in arbitration law.

Contacting the Author

If you have any questions about arbitration, arbitration-law, arbitration-related litigation, this article, or any other legal-related matter, please contact the author, Philip Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. has 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.                

Section 9 | Confirming Awards Part III | Post-Award Federal Arbitration Act Enforcement Litigation Businessperson’s Federal Arbitration Act FAQ Guide

June 22nd, 2020 Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Awards, Businessperson's FAQ Guide to the Federal Arbitration Act, Confirmation of Awards, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 9, Nuts & Bolts, Nuts & Bolts: Arbitration, Petition or Application to Confirm Award, Section 9, Uncategorized 4 Comments »
Section 9 Confirm Award

In the last two segments of the Businessperson’s Federal Arbitration Act FAQ Guide, we discussed the substantive and procedural requirements for confirming under Section 9 Chapter One Domestic Awards, that is, domestic awards that fall under Chapter One of the Federal Arbitration Act, but not under Chapter Two, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. (See here and here.)  Now we address additional, FAQs concerning the confirmation under Section 9 of Chapter One Domestic Awards.

Does an Application to Confirm under Section 9 a Chapter One Domestic Award Require One to File a Full-Blown Law Suit to Confirm an Award?

Fortunately, the answer is no. Like all other applications for relief under the FAA, an application to confirm an award under Section 9 is a summary or expedited proceeding, not a regular lawsuit.  Rule 81(a)(6)(B) of the Federal Rules of Civil Procedure provides that the Federal Rules “to the extent applicable, govern proceedings under the following laws, except as these laws provide for other procedures. . . (B) 9 U.S.C., relating to arbitration.  .  .  .” Fed. R. Civ. P. 81(a)(6)(B).

Section 6 of the FAA “provide[s] for.  .  . procedures” other than those applicable to ordinary civil actions because it requires applications for relief under the FAA to be made and heard as motions:

Any application to the court hereunder shall be made and heard in the manner provided by law for the making and hearing of motions, except as otherwise .  .  .  expressly provided [in the FAA].

9 U.S.C. § 6.

A Section 9 action to confirm an award is, of course, “[a]n application to the court” under the FAA, and thus, unless the FAA otherwise provides, must be “made and heard in the manner provided by law for the making and hearing of motions.  .  .  .”

Confirming Arbitration Awards under Section 9: What Papers does a Party File to Apply for Confirmation of an Award?

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Can Arbitrators Exceed their Powers by Making an Award in Manifest Disregard of the Parties’ Agreement?

April 17th, 2019 Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Challenging Arbitration Awards, Confirmation of Awards, Contract Interpretation, Contract Interpretation Rules, Exceeding Powers, Grounds for Vacatur, Manifest Disregard of the Agreement, Nuts & Bolts, Nuts & Bolts: Arbitration, Outcome Risk, Practice and Procedure, United States Court of Appeals for the Eighth Circuit, United States Supreme Court, Vacatur Comments Off on Can Arbitrators Exceed their Powers by Making an Award in Manifest Disregard of the Parties’ Agreement?
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Suppose arbitrators decide an issue within the scope of their authority but do so in manifest disregard the parties’ contract. Do they exceed their authority by making an award that has not even a barely colorable basis in the parties’ contract or in applicable law?

The answer to that question, is, of course, “yes,” and over the years we’ve discussed in a number of posts how arbitrators can exceed their powers under Federal Arbitration Act Section 10(a)(4) or Section 301 of the Labor Management Relations Act by making awards in manifest disregard of the parties’ agreement. (See Loree Reinsurance and Arbitration Law Forum Posts here, here, here, here, here, here, here, here, and here.) As discussed in those posts, the U.S. Supreme Court has on multiple occasions ruled that commercial and labor arbitrators can exceed their powers by making an award that manifestly disregards—or does not “draw its essence” from—the parties’ agreement. See Stolt-Nielsen S.A. v. AnimalFeeds Int’l Inc., 130 S.Ct. 1758, 1768-70 (2010); Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064, 2067, 2068 (2013); Eastern Associated Coal Corp. v. Mine Workers, 531 U.S. 57, 62 (2000); Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 599 (1960); Paperworkers v. Misco, Inc., 484 U.S. 29, 38 (1987).

In our April 12, 2019 post (here) we reviewed how it is that the limited review powers courts have to vacate commercial and labor arbitration awards are designed to provide a limited, but very important, safety net to protect parties against egregious, material violations of arbitration agreements. Without that limited protection, the risks associated with agreeing to arbitrate would be intolerably high and parties would be much less apt to opt for arbitration over court litigation.

Courts vacate arbitration awards where arbitrators act outside the scope of their authority by ruling on issues that the parties did not agree to submit to them. That’s what happened in Brock Indus. Servs., LLC v. Laborers’ Int’l Union., __ F.3d ___, No. 17-2597, slip op. (7th Cir. April 8, 2019), which we discussed in our April 12, 2019 post here.

