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‘Exceeded Powers’: Exploring Recent Trends In Cases Challenging Tribunal Authority

By Lawrence R. Mills and Thomas J. Brewer September 4, 2013
Dodging Do-Overs

The focus: A deep dive into ‘exceeded powers’ cases—one of the limited Federal Arbitration Act and state law categories for challenging a tribunal award.

The assessment: The authors analyze many cases here—where courts upheld the awards, and also where tribunals overstepped.

The practice takeaway: Arbitrators, stay strong. The writers provide distinct case themes that provide a comprehensive advisory. Read this and you will know the types of cases most susceptible to challenge … and how to insulate your neutraling or advocacy work from attack.

Although most arbitration awards are followed by voluntary compliance, or by pro forma judicial confirmation and prompt enforcement, post-award litigation occurs hundreds of times each year as the losing party in arbitration attempts to vacate the award.

As practicing arbitrators, we have taken a perhaps perverse interest in the reported cases where losing parties have sought to vacate adverse arbitration awards. In particular, we have canvassed reported court opinions in cases where vacatur was sought during an eight-month sample period in 2004 (see L. Mills and T. Brewer, et al., “Vacating Arbitration Awards: A Real World View of the Case Law,” Dispute Resolution Magazine (Summer 2005)), a nine-month period in 2008 (see T. Brewer and L. Mills, “When Arbitrators Exceed Their Powers,” Dispute Resolution Journal (February-April 2009), and, most recently, a 12-month period ending in mid-2012.

In brief, our prior work persuaded us that, although “evident partiality,” “arbitrator misconduct,” and “manifest disregard” all continue to get a good deal of ink, the vacatur ground that is invoked most often—and succeeds most often—in the real world is that “the arbitrators exceeded their powers.”

The earlier studies also persuaded us that, although arbitrators often fret about whether particular case-management actions they might consider taking pose possible risks of a later vacatur, in the real world managerial arbitrators who take firm steps to promote the efficiency and expedition of their cases rarely, if ever, have their awards vacated later for such decision-making.

Rather, the earlier studies indicated that arbitrators are on solid ground, from a possible vacatur perspective, when exercising the case-management discretion granted to them by the parties to manage procedural matters such as pre-hearing exchanges of information, motions, case scheduling, hearing procedures, and the like.

Statistically speaking, the risks of a possible vacatur grow, however, when arbitrators make decisions resolving substantive issues or granting relief that arguably go beyond the matters submitted to them by the parties.

This article departs from our earlier statistical tabulations. It instead addresses some interesting themes that appear to be emerging in recent exceeded powers cases.

In particular, we review three themes that seem to recur in recent cases where the exceeded powers challenge successfully resulted in vacatur of an award.

Conversely, we also take a look at three recurring themes evident in recent cases where the exceeded powers challenge to an award was rejected by the courts. Along the way, this article points out practical considerations that may be useful to parties, advocates, and arbitrators seeking to protect the finality of awards challenged on the exceeded powers ground.

REAL WORLD DIFFICULTY

There are limited statutory grounds on which a court may vacate an arbitration award. Litigators and arbitrators are well aware that the Federal Arbitration Act authorizes vacatur only where (1) “the award was procured by corruption, fraud or undue means;” (2) where “there was evident partiality or corruption in the arbitrators;” (3) where “the arbitrators were guilty of misconduct,” e.g., by refusing to postpone the hearing for good cause shown or by refusing to consider material and pertinent evidence; or (4) where “the arbitrators exceeded their powers, or so imperfectly executed them that a … final and definite award upon the subject matter submitted was not made.” 9 U.S.C. § 10(a)(available at http://bit.ly/120BmfV). Most state arbitration statutes mirror these statutory vacatur grounds. In addition, courts in some jurisdictions also permit vacatur if the arbitrator’s award exhibits “manifest disregard of the law” or is “contrary to public policy,” “irrational,” or “arbitrary and capricious.”

In general, our earlier reviews of the cases confirmed how difficult it is in the real world for a party to vacate an arbitration award. For example, in our 2004 study of 184 reported court decisions in which a party sought to vacate an arbitration award, we found that motions to vacate based on manifest disregard succeeded only about 4% of the time. Motions based on evident partiality succeeded in only about 12% of the cases where the argument was made.

