Arbitrator's Failure to Execute the Duty Granted
In Sims v. Building Tomorrow's Talent, LLC, No. 07-12-00170-CV (Tex. App. Apr. 30, 2014), the arbitrator failed to issue a ruling within the time period fixed by the parties prior to the arbitration, and as a result the award was vacated. Doris Sims and Matthew Gay were former business partners who had a dispute regarding the enforcement of a mediated settlement agreement. The parties agreed to use arbitration to settle their dispute and to use the mediator who had facilitated the settlement agreement, Michael Whitten, as the arbitrator. The parties executed "proposed arbitration guidelines" in which they agreed to an "expedited process and schedule for arbitration." The parties further agreed to hold the arbitration hearing on November 24, 2008, and to set a deadline for the reasoned written ruling containing findings of fact and conclusions of law within 14 days of Gay's written submission. Gay submitted his written brief on December 22, 2008, which meant that the arbitrator's ruling was due on January 6, 2009. One year after the arbitration hearings, with no ruling having been issued and with Sims's attorney having contacted Whitten's office several times, Sims sued Whitten for breach of contract and fraud. Gay intervened and accused Sims of hijacking the arbitration process, noting he had not consented to withdraw from the arbitration.
When Whitten did not issue a ruling after the trial court's oral order on April 8, 2010, the trial court, on June 18, 2010, then entered a written order directing him to render a written decision on liability and render a schedule for discovery, testimony, and other matters within 14 days. Whitten further was ordered to render a written award within 60 days. Sims objected to the court's replacing procedures and timelines entered into by the parties. It was 19 months after the initial agreed-to deadline, on August 10, 2010, that Whitten issued his findings of fact and conclusions of lawin favor of Gay and against Sims, and on August 25, 2011, he issued a final judgment awarding Gay $195,000 in damages and $92,135.32 in attorney fees. Sims objected to the award and filed a motion to vacate it, citing Whitten's lack of impartiality. Despite the objection, on October 26, 2011, the trial court confirmed the award.
The Court of Appeals for the Seventh District of Texas at Amarillo reversed the trial court on the basis that Whitten "had no authority to enter an arbitration award," whether it be outside the deadline set in the proposed guidelines for arbitration or in the trial court's June 19, 2010, order. The court based its decision on the fact that the legislature clearly and unambiguously provided that an arbitrator shall make an award within the time established by the agreement to arbitrate, or if a deadline is not established by agreement, within the time ordered by the court. See Tex. Civ. Prac. & Rem. Code § 171.053(c). The court also commented that Whitten's conduct defeated the intent of arbitration—a contractual arrangement by the parties "to obtain a speedy and inexpensive final disposition."
The Arbitrator's Ethical Obligations
An arbitrator, whether serving on a panel or as a sole arbitrator, should be mindful of the ethical obligations he or she has. For arbitration to remain a significant tool in the judicial system, the behavior and conduct of the arbitrator must be above reproach. Courts refuse to undertake an expansive review of arbitral decisions and generally "will uphold an award so long as the arbitrator 'offers a barely colorable justification for the outcome reached.'" Jock v. Sterling Jewelers Inc., 646 F.3d 113, 122 (2d Cir. 2011).
The American Bar Association and the American Arbitration Association (AAA) put forth the Code of Ethics for Arbitrators in Commercial Disputes to provide ethical guidelines and standards of conduct for arbitrators and others involved in the field of alternative dispute resolution.
Canon I of the Code says, "An Arbitrator should uphold the integrity and fairness of the arbitration process." And according to canon I(B)(4), one should accept appointment only if fully satisfied "that he or she can be available to commence the arbitration in accordance with the requirements of the proceeding and thereafter to devote the time and attention to its completion that the parties are reasonably entitled to expect." Using the Sims case as an example, the arbitrator should not have agreed to serve if he could not issue the award 14 days following the last submission. The parties asked for and had every right to expect an expedited process. The failure to meet the parties' expectations cost the parties, personally and financially, in that Sims declared bankruptcy amid this protracted and expensive litigation.
According to canon I(F): "An arbitrator should conduct the arbitration process so as to advance the fair and efficient resolution of the matters submitted for decision. An arbitrator should make all reasonable efforts to prevent delaying tactics, harassment of parties or other participants, or other abuse or disruption of the arbitration process." According to the court's decision, Whitten's failure to respond to requests for the ruling frustrated the purpose and intent of arbitration. Furthermore, as the arbitrator, should you determine that you are unable to meet the parties' schedule, it is your duty to decline to serve or to promptly inform the parties and let them decide how to proceed.
