June 06, 2018 Articles

Defining Finality: What Constitutes a Final Arbitration Award

By Christian J. Bromley

An arbitration award "must" be confirmed under the Federal Arbitration Act (FAA)—unless a party to that arbitration demonstrates that one of the limited grounds for vacatur exists. Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576, 582 (2008). On February 22, 2018, the Fourth Circuit Court of Appeals issued an opinion in Norfolk Southern Railway Co. v. Sprint Communications Co., 883 F.3d 417 (4th Cir. 2018), vacating the confirmation of an arbitration award because that award was not "final" under section 10(a)(4) of the FAA. This decision adds precedent to a notably underdeveloped area of arbitration jurisprudence.

Section 10 Grounds for Vacating Awards
Section 10(a) of the FAA enumerates the four categories of grounds for vacating awards. 9 U.S.C. § 10. The first three categories permit federal courts to vacate an award when (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators; or (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing or in refusing to hear pertinent and material evidence or guilty of any other misbehavior prejudicing any party.

The fourth category of section 10(a) applies when "the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made." The federal court opinions examining litigants' requests to vacate arbitration awards appear to treat the fourth category as providing two individual and separate subcategories to vacate an award: (1) where the arbitrators allegedly exceeded their powers or (2) where the award is purportedly not mutual, final, and definite. The Fourth Circuit's opinion in Norfolk Southern Railway Co. v. Sprint Communications Co. continues this bifurcated treatment of the fourth category and considered only whether the award was sufficiently "final."

Norfolk Southern Railway Co. v. Sprint Communications Co.
The dispute between Norfolk Southern Railway and Sprint Communications arose from a disagreement over the amount Sprint Communications owed for continued use of certain rights of way. The parties' agreement called for a three-person panel of appraisers to determine the amount owed. One of the three appraisers, with the assent of a second, issued a decision on this amount. Sprint Communications disagreed with the appraisers' decision, the "majority decision," and instituted an arbitration proceeding before a panel of American Arbitration Association arbitrators. Those arbitrators determined the majority decision was final and binding. Sprint Communications brought an appeal to the Fourth Circuit after the U.S. District Court for the Eastern District of Virginia confirmed the arbitration award—ostensibly the majority decision.

The Fourth Circuit has since vacated the confirmation based on a significant caveat from the third appraiser in the majority decision: He expressly reserved his right to withdraw assent without prejudice or time limitation if either of two "extraordinary appraisal assumptions" made in the decision turned out not to be true. 883 F.3d at 421. The Fourth Circuit declined to find the majority decision was final under section 10(a)(4) when the third appraiser not only based his assent on assumptions but also reserved his right to completely withdraw assent if his assumptions proved to be incorrect.

Vacating Awards When "Arbitrators Exceeded Their Powers"
Parties seeking relief under the first effective subcategory of section 10(a)(4)—whether the arbitrators exceeded their power—face a heavy burden to vacate an arbitration award. As articulated by the U.S. Supreme Court, "[o]nly 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." Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569 (2013) (citations omitted). The Fourth Circuit has agreed with this position and will overturn an award on this ground only if the arbitrator exceeded his or her authority by issuing an award based simply on the arbitrator's own notions of economic justice. Jones v. Dancel, 792 F.3d 395, 405 (4th Cir. 2015).

Vacating Awards as Not "Mutual, Final, and Definite"
The Fourth Circuit found in Norfolk Southern Railway Co. v. Sprint Communications Co. that "[a]n award is not 'final' under the FAA if it fails to resolve an issue presented by the parties to the arbitrators." 883 F.3d at 422. The Fourth Circuit, however, considered only finality and does not appear to opine on whether the award was also mutual and definite under section 10(a)(4). Other circuits have articulated their own versions of this section 10 subcategory and sometimes deal only with finality, while at other times also considering the requirements for an award to be mutual and definite. The following are examples:

  • Second Circuit: "[A]n arbitration award, to be final, must resolve all the issues submitted to arbitration, and . . . it must resolve them definitively enough so that the rights and obligations of the two parties, with respect to the issues submitted, do not stand in need of further adjudication." Rocket Jewelry Box, Inc. v. Noble Gift Packaging, Inc., 157 F.3d 174, 176 (2d Cir. 1998).
  • Third Circuit: "It is axiomatic that an arbitration award becomes final if it is intended by the arbitrator to be a 'complete determination of all claims submitted' to it." Robinson v. Littlefield, 626 F. App'x 370, 373 (3d Cir. 2015) (citations omitted).
  • Seventh Circuit: "We take 'mutual' and 'final' to mean that the arbitrators must have resolved the entire dispute (to the extent arbitrable) that had been submitted to them, . . . and 'definite' to mean . . . that the award is sufficiently clear and specific to be enforced should it be confirmed by the district court and thus made judicially enforceable." IDS Life Ins. Co. v. Royal All. Assocs., Inc., 266 F.3d 645, 650 (7th Cir. 2001) (citations omitted).
  • Eighth Circuit: "The arbitrator must 'resolve all issues submitted to the arbitration, and determine each issue fully so that no further litigation is necessary to finalize the obligations of the parties under the award.'" Gas Aggregation Servs., Inc. v. Howard Avista Energy, LLC, 319 F.3d 1060, 1069 (8th Cir. 2003) (citations omitted).

Impact on Actions to Vacate Awards
The Norfolk Southern Railway Co. v. Sprint Communications Co. opinion provides added precedent in the otherwise limited and usually fact-intensive arena where federal courts are examining the enforceability of arbitration awards. Courts consistently agree on the well-established rule that they "may vacate an arbitrator's decision 'only in very unusual circumstances.'" Oxford Health, 569 U.S. at 568 (citations omitted). There remains to be, however, a consensus among the federal circuits on what precisely constitutes an unenforceable award under the fourth category of section 10. As the Norfolk Southern Railway Co. v. Sprint Communications Co. opinion reveals, there is not yet even a consensus on what constitutes a "final" arbitration award, as opposed to a "mutual, final, and definite" arbitration award—if there is any difference at all—under the second subcategory of section 10(a)(4) for vacating an award.


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