Our 2004 study also determined that the most frequently asserted and most successful of all the statutory and other grounds advanced by parties seeking vacatur was the contention that the arbitrators had exceeded their powers. When asserted, this ground succeeded about 20% of the time. Thus, even in the exceeded powers cases, a party seeking to upset an arbitration award was likely to be successful only one out of every five times.

EMERGING THEMES

Our most recent review focused on 47 exceeded powers cases decided by federal and state courts between June 2011 and May 2012. As with the earlier studies, in this sample of “exceeded powers” challenges, vacatur occurred about 20% of the time—in nine cases out of a total of 47.

The courts’ decisions in these cases reveal some interesting themes, both in the nine cases where the challenge resulted in vacatur and in the 38 cases where the challenge was rejected and the award was confirmed.

The cases in which the exceeded powers argument seemed to work best involved situations where (1) the challenged award granted relief concerning a nonsignatory to the arbitration agreement; (2) the award involved a fairly blatant disregard for, or rewriting of, the parties’ underlying contract; or (3) the award was impermissibly vague.

Conversely, the cases in which the courts rejected the exceeded powers challenge often involved fact patterns where (1) the arbitrators were accused of misconstruing the agreement between the parties or the applicable law; (2) the losing party complained that the arbitrator did not adequately explain the reasons for the award; or (3) the arbitrators allegedly fashioned relief that was not specifically requested or was particularly draconian, e.g. punitive damages or complete dismissal of a claim.

The discussion that follows addresses these themes in greater detail. It concludes with some practical thoughts we hope may be useful to parties, advocates, and arbitrators interested in protecting the finality of arbitration awards facing “exceeded powers” challenges.

RISKY BUSINESS

The nine cases in our recent sample where an exceeded powers challenge succeeded in the courts involved three main fact patterns.

1. AWARD FOR OR AGAINST NONSIGNATORIES TO ARBITRATION AGREEMENT.

Three of these nine cases involved determinations by the reviewing courts that the arbitrator had impermissibly awarded relief for or against a party that had never agreed to arbitrate.

In Brown v. Styles, 2011 WL 3655158 (Tenn. Ct. App. 2011)(available at http://bit.ly/198sPhf), in a dispute between a homeowner and a contractor regarding the installation of a gutter system for a home, the arbitrator entered an award in favor of the homeowner for nearly $64,000. The award was made against both the defunct gutter installation company and the individual who was the principal owner of the gutter company.

On a motion to vacate the award, the court found the homeowner had entered into a contract with the gutter company, and not with the owner of the gutter company individually. Because the owner did not sign the contract containing the arbitration agreement and was not named as an arbitration party, the Court of Appeals held that the trial court lacked jurisdiction to confirm the arbitration award against the individual owner. Accordingly, the arbitration award was confirmed as to the gutter company and vacated as to the owner.

Another case in which an arbitration award was vacated because the arbitrator awarded relief in favor of nonparties was Morgan Keegan & Co. v. Garrett, 816 F. Supp. 2d 439 (S.D. Tex. 2011)(available at http://1.usa.gov/120BGvc). In the case, a group of investors claimed a financial advisory firm misled them to invest in certain bonds. An arbitration panel awarded the investors more than $9 million in compensatory damages, costs, and attorneys’ fees.

The financial advisory firm moved to vacate the award. The U.S. District Court for the Southern District of Texas vacated the entire award on the ground that the panel exceeded its powers by hearing derivative claims and claims of non-customers. Moreover, the court observed that even if the panel had the power to hear those claims, the award still would have been vacated because the claimants’ expert admitted—in other testimony months after the hearing—he realized while testifying in the arbitration that his calculations were wrong and his conclusions were false.

Thus, the court reasoned, the arbitration award would have been subject to vacatur because the award was procured by fraud as well as on the exceeded powers ground.

Finally, in another case in which an arbitration award was partially vacated because it granted relief against a nonparty, Lumber Liquidators Inc. v Sullivan, 2011 WL 5884252 (D. Mass. 2011)(available at http://bit.ly/178FALD), an arbitrator entered an award against a former employee who violated a two-year noncompetition agreement by incorporating a competing Nevada corporation and opening three competing stores in California.

The arbitration award ordered the former employee to wind down, close, and liquidate the competing Nevada corporation and its operations, and to pay the former employer nearly $360,000 in damages.

On a motion to vacate the arbitration award, the former employee argued the arbitrator exceeded her powers by enjoining the Nevada corporation, which was not a party to the original arbitration agreement, and ordering the dissolution of the Nevada corporation. The court agreed. The court confirmed the arbitration award of damages against the former employee, and vacated the portion of the award relating to the nonparty Nevada corporation.

