May 17, 2017 Articles

Arbitration and "Appellate" Review: Competing Legal Principles

An examination of freedom of contract and the rule of law in the jurisprudence of merits-based review of arbitration awards

by Eric Sparks

Construction attorneys and their clients face a difficult decision when drafting contracts for large and substantive projects: whether to agree to binding arbitration or to stay within the court system to resolve any disputes. While binding arbitration is often touted as a method that should result in the faster and cheaper resolution of a dispute (and a method that allows arbitrators to be selected for their industry-specific knowledge), arbitration has begun to mimic litigation by including discovery, motion practice, and even the possibility of merits-based review of awards. This latest feature of binding arbitration, an internal “appeal” process, may be a consequence of the well-known fact that judicial review of arbitration awards has been more limited than appellate review of trial court decisions in the litigation process. Indeed, experienced practitioners also know that the law regarding the judicial review of arbitration awards is highly variable and uncertain, varying over applicable statutory frameworks (such as the Federal Arbitration Act and similar state statutes) as well as within the different circuit courts of the federal system.

Because of the variability in the law concerning the scope of judicial review of arbitration awards, it is difficult to estimate the error-rate risk involved in choosing binding arbitration as one’s method of dispute resolution. This unpredictability has led the construction bar to invent multiple ways to mitigate the possibility that the arbitration process will result in a “wrong” outcome (i.e., from the perspective of a misapplication of the law to the facts):

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