But to obtain vacatur of an award based on manifest disregard of the agreement, however, an award challenger must satisfy an exceedingly demanding standard. We’ve addressed the parameters of that standard in a number of other posts. (See, e.g., here, here, here, here, here, here, here, here, and here. Our blog has also tried to give a feel for how Courts apply (or are supposed to apply) the standard by comparing the U.S. Supreme Court decision in Stolt-Nielsen, which held that an award should be vacated for manifest disregard of the agreement, to the Supreme Court decision in Oxford, which held that an award should not be vacated under that manifest disregard standard. (See Loree Reinsurance and Arbitration Law Forum posts here, here, and here.) And from time-to-time we’ve reported on other cases that have applied the standard.

While challenges to awards based on manifest disregard of the agreement are not uncommon, a very large majority of those challenges are either virtually certain to fail or at least highly unlikely to succeed. It is a relatively small universe of remaining, close cases that pose the biggest challenges for parties and courts.

Today we’ll look at one of those close cases, which was decided by the Eighth Circuit Court of Appeals and explain why the case failed to satisfy the demanding standard, even though, at least at first glance, it may be difficult to square the arbitration award with the parties’ agreement.

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If an Arbitration Panel Rules on an Issue the Parties did not Agree to Submit to that Panel, Should a Court Vacate the Award?

April 12th, 2019 Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Award Vacated, Awards, Enforcing Arbitration Agreements, Exceeding Powers, FAA Chapter 3, Federal Policy in Favor of Arbitration, Grounds for Vacatur, Practice and Procedure, United States Court of Appeals for the Seventh Circuit, Vacatur 2 Comments »

Introduction: Arbitration as a Way to Resolve those Disputes—and Only those Disputes—Parties Submit to Arbitrators

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The “first principle” of labor and commercial arbitration law is that “arbitration is a matter of consent, not coercion” —put differently, arbitration “is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration.” Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 678-80 (2010) (citation and quotations omitted); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) (citations omitted); 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). That 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).

What happens if the parties agree to submit one category of disputes to a two-person arbitration panel and to submit another category of disputes to a three-person panel?

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Arbitration Nuts and Bolts: Federal Appellate Jurisdiction over Orders Compelling Arbitration and Staying Litigation

March 21st, 2019 Appellate Jurisdiction, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Authority of Arbitrators, FAA Section 16, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Stay of Arbitration, Stay of Litigation, United States Court of Appeals for the Second Circuit 1 Comment »

Introduction

Appellate Jurisdiction 1

Today we look at federal appellate jurisdiction over orders compelling arbitration and staying litigation.

Sections 3 and 4 of the Federal Arbitration Act (the “FAA”) provide remedies for a party who is aggrieved by another party’s failure or refusal to arbitrate under the terms of an FAA-governed agreement. FAA Section 3, which governs stays of litigation pending arbitration, requires courts, “upon application of one of the parties,” to stay litigation of issues that are “referable to arbitration” “until arbitration has been had in accordance with the terms of the parties’ arbitration agreement, providing [the party applying for a stay] is not in default in proceeding with such arbitration.” 9 U.S.C. § 3. Faced with a properly supported application for a stay of litigation of an arbitrable controversy, a federal district court must grant the stay. 9 U.S.C. § 3.

Section 4 of the FAA authorizes courts to make orders “directing arbitration [to] proceed in the manner provided for in [the [parties’ written arbitration] agreement[,]” and sets forth certain procedures for adjudicating petitions or motions to compel arbitration. 9 U.S.C. § 4. It provides that when a court determines “an agreement for arbitration was made in writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.” 9 U.S.C. § 4 (emphasis added). Just as courts must grant properly supported applications for relief under Section 3, so too must they grant properly supported applications for relief under Section 4. See 9 U.S.C. §§ 3 & 4.

There is much to be said about the many issues that may arise out of applications to stay litigation, compel arbitration, or both, but our focus here is on the appellate jurisdiction of the U.S. Circuit Courts of Appeals over appeals from the grant or denial of such applications. Before a U.S. Circuit Court of Appeals can hear an appeal on the merits of a federal district court’s order and judgment, it must be satisfied that: (a) the federal district court had original subject matter jurisdiction (e.g., diversity jurisdiction or federal question jurisdiction); (b) there is still a “case or controversy” within the meaning of Article III of the U.S. Constitution (e.g., the controversy has not become moot by settlement or otherwise); and (c) the order or judgment appealed from is one over which it has appellate jurisdiction.

Appellate Jurisdiction and the FAA

Appellate Jurisdiction 2

Appellate jurisdiction refers to a Circuit Court of Appeals’ power to review, amend, vacate, affirm, or reverse the orders and judgments of the district courts within the judicial circuit over which the Court of Appeals presides. Generally, and outside the context of injunctions and the certification procedure of 28 U.S.C. § 1292(b), U.S. Courts of Appeal have jurisdiction to review only “final decisions” of district courts. See 28 U.S.C. §§ 1291, 1292. A “final decision” “is a decision that ends the litigation on the merits and leaves nothing more for the court to do but execute the judgment.” Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 86 (2000) (citations and quotations omitted).

But Federal Arbitration Act litigation is quite different from ordinary litigation from both a substantive and procedural prospective, and so it comes as no surprise that the FAA features its own set of appellate jurisdiction rules.