2. AWARD DISREGARDING OR REWRITING THE PARTIES’ CONTRACT.

The second category of cases in our recent sample where awards were vacated involved determinations by the reviewing courts that the arbitrators had exceeded their powers by disregarding, or rewriting, the parties’ underlying contract. Four of the nine cases in our sample where vacatur was ordered involved such analyses by the reviewing courts.

A good example of the courts’ ambivalence toward arbitration awards granting relief beyond the parties’ underlying contract is the case of Timegate Studios Inc. v. Southpeak Interactive LLC, 860 F. Supp. 2d 350 (S.D. Tex. 2012) (available at http://1.usa.gov/14wJ49o). This case involved a dispute between a video game developer and a video game publisher regarding an agreement to invest funds in a game in exchange for revenue from the marketing and distribution of the game through a series of payments over a limited duration license.

The game was a flop, and the parties submitted their claims to arbitration. The arbitrator awarded the publisher more than $7.3 million in damages, plus the expenses of arbitration and the arbitrator’s fees. In the award, the arbitrator also amended the publishing agreement by granting the publisher a perpetual license and providing that no royalties need be paid to the game developer.

The district court found that the creation of a perpetual license was directly contrary to the parties’ agreement and the provision for nonpayment of royalties extended far beyond the intended contractual duration of payments. Moreover, the parties had not asked the arbitrator to void their contract but simply to interpret it.

Therefore, because the arbitrator failed “to anchor his award in any recognized law,” the court held he exceeded his powers. The court concluded it could not modify the award while still preserving its intent and acting consistently with the essence of the parties’ agreement. The award was vacated.

Although we counted this case as involving the vacatur of an arbitration award on the “exceeded powers” ground, on appeal, the Fifth Circuit reversed the district court and reinstated the arbitrator’s award holding that the perpetual license “was a permissible exercise of the arbitrator’s creative remedial powers” and “rationally rooted in the Agreement’s essence”—even if it was not wholly consistent with the parties’ contract. 2013 WL 1437710 (5th Cir. 2013).

In Muskegon Central Dispatch 911 v. Tiburon Inc., 462 Fed. Appx. 517 (6th Cir. 2012)(unpublished)(available at http://bit.ly/12tR8Ga), an arbitrator’s award also was vacated essentially because the reviewing court concluded that the arbitrator’s award disregarded the underlying contract. The case involved a dispute under an agreement to implement an integrated public safety computer system.

The arbitrator determined the liability issues and awarded the supplier of public safety software more than $450,000 in damages for breach of the contract by a consortium of police, fire, and emergency medical service agencies.

On review of the award, the court found the arbitrator exceeded his powers by concluding the consortium had failed to complete the contractual dispute resolution process when, in fact, the software supplier had itself truncated the process by prematurely commencing arbitration.

In effect, the arbitrator’s decision resulted in the consortium losing entirely on all its claims, and the software supplier winning entirely, without any finding as to whether the supplier’s conduct satisfied, or materially breached, the operative substantive terms of the parties’ contract. Accordingly, the arbitrator’s award was vacated and the court decided that the supplier’s contract claim should be remanded to a new arbitrator in the interest of fairness.

Another case involving an arbitrator’s failure to analyze the underlying contracts was Sonic Automotive Inc. v. Price, 2011 WL 3564884 (W.D.N.C. 2011)(available at http://bit.ly/15419pF). The case featured an arbitration commenced by individual purchasers of automobiles and associated service contracts packaged with a product called ETCH, which consisted of a small number stenciled to one or more vehicle windows and marketed as an automobile theft deterrent system. The ETCH product was purchased from different auto dealers; each of the buyers signed some form of arbitration agreement at the time of purchase.

The arbitrator entered a “Partial Final Award on Class Certification,” a 59-page memorandum and order conditionally certifying certain customers as a class. Pursuant to American Arbitration Association rules, the arbitrator properly stayed the award to allow for judicial review.

On review, the court granted the petition to vacate the class certification award primarily because there were differing arbitration clauses in the dealer-customer contracts, and some of the clauses contained a ban on proceeding as a class. Since the arbitrator did not perform any analysis to determine the applicability of individual agreements to arbitrate or make any determinations about whether the agreements permitted or precluded class actions, the court found the arbitrator exceeded his powers.

