In limited cases, an arbitration award can be challenged in court and overturned. Courts will vacate or refuse to confirm an arbitration award if the award is the product of fraud, corruption or partiality, or serious misconduct by the arbitrator. See 9 U.S.C. § 10. Courts are less likely to overturn an arbitration award because the arbitrator interpreted the law differently from how the court might have or the arbitrator made mistakes of law or fact. Arbitrators are entitled to make a mistake of law, and an award made on a mistake in the absence of a manifest disregard for the law will stand. Possible exceptions to reasons to vacate or refuse to confirm an arbitration award occur when the arbitrator has failed to adhere to the guidelines agreed to by the parties or a party has missed the one-year deadline for seeking confirmation.
Doris Sims and Matthew Gay were partners in Building Tomorrow's Talent, a human resources consulting company in which each held a 50 percent ownership interest. After a year, the two parted ways and Sims started a new one-person human resources consulting firm. Gay sued Sims and unsuccessfully sought a temporary injunction against her. The trial court awarded Sims relief to move forward with her new business and ordered all remaining issues be resolved through mediation.
The mediator, a solo practitioner, successfully mediated the case and memorialized the terms into a mediated settlement agreement. The settlement agreement included mediation and arbitration provisions requiring the parties to seek mediation to resolve disputes and arbitration if the mediation was unsuccessful.
Shortly thereafter, a dispute arose over copyrighted material displayed on Sims's website. The parties agreed to bypass mediation and proceed to arbitration with the prior mediator serving as the arbitrator. The parties executed proposed arbitration guidelines and set forth rules for an expedited process and schedule for arbitration. They also scheduled an arbitration hearing for November 24, 2008, and a deadline for the arbitrator's reasoned written ruling containing both findings of fact and conclusions of law to be issued within 14 days of Gay's written submission.
On December 22, 2008, Gay submitted his final brief. In April 2009, Sims forwarded several letters to the arbitrator inquiring about the lack of an award. Gay objected to Sims's letters as an inappropriate effort to influence and inject collateral issues into the arbitrator's deliberations. The arbitrator responded that he was on the cusp of rendering a decision. Several months passed without the arbitrator issuing a ruling.
In November 2009, one year after the arbitration hearing, Sims sued the arbitrator and his law firm for breach of contract and fraud. Gay intervened in the lawsuit and accused Sims of hijacking the arbitration and noted that he had not consented to withdrawal from arbitration. Gay also asserted that the consequences of Sims's conduct made it impossible for the arbitrator to rule without appearing biased against Sims.
At a hearing regarding Gay's lawsuit, the arbitrator stated his impartiality had been compromised, and he refused to issue a decision without a court order and requested a replacement arbitrator. In June 2010, the trial court entered a written order directing the arbitrator to render a written decision on liability and render a schedule for discovery, testimony, and other matters within 14 days. The arbitrator was ordered to render a written award within 60 days. Sims objected to the written order on the basis the court was replacing agreements and deadlines entered into by the parties in the proposed arbitration guidelines.
In August 2010, approximately 19 months after the initial parties' agreed-to deadline, the arbitrator issued his findings of fact and conclusions of law in favor of Gay and against Sims. In August 2011, a year later, the arbitrator issued a final judgment. Sims filed objections to the award and a motion to vacate the award based on the arbitrator's lack of impartiality. In October 2011, the trial court confirmed the award. Sims filed an appeal challenging the trial court's order confirming the award.
Appellate Court Review
The court of appeals reversed, holding that the arbitrator had no authority to issue the award and the trial court had no authority to confirm it. The court relied on Texas Arbitration Act section 171.053(e), which provides that complaints concerning the tardiness of an arbitration award are waived "unless the party notifies the arbitrators of the objection before the delivery of the award to that party." The court acknowledged that as early as April 2009, Sims objected to the tardiness of the arbitrator's ruling based on partiality and the arbitrator admitted his impartiality had been compromised. Additionally, Sims filed objections and a motion to vacate the arbitrator's award in September 2011, thus preserving her complaint for appellate review.
The appellate court also concluded the plain language of the Texas Arbitration Act affords the arbitrator no discretion to ignore the deadlines. See Tex. Civ. Prac. & Rem. Code § 171.053(c). Even assuming the original deadlines were abandoned by order in June 2010, the trial court set new deadlines of 14 days to render a schedule for discovery, testimony, and briefing, and 60 days to render a written award. The appellate court noted that the arbitrator's final award issued in August 2011, which was still a year beyond the trial court's deadline. The appellate court thus concluded that the trial court erred in confirming the belated arbitration award, which was issued long after the deadline had passed.
Because arbitration is viewed as an economical and expeditious alternative to litigation, many arbitration agreements have short deadlines. Parties interested in confirming an arbitration award must ensure that arbitration awards are timely issued and filed to prevent potential vacatur. Specifically, parties should diligently work to ensure that all deadlines are followed and reached to prevent any delay in the arbitrator's ruling and submission of the award. If an arbitration award is not timely filed, a party may file an objection and motion to void the award, thus eliminating the entire arbitration proceedings. Alternatively, if there is a delay in a ruling and there is interest in objecting to the award, that objection should be made as early as possible and before the award is received.
Although Sims v. Building Tomorrow's Talent may be an extreme example of a disregard for deadlines, this case emphasizes that deadlines whether in the parties' agreement or by statute are not to be taken likely. Accordingly, arbitrators must determine early whether enough time has been allotted for drafting and issuing the award. At the preliminary hearing, the arbitrator should thoroughly explore what type of decision and opinion the parties want. Moreover, the arbitrator should add a clause to the preliminary hearing order or arbitrator guidelines that allows more time to draft the award in the event unexpected information or events occur during the arbitration hearings.
Keywords: litigation, ADR, arbitration, mediation, mistake of law, vacatur, Federal Arbitration Act, arbitral award, confirmation