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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 »

Arbitration and Mediation FAQs: Can I Appeal an Arbitration Award in Court?

May 21st, 2014 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Awards, Drafting Arbitration Agreements, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure Comments Off on Arbitration and Mediation FAQs: Can I Appeal an Arbitration Award in Court?

Introduction

When a party is on the wrong end of an arbitration award that he, she or it thinks is fundamentally unfair, tainted by impropriety, or disconnected from the agreement the arbitrator was supposed to interpret and apply, the first question that comes to mind is whether there might be some form of recourse available. In court,  the usual avenue of relief from an adverse judgment or order is an appeal.

Can a losing party to an arbitration award governed by the Federal Arbitration Act (the “FAA”) appeal it in court? Since private arbitration is an alternative to public, government-sponsored court litigation, since the court system plays an important role in enforcing arbitration agreements, since both arbitration and court litigation share at least some of the same attributes and since in the U.S. procedural due process and the primacy of the rule of law are as dear to us as baseball and apple pie, it is natural to assume that one should be able to appeal an adverse arbitration award.

But one cannot—in any meaningful sense of the word—“appeal” an arbitration award to a court. In court litigation 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 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 trial judge). While appellate review thus does not involve a retrial on the merits, it is broad and searching, particularly where outcomes turn solely on questions of law.

The FAA does not authorize courts to review arbitration awards under an appellate standard of review, even if the parties consent to a court applying such a standard. Parties can agree before or after a dispute arises to an arbitration procedure that empowers another arbitrator or panel of arbitrators to review an award under an appellate or some other standard of review, but arbitration awards are subject to very limited and deferential review by courts and then only on a few narrow grounds.

The FAA Award-Enforcement Process

The FAA award enforcement process permits either party to make an application to vacate, modify or correct an award, or an application to “confirm” it, that is, enter judgment on it. Since the deadline for applying to vacate, modify or correct an award is considerably shorter than that for confirming an award, in many cases, parties who are seeking relief from the award make the initial application. If a putative challenging party does not timely seek relief, and the other party seeks confirmation after the expiration of the deadline for making an application to vacate, modify or correct the award, then the challenging party is time-barred from asserting grounds for vacatur or modification, even simply as affirmative defenses to confirmation. (See, e.g., L. Reins. & Arb. Law Forum post here.)

Let’s assume a party makes a timely motion to vacate an award. What will likely then happen is the other party will cross-move to confirm the award. The burden on the party seeking confirmation is pretty modest. Generally the party moving to confirm will need to show that the parties: (a) agreed to arbitrate; (b) consented to entry of judgment on the award; (c) appointed an arbitrator or panel of arbitrators; and (d) submitted the dispute to the arbitrators, who issued the award. The award is presumed valid and the court does not review its outcome or substance.

Once the modest prerequisites for confirmation have been established by a properly supported petition or motion to confirm an award, then the court “must grant” confirmation “unless the award is vacated, modified or corrected” under FAA Sections 10 or 11. 9 U.S.C. § 9. Thus, apart from those relatively rare cases where a party can show that the parties never agreed to arbitrate at all (and that the challenging party did not waive that defense), or perhaps never even impliedly consented to entry of judgment on the award, the only grounds on which the losing party can oppose confirmation are those set forth in Section 10 and 11.

The only exception might be if the award interprets the contract in a way that causes it to violate a well-defined and explicit public policy, or if the remedy the arbitrator awards violates the criminal law or requires one of the parties to do so. For example, one would not expect a court to enter judgment on an award that purported to authorize the prevailing party to inflict bodily harm on the losing party or vice-versa. That principle is simply an application of the contract-law rule that courts will not enforce contracts that violate public policy. See, generally, W. R. Grace & Co. v. Rubber Workers, 461 U.S. 757, 766 (1983); United Food & Commercial Workers Int’l Union v. King Soopers, 743 F.3d 1310, 1315 (10th Cir. 2014).

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Arbitration Nuts & Bolts: Vacating Arbitration Awards — It’s All in the Agreement

December 8th, 2009 Awards, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Reinsurance Arbitration 2 Comments »

Part I:  Introduction

An arbitration award is effectively a contract resulting from a contract.  Two parties agree to appoint arbitrators, submit their dispute to arbitration and abide by the award.  The parties ordinarily consent to entry of judgment on the award, and it can be confirmed under Section 9 of the Federal Arbitration Act (or a state law equivalent when the Federal Arbitration Act doesn’t apply).  Alternatively it may be enforced through the plenary and summary  procedures applicable to ordinary contracts (subject to any special rules governing arbitration awards).  

So what happens when things go awry — or at least seem to have gone awry — and the arbitration award is or appears to be fundamentally unfair, divorced from the contract or the result of fraud, bias, or some form of prejudicial misconduct on the part of the arbitrators?  Section 10 of the Federal Arbitration Act provides a safety net in the form of a motion or petition  to vacate the award.  (State arbitration statutes and law applicable in actions to enforce arbitration awards generally provide similar recourse, but our focus here is on the Federal Arbitration Act.) Continue Reading »