Our sample also included a case decided by the Minnesota Court of Appeals, Garlyn Inc. v. Auto-Owners Ins. Co., 814 N.W.2d 709 (Minn. App. 2012)(available at http://bit.ly/18GPLHE). The court held that, although the arbitrator did not exceed his authority by finding a breach of contracts for repair and replacement of auto glass, the arbitrator’s award would be partially vacated where the arbitrator exceeded his authority by including pre-award interest on claims of less than $7,500 in violation of a Minnesota statute.

3. AWARD THAT IS IMPERMISSIBLY VAGUE.

The third category of cases in which arbitrators were held to have exceeded their powers involved determinations by the reviewing courts that the challenged awards were impermissibly vague.

For example, in Asia Pacific Hotel Guam Inc. v. Dongbu Ins. Co. Ltd., 2011 WL 5037184 (Sup. Ct. Guam 2011)(available at http://bit.ly/12LseTX), a dispute arose between a construction contractor’s bonding company and the owner of a hotel property regarding multiple construction deficiencies in the renovation of a resort hotel.

After emphasizing the strong public policy favoring confirmation of arbitration awards, the reviewing court vacated the entire “conditional award” because it left open whether the construction work had been substantially completed and whether the hotel owner had provided reasonable documentation of the work actually done. The court remanded the case to the original arbitration panel to settle the unresolved issues and to render a final and definite award, which could then be reviewed by the court.

Another case involving the arbitration panel’s failure to make a sufficiently definite award is the fascinating, one-of-a-kind arbitration case that came to the attention of the Kings County, N.Y., Supreme Court in Matter of Wydra (Brach), 938 N.Y.S. 2d 231 (N.Y. Sup. 2011) (the Supreme Court is the trial-level court in New York state).

This case was a complex multiparty arbitration extending over 14 months that was heard by a tribunal consisting of three rabbis, who issued an arbitration award designated “Decision of the Bais Din.”

The arbitration petitioners were two individuals, at least 10 limited liability companies, and one corporation; the respondents were two individuals, together with 19 limited liability companies, and two corporations.

Although the “Decision of the Bais Din” contained no description of the disputes among the parties, it appears the disputes related to a number of valuable parcels of real property located in and around New York City. The arbitration award included a monetary award of more than $15.8 million.

The reviewing court struggled with determining the scope of the arbitration agreement, the parties who agreed to arbitrate, and the meaning and effect of the award. Among the award’s ambiguities was that it did not disclose the formula or method used by the panel to arrive at the amount.

Although the grounds for the court’s decision are many, the court vacated the arbitration award and remitted the entire matter to the rabbinical panel for rehearing of the issues. It appears the primary ground for the court’s vacatur of the award was that the arbitrators exceeded their powers by failing to make a definite and comprehensible award on the subject matter submitted.

SAFER GROUND

Turning to the 38 cases in our sample where the courts rejected the exceeded powers challenge and confirmed the award, here, too, we observed several recurring themes that were addressed by the reviewing courts, but ultimately resulted in the arbitration awards being confirmed.

[The sample of cases in which the exceeded powers challenge failed and the award was confirmed included Petrobras America Inc. v. Astra Oil Trading N.V., 2012 WL 1068311 (Tex. App.–Houston (1 Dist.) 2012). One of the authors served as the tribunal chair in this matter. We think it best to avoid post-award comment on the case by one of its former arbitrators, so that case will not be discussed further here.]

Examples of arbitrators’ actions that were challenged are described below. The courts eventually—although not always initially—rejected the losing party’s exceeded powers challenges to the awards issued in all of the cases listed. Nevertheless, the list of challenged conduct makes for interesting reading for those of us who often serve as arbitrators.

1. Arbitrators allegedly misconstrued the agreement between the parties or the applicable law. Several of these cases involved unsuccessful allegations by the losing party that the arbitrators:

  • violated a provision in the arbitration clause providing the arbitrator could not “add to, subtract from or otherwise modify” the provisions of the underlying Hospital Services Agreement. Baylor Health Care System v. Equitable Plan Services Inc., 2012 WL 895941 (N.D. Tex 2012)(available at http://bit.ly/13TwSdw).
  • misinterpreted and misapplied the indemnification and waiver provisions in the underlying contract for snow and ice removal at a Home Depot store. Total Landscaping Care LLC v. Tower Cleaning Systems Inc., 2012 WL 676981 (E.D. Pa. 2012)(available at http://1.usa.gov/11laqIW), and
  • disregarded a Sixth Circuit determination of the meaning of the key contractual provision at issue in the parties’ dispute. Urban Associates Inc. v. Standex Electronics Inc., 2012 WL 1079720 (E.D. Mich. 2012)(available at (http://bit.ly/11eArNE).

