Introduction
We’ve seen how the Federal Arbitration Act authorizes confirmation and enforcement of various domestic and foreign arbitration awards falling within its scope. (See here, here, here, and here.) Let’s look at what the Federal Arbitration Act has to say about vacating, modifying, or correcting awards.
The Federal Arbitration Act also 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. These remedies are orders: (a) modifying or correcting the award under Section 11 of the Federal Arbitration Act; or (b) vacating the award in whole or in part under Section 10 of the Federal Arbitration Act.
Vacating an Award under Section 10 of the Federal Arbitration Act
An arbitration award is effectively a contract resulting from the performance of one or more other contracts, including the pre-dispute agreement to arbitrate and the post-dispute submission to arbitration. 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 Sections 9 or 207 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 that apply 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 modest 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.)
To vacate an award means to annul it, that is, to declare it null and void. When a court vacates an award the parties generally must (absent a settlement) go back and re-arbitrate the matters that were the subject of the award.
Vacatur is available only in extremely limited circumstances, which, for the most part, are set out in the FAA itself. Strict, three-month time limits apply, and the chances of success are generally not very high (except in unusual circumstances).
The United States Supreme Court declared that Section 10(a) of the Federal Arbitration Act sets forth the exclusive grounds for vacating a commercial arbitration award (we are not concerned here with awards under 5 U.S.C. § 590, which are governed by 9 U.S.C. § 10(b)). See Hall Street Assoc. v. Mattel, Inc., 552 U.S. 576, 578 (2008). The Court has held that these four, statutory grounds are exclusive in FAA-governed cases, and parties cannot expand their narrow scope by agreement or agree that courts may vacate awards on other grounds. 552 U.S. at 578.
And make no mistake, these grounds are exceedingly narrow; section 10 of the Federal Arbitration Act authorizes vacatur only where:
1. The award was procured by corruption, fraud, or undue means;
2. [T]here was evident partiality or corruption in the arbitrators, or either of them;
3. [T]he 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. [T]he arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
9 U.S.C. § 10(a).
The principal purpose of the Federal Arbitration Act is to enforce the parties’ agreement as written, see, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947 (1995), and Section 10(a) is designed to enforce that agreement, no less than Sections 3, 4, or 9. Enforcing arbitration agreements promotes arbitration, by making it a more attractive alternative to litigation than it might otherwise be.
Section 10(a) addresses situations where putting a court’s imprimatur on an award would deprive one of the parties of the benefits of its freely-bargained-for arbitration agreement. For giving legal effect to an award that contravened the parties agreement to arbitrate would, quite perversely, deny the parties agreement to arbitrate of its intended force and effect, and transform the arbitration into a matter of coercion, not consent.
Judge Posner summarized these principles well when he said:
It is tempting to think that courts are engaged in judicial review of arbitration awards under the Federal Arbitration Act, but they are not. When parties agree to arbitrate their disputes they opt out of the court system, and when one of them challenges the resulting arbitration award he perforce does so not on the ground that the arbitrators made a mistake but that they violated the agreement to arbitrate, as by corruption, evident partiality, exceeding their powers, etc.—conduct to which the parties did not consent when they included an arbitration clause in their contract. That is why in the typical arbitration . . . the issue for the court is not whether the contract interpretation is incorrect or even wacky but whether the arbitrators had failed to interpret the contract at all, for only then were they exceeding the authority granted to them by the contract’s arbitration clause.
Wise v. Wachovia Sec., LLC, 450 F.3d 265, 269 (7th Cir.) (citations omitted), cert. denied, 549 U.S. 1047 (2006).
As we shall discuss in detail in subsequent segments, each of the grounds specified in Section 10(a) implicates whether the arbitration award deprived the party of the benefit of its arbitration agreement. Indeed, the first question a party should consider before investing time and expense in a motion or petition to vacate is whether it has reasonable grounds for asserting that the award materially violated the agreement to arbitrate. If the answer is “yes,” and the alleged violation falls within the scope of Section 10(a), then the party may have a good faith basis for vacating the award.
Modifying or Correcting an Award under Section 11 of the Federal Arbitration Act
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.
For the most part a motion to modify an award is limited to correcting mathematical, typographical or other technical errors appearing on the face of the award or severing from the award rulings on issues not submitted to the arbitrators (i.e., issues the parties did not ask the arbitrators to decide). See 9 U.S.C. § 11(a) (“evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award”); 9 U.S.C. § 11(c) (“award is imperfect in matter of form not affecting the merits of the controversy”); 9 U.S.C. § 11(b) (“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”). The court’s “order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.” 9 U.S.C. § 11. If a party seeks only modification or correction of an award, then, even if the challenging party prevails, the end result of the proceeding will be the court’s entry of a judgment on the modified or corrected award.
Like the grounds for vacating an award under Section 10, the grounds for modifying or correcting award are exclusive and the parties cannot expand their narrow scope by agreement or consent to modification or correction on any other grounds. Hall Street, 552 U.S. at 578.
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Future segments will address in greater detail the grounds for, and other issues related to, vacating, modifying, and correcting Chapter One Domestic Awards, Chapter Two Domestic Awards, and Chapter Two Foreign Awards.
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.
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[…] 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.) […]