Arbitrator's Authority: Broadly Construed
In the few examples of tardiness of the award, courts have been reluctant to hold to rigid deadlines as grounds for vacating an arbitration award. "Unlike the question of arbitrability, which is decided by the court, not the arbitrator (absent a clear and unmistakable agreement to the contrary), the parties should expect that procedural issues concerning the arbitration hearing and the scheduling of deadlines would be decided by the arbitrator as a final matter." Greenspan v. LADT, LLC, 111 Cal. Rptr. 3d 468, 498 (Ct. App. 2010).
In Sopko v. Clear Channel Satellite Services, Inc., 151 P.3d 663, 667 (Colo. Ct. App. 2006), the court, after a review of timeliness cases across jurisdictions, ruled that "the party seeking to preclude an award issued after the time prescribed by the agreement must show both that it made a timely objection to issuing an award after the time limitation in the agreement and that it has been prejudiced by the delay."
The Award Is Confirmed Despite Substandard Arbitrator Performance
In Hasbro, Inc. v. Catalyst USA, Inc., 367 F.3d 689 (7th Cir. 2004), the Seventh Circuit confirmed an arbitration award in which the arbitration panel failed to close the hearings until December 5, 2001, more than four months after the date the panel had set for final briefings, which was July 10, 2001. It was not until the AAA sent a bill to the parties seeking post-hearing time from July to September was a warning raised for Catalyst. Catalyst discovered in the itemized bill it requested several entries such as "review and revise damage calculations to provide interest" and "extended conferences with panel regarding damage calculations and award." Armed with this knowledge, Catalyst sought to vacate the award for its being untimely. Here, as in Sopko, the court of appeals, applying Wisconsin contract law, noted that (1) untimely performance of a contractual obligation does not result in the harsh penalty of forfeiture or rescission, unless the parties agree that "time is of the essence"; (2) time is not of the essence unless expressly stated; and (3) the mere mention of a time certain within which to render the decision, as was in the governing AAA rules, was not sufficient evidence that time is of the essence. Further despite the untimely award, Catalyst was not prejudiced or harmed as no interest was tacked onto the damages payment it owed Hasbro. However, the court did admonish the panel for its substandard performance.
Connecticut Is Like Texas: Vacated Because the Award Was Untimely
The Connecticut Appellate Court in Remax Right Choice v. Aryeh, No. AC 26571 (Conn. App. Ct. Apr. 10, 2007), vacated an arbitration award issued approximately 70 days late, because according to Connecticut General Statutes section 52-416(a) (emphasis added):
If the time within which an award is rendered has not been fixed in the arbitration agreement, the arbitrator . . . shall render the award within thirty days from the date the hearing or hearings are completed, or, if the parties are to submit additional material after the hearing or hearings, thirty days from the date fixed by the arbitrator . . . for the receipt of the material. An award made after that time shall have no legal effect unless the parties expressly extend the time in which the award may be made by an extension or ratification in writing.
The court emphasized that the parties, and not the arbitrator without consent from the parties, can waive the 30-day requirement, but that waiver is an act and not the absence of an act. Here, the act is to "expressly extend the time in which the award may be made by an extension or ratification in writing." This court, like many others, confirmed the importance of arbitration as an efficient and cost-effective means of dispute resolution, and that failure to comply with the statute does not automatically invalidate the award. The court "acknowledge[d] that has no legal binding effect has meaning," and deference was given to the legislature for inclusion of such language.
In Connecticut, like Texas, the courts respected the language of the applicable statute in that the arbitrator shall make an award within the time set by the parties or 30 days, and shall is an obligation.
There are important lessons for arbitrators and advocates in these cases. The arbitrator's authority to determine issues of procedure is vast and wide, and the courts give deference to what the arbitrator decides. It is with this heavy duty of upholding the process that the arbitrator should accept a case. It is the arbitrator's duty to be clear as to the procedure he or she will be following and to manage the process—part of which includes rendering a timely award. With such power, it is incumbent on the arbitrator to be faithful to ethical guidelines and considerations so as not to defeat the very purpose of the arbitrator's role and force the parties to litigation. The Sims case highlights how easily an unrestrained arbitrator could be so egregious as to infringe on the arbitration process. Furthermore, in Texas and Connecticut, an award can be vacated solely because it is late.
There are lessons for the advocate as well. A late award, by itself, is no basis for seeking to have the award overturned. In addition to preserving your client's objections, it is imperative that you are able to demonstrate that a late award creates actual or potential harm if you expect to prevail. An additional resource for parties and advocates is Samuel Estreicher & Steven C. Bennett, "Untimely Arbitration Awards," N.Y. L.J., Mar. 28, 2006.
Keywords: litigation, ADR, arbitration, vacated, arbitrator authority, untimely