2. Arbitrators allegedly did not adequately explain the reasons for the award. In addition, a number of these cases involved claims, ultimately denied by reviewing courts, that the arbitrators:

  • attempted to correct a substantive error in the award—failure to follow a “baseball” requirement—by later deleting certain sentences from the award on the grounds that these were “clerical errors,” and then reissuing the award without the deleted sentences. See Rain CII Carbon LLC v. ConocoPhillips Co., 674 F.3d 469 (5th Cir. 2012) (available at http://1.usa.gov/10iw9pC).
  • issued a “Supplemental Decision” following issuance of the original award, in response to a court order remanding the earlier award to the tribunal to clarify certain aspects of the original award. W&J Harlan Farms Inc. v. Cargill Inc., 2012 WL 729329 (S.D. Ind. 2012), and
  • failed to comply with a requirement in the arbitration clause that the award “must contain findings of fact and conclusions of law.” DT-Trak Consulting Inc. v. Prue, 814 N.W.2d 804 (S.D. 2012)(available at http://bit.ly/ZPfVCb).

3. Arbitrators allegedly fashioned relief that was not specifically requested or was particularly draconian. The cases in our sample that resulted in confirmation of the awards also included a number of challenges to the relief granted by the arbitrators, including that the arbitrators allegedly improperly:

  • issued an award requiring prepayment of 75% of disputed claims, relief not specifically requested by any party. Harper Ins. Ltd. v. Century Indemnity Co., 819 F. Supp. 2d 270 (S.D.N.Y. 2011).
  • issued an award that included $17 million in punitive damages and $3 million in attorneys’ fees pursuant to a statute not referenced in the statement of claim. Hosier v. Citigroup Global Markets Inc., 835 F. Supp. 2d 1098 (D. Colo. 2011)(available at http://bit.ly/163nea7), and
  • granted a pre-hearing motion to dismiss on the ground that claims were barred by a prior settlement agreement. Spungin v. Genspring Family Offices LLC, 883 F. Supp. 2d 1193 (S.D. Fla. 2012)(available at http://bit.ly/14B7E6y).

Almost all of these opinions begin their analyses of the exceeded powers issue by reminding us how difficult it is to obtain vacatur of arbitration awards generally: Arbitration awards are “subject to very limited review in order to avoid undermining the twin goals of arbitration, namely settling disputes efficiently and avoiding long and expensive litigation.” L’Objet LLC v. Limited, 2011 WL 4528297 (S.D.N.Y. 2011).

Courts should vacate awards only in “exceedingly narrow” circumstances and must apply an “extremely deferential” standard of review. J.D. Shehadi LLC v. US Maintenance Inc., 2011 WL 4632187 (E.D. Pa. 2011)(available at http://bit.ly/11lgMZ1). Once an award is issued, the finality of arbitration weighs heavily in its favor and cannot be upset “except under exceptional circumstances”; accordingly, the standard of review of arbitral awards “is among the narrowest known to law.” Gilmore v. Brandt, 2011 WL 5240421 (D. Colo. 2011) (available at http://bit.ly/1abGSEf).

Maximum deference is owed to the arbitrators for this reason: a strong presumption exists requiring “all doubts concerning whether a matter is within the arbitrators’ powers to be resolved in favor of arbitrability.” Id.

As a result, awards are shown “great deference”; the courts will enforce the award unless the arbitrators lacked a “barely colorable justification” for the outcome reached. Agility Public Warehousing Co. K.S.C. v. Supreme Foodservice GmbH, 840 F. Supp. 2d 703 (S.D.N.Y. 2011) (available at http://bit.ly/144xsWp). Judicial review is “extraordinarily narrow” and “exceedingly deferential.” See Rain CII Carbon LLC, 674 F.3d 469, supra.

PRAGMATIC OBSERVATIONS

Most would agree that the goal of an arbitral proceeding should be a just award rendered in a fair, efficient, and final proceeding.

But vacatur litigation inevitably compromises at least some of these goals by adding an expensive and potentially protracted judicial “second round” to the process, whether the motion to vacate ultimately succeeds or not.

