GPSolo Magazine - September 2006
Vacating Arbitration Awards
The available federal statutory grounds for vacatur include: award procured by corruption, evident partiality of the arbitrator, refusal to postpone the hearing for good cause, refusal to consider material evidence, and arbitrators exceeding their powers. Most jurisdictions also permit vacatur if the arbitrator’s award exhibits “manifest disregard of the law,” and some recognize other judicially created grounds: “contrary to public policy,” “irrational,” and “arbitrary and capricious.”
The purpose of this article is to take a snapshot of the real-world application of these familiar standards in a recent sample of reported case law. We reviewed every case, state and federal, published and unpublished, reported between January 1, 2004, and October 31, 2004, in which a court decided a motion to vacate an arbitration award on any of these grounds.
We wanted to know which of the available grounds for vacatur are invoked most frequently, which most often succeed and which most often fail, whether the facts of the cases could help us read additional content into the relatively general and elastic grounds for vacatur employed by the courts, and whether the cases suggest any useful practice lessons for litigators and arbitrators.
Three categories of cases were excluded from our research. First, cases in which an award was vacated because the arbitration clause was held unconscionable or otherwise unenforceable from its inception as a matter of contract law. Second, cases addressing awards issued in the labor/collective bargaining context. Third, certain decisions involving statutorily mandated arbitrations in insurance and public-contracting disputes where the applicable standard of review was far less deferential and not representative of outcomes under the Federal Arbitration Act or the analogous state statutes. These exclusions left us with a sample of 182 reported cases, state and federal, that involved a wide variety of civil disputes and in which a motion to vacate succeeded in 37 instances, or 20 percent of the time.
We reviewed the 37 cases for possible subject-matter patterns in order to assess whether vacatur occurred disproportionately in cases involving employees, consumers, other individual litigants, or in any particular types of cases or industries. We found no such patterns.
Significant differences among forums. We did find significant differences in the frequency of successful vacatur applications based on the forums where the cases were decided. Of the total universe of 182 cases we reviewed, 120 were brought in state courts and only 62 were brought in the federal courts. Of the state court cases, 31, or about 25.8 percent, resulted in vacatur. By contrast, in the federal cases, only six awards were vacated, or about 9.7 percent.
We also saw dramatic differences in the vacatur success rate among different states. Of all the state court cases vacating an award, 71 percent were decided in only four states: New York (9), California (6), Connecticut (4), and Massachusetts (3). Nine other states ( Alabama, Louisiana, New Jersey, Ohio, Pennsylvania, South Dakota, Tennessee, Texas, and Wisconsin) each had one case vacating an award. No other state had any.
The figures also indicated that vacatur was attempted more often, and succeeded more often, both on an absolute and on a percentage basis, in just three states: California (27 attempts), New York (25), and Connecticut (12). The total of 64 cases in which a party sought vacatur in these three states exceeded the total of 56 such cases brought in all of the other 47 states combined and also exceeded the total of 62 such cases brought in the entire federal system. Moreover, the courts in those 64 cases in California, New York, and Connecticut vacated awards 19 times. A litigant seeking vacatur in these three states had a 30 percent chance of success as compared with a 21 percent chance of success in the other 47 states.
Most potent grounds. Our review found that the most frequently asserted and most frequently successful of all of the statutory and other grounds advanced by parties seeking vacatur was the allegation that the arbitrators had “exceeded their powers, or so imperfectly executed them that a . . . final and definitive award upon the subject matter submitted was not made.” The next most active category was that the arbitrators allegedly “manifestly disregarded the law,” but motions on this ground succeeded in only two cases, or about 4 percent of the time. The third most frequently advanced ground was that the arbitrators had committed “misbehavior by which the rights of a party were prejudiced,” a catch-all category encompassing various judge-made grounds for vacatur other than “manifest disregard.” This ground includes allegations that the award was “irrational,” “violated public policy,” or was “arbitrary and capricious.”
In general, our sample confirmed how difficult it is for parties to obtain vacatur of an arbitration award. The chances of successfully vacating an award in the federal system or in states other than New York, California, or Connecticut were quite remote in our sample, particularly if the ground relied upon was something other than an argument that the arbitrators exceeded their powers.
Our review also indicated that the courts saw their role mainly as one of policing the procedural propriety of the arbitral process rather than correcting the substantive merits of the awards rendered. Once satisfied that the arbitrators had decided the issues submitted to them by the parties, and that the process satisfied an acceptable standard of “due process,” the courts refrained from second-guessing the merits of the decisions reached by the arbitrators.
Avoiding motions to vacate. Our sample identified certain types of behavior by arbitrators and counsel that probably should be given a wide berth, even if such conduct did not always, or even often, result in vacatur. Although not necessarily held to be misconduct in the cases reviewed in our sample, these types of conduct appeared repeatedly in our sample as behaviors that gave rise to vacatur litigation.
For arbitrators, the short list of sensitive behaviors suggested by our sample of cases includes: exceeding the tribunal’s powers by deciding issues not submitted to the arbitrators; awarding relief in favor of or against parties not bound by the arbitration agreement; granting relief outside the claims alleged or awarding types of relief that the arbitration clause or applicable law may not permit the arbitrator to award; failing to render an award that definitely and finally decides the issues; making incomplete disclosures during the arbitrator-selection process; and engaging in ex parte communications with parties or counsel.
For counsel, the list of actions to avoid includes: last-minute amendment of claims for relief; last-minute production of key evidence or witnesses that should have been disclosed sooner; failure to produce relevant documents; failure to make timely investigation into the arbitrators’ disclosures; offering testimony that is contravened by other testimony by the same witnesses given in another proceeding; and seeking relief that the arbitrator is not empowered to grant.
Lawrence R. Mills is a mediator and arbitrator with the Seattle, Washington, law firm Mills Meyers Swartling; he can be reached at firstname.lastname@example.org. J. Lani Bader is an arbitrator and a professor at Golden Gate University School of Law in San Francisco; he can be reached at email@example.com. Thomas J. Brewer is a full-time arbitrator and mediator based in Seattle; he can be reached at firstname.lastname@example.org. Peggy J. Williams is a commercial litigator at Heller Ehrman LLP’s Seattle office; she can be reached at email@example.com.
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