In cases where the award is vacated, the consequences to the parties can be severe, especially in cases where they may be ordered to arbitrate again, and thus will have wasted much or all of the time and expense invested in the vacated arbitral proceedings.

We believe the cases in our most recent sample again confirm the importance for arbitrators of ensuring that their awards confine the relief awarded to parties bound by the arbitration agreement. Applicable case law permits nonsignatories to be bound under certain circumstances. See, e.g., Ragone v. Atlantic Video at Manhattan Center, 595 F.3d 115 (2nd Cir. 2010)(available at http://bit.ly/11B81c3); Enterprises Int’l Inc. v. Pasaban S.A., No. 11-05919 (USDC W.D. Wash. Feb. 11, 2013)(available at http://bit.ly/14B8zns). We believe our sample confirms, however, that such decisions may be a lightning rod for possible challenges and, accordingly, should be approached by arbitrators with care.

We also believe the cases in our most recent sample confirm the importance for arbitrators of ensuring that the issues submitted for decision be addressed consistently with the terms of the parties’ contractual commitments, and that the awards resolve such issues in a clear and definite manner.

We also have had a concern—particularly since the U.S. Supreme Court’s decision in Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 559 U.S. 662 (2010)(available at http://1.usa.gov/cf9ol4)—that determinations as to whether an award “follows the contract” may prove to be a slippery slope on which to base “exceeded powers” analyses. See T. Brewer, “Arbitrator Boundaries: What Are the Limits on Arbitrator Authority?” 2012 AAA Yearbook on Arbitration and the Law, 24th ed. at 471, 480-85 (Juris 2012).

The recent cases in our sample, in general, included some important reassurance on that point, as does the U.S. Supreme Court’s recent decision in Oxford Health Plans LLC v. Sutter, No. 12-135 (June 12, 2013)(available at www.supremecourt.gov/
opinions/12pdf/12-135_
e1p3.pdf
).

Several of the cases in our sample teach that the focus of inquiry in exceeded powers challenges to an award under Federal Arbitration Act Section 10(a)(4) should be on “whether the arbitrators had the power, based on the parties’ submissions or the arbitration agreement, to reach a certain issue, not whether the arbitrators correctly decided that issue. …”

In other words, as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, a court’s conviction that the arbitrator has committed serious error in resolving the disputed issue does not suffice to overturn his decision. Jock v. Sterling Jewelers Inc., 646 F.3d 113, 122 (2d Cir. 2012)(available at http://bit.ly/13GUuE6).

Limits on an arbitrator’s authority must be “plain and unambiguous. … A reviewing court examining whether arbitrators exceeded their powers must resolve all doubts in favor of arbitration.” See Rain CII Carbon LLC, 674 F.3d 469, supra.

If the arbitrator was even arguably construing or applying the contract, judicial review should be limited to whether the arbitrator’s decision was “rationally inferable from the contract”; even an error in interpretation would not require setting aside the award “unless it amounted to bad faith or affirmative misconduct by the arbitrator.” Central West Virginia Energy Inc. v. Bayer Cropscience LP, 645 F.3d 267, 276 (4th Cir. 2011)(available at http://1.usa.gov/13GUZhf). If the arbitrator was arguably applying the contract, his decision should not be vacated unless it was “completely irrational.” Blanco v. Trump Ruffin Tower I LLC, 2011 WL 3841207 (D. Nev. 2011) (available at http://bit.ly/17Mt9V3).

“This standard is met only if there is no support in the record justifying the arbitrator’s decision.” See J.D. Shehadi LLC, supra.

The Supreme Court’s recent Oxford Health Plans decision is emphatically to the same effect:

Here, Oxford invokes §10(a)(4) of the Act, which authorizes a federal court to set aside an arbitral award “where the arbitrator[] exceeded [his] powers.” A party seeking relief under that provision bears a heavy burden. “It is not enough … to show that the [arbitrator] committed an error—or even a serious error.” Stolt-Nielsen, 559 U.S., at 671. Because the parties “bargained for the arbitrator’s construction of their agreement,” an arbitral decision “even arguably construing or applying the contract” must stand, regardless of a court’s view of its (de)merits… Only if “the arbitrator act[s] outside the scope of his contractually delegated authority”—issuing an award that “simply reflect[s] [his] own notions of [economic] justice” rather than “draw[ing] its essence from the contract”— may a court overturn his determination. So the sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.

See Oxford Health Plans, supra.

The cases in our sample also seem to show signs of an intriguing doctrinal development: continuing temptations, in some forums, to blur the lines between “manifest disregard of the law” and “exceeded powers” challenges to alleged errors by arbitrators.

Ever since Hall Street Associates L.L.C. v. Mattel Inc., 552 U.S. 576 (2008)(available at http://1.usa.gov/144AQAT), the courts have been debating whether judicially created grounds for vacatur, including especially the manifest disregard doctrine, survive that decision or whether the grounds for vacatur are now exclusively the statutory grounds enumerated in the Federal Arbitration Act, including Section 10(a)(4)’s provision concerning exceeded powers.

Our sample of cases denying exceeded powers challenges included several cases where courts or parties apparently turned to the manifest disregard standard—that the arbitrators knew of a well-defined, clearly applicable legal principle and yet refused to apply it or ignored it altogether—to help decide whether an alleged error of law made by the arbitrator was sufficiently extreme to warrant vacatur on the exceeded powers ground.

In Collins v. Chicago Investment Group LLC, 2012 WL 938725 (D. Nev. 2012) (available at http://bit.ly/10iz1mA), for example, the court seemed to apply both the “completely irrational” and the “manifest disregard” standards as functional equivalents of one another in rejecting an “exceeded powers” challenge.

In several other cases in our sample, the reviewing courts expressly invoked the manifest disregard standard to help explain their findings that an arbitrator’s alleged error of law did not merit vacatur under the exceeded powers ground. Moreover, in Jock, 646 F.3d 113, supra, members of an appellate panel chided one another as to whether reference to the manifest disregard standard is appropriate in an exceeded powers analysis.

Taken together, these cases seem to suggest that, even after Hall Street, the manifest disregard doctrine will not be going away quietly and, indeed, may live again as a tool for interpreting FAA Section 10(a)(4) in exceeded powers cases challenging alleged errors of law.

ENCOURAGEMENT FOR MANAGERIAL ARBITRATORS

Finally, and perhaps most importantly, the cases in our most recent study, taken together, further establish the proposition that, although arbitrators certainly should not be cavalier about ascertaining the sources of their authority to act, arbitrators should not hesitate to use their authority to promote a fair and efficient process, or to reach substantive decisions that seem best based on the evidence and arguments presented.

As with our earlier studies, the cases in this latest sample again confirm that managerial arbitrators who use their case-management discretion, and administer their arbitrations in an efficient and expeditious manner, face little real-world risk of having their awards vacated later.

Rather, the recurrent theme in the 38 cases in our sample in which the courts rejected exceeding powers challenges to awards is, once again, that the courts will do their part to help protect the finality and efficiency of arbitral proceedings.

In the cases we canvassed there are excellent examples of reviewing courts confirming decisions made by arbitral tribunals to improve the efficiency or effectiveness of the arbitral process. In Hotels Nevada v. L.A. Pacific Center Inc., 203 Cal. App. 4th 336 (2012)(available at http://bit.ly/14BaOY2), for example, the tribunal chose to implement somewhat unusual hearing procedures in order to save the process when confronted by an unexpected medical emergency involving one of the panel members.

Similarly, in Agility Public Warehousing Co. K.S.C, 840 F. Supp. 2d 703, supra, the tribunal had to make a difficult procedural decision about how to respond to key witnesses asserting their Fifth Amendment privileges.

In Spungin, 883 F. Supp. 2d 1193, supra, the tribunal concluded that preliminary injunctive relief was necessary to vindicate the arbitration process’s efficacy.

The reviewing courts confirmed all of these arbitral decisions. The lesson here is that fear of an award’s possible future vacatur is not a good or sufficient basis for arbitrators to avoid managerial decisions that promote the efficiency, fairness, or efficacy of the arbitration process.

In particular, we saw nothing in this most recent sample of cases suggesting that arbitrators create vacatur risks by acting with a firm hand to manage discovery, motion practice, or how the hearing is conducted, or by insisting on a reasonable and efficient overall case schedule.

This is, after all, the job we are hired to do

Mills is an experienced arbitrator serving on the JAMS panel of neutrals in Seattle and northern California. Brewer is an experienced arbitrator of international and domestic disputes based in Seattle. The authors would like to acknowledge and thank Zainab Hussain, a student at Seattle University School of Law, who provided research and analytical support for this article. The authors write, “Any errors are ours, not hers.”


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