Judicial Review of Arbitration Awards under Federal Arbitration Act - Lexresolv

Judicial Review of Arbitration Awards under Federal Arbitration Act

11employee arbitration0

Introduction

Arbitration gives parties the ability to arrange their conflict settlement on mutually agreed terms that are precisely tailored to their relationship, hence, allowing them to resolve complicated problems quickly. Parties can choose their decision-maker (typically a person with particular experience) and identify the arbitrable issues, and specify the processes to be employed in the arbitration, unlike in traditional litigation. These characteristics typically persuade parties to forego the regular judicial process and hence, be in favor of the private, speedier, and more predictable process.

The benefits of arbitration, on the other hand, come at a large cost to the non-prevailing party. The Federal Arbitration Act (FAA) and state arbitration statutes limit the scope of judicial review to procedural flaws in arbitration awards which therefore becomes fundamental.

Read Also – Arbitration v. Litigation: What Is The Difference

Grounds for Vacating an Award under the FAA

1) Where the award was obtained through corruption, fraud, or other unethical means; 

(2) Where the arbitrators’ partiality or corruption was obvious; 

(3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, therefore, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehaviour that prejudiced the rights of any party; or 

Read Also – Why Arbitration Is Better Than Litigation

(4) Where the arbitrators exceeded their powers, or 

(5) Where the arbitrators exceeded their powers

These reasons usually target the overall fairness and impartiality of the arbitration procedure rather than the award’s substantive merits. Review of an arbitrator’s judgment under the FAA is “one of the narrowest standards of judicial review in all of American Jurisprudence,” hence, as one court put it. 512 F.3d 294, 305 (Uhl v. Komatsu Forklift Co.) (6th Cir. 2008).

Read Also – International Commercial Arbitration – An Overview

Freedom of Parties 

Despite the general discretion of parties to agree on arbitration terms, parties may not change or eliminate the four statutory grounds for vacating an arbitral award in section 10(a) by contract. 552 U.S. 576, 581–84; Hall St. Assocs., LLC v. Mattel, Inc. (2008). Because the legislative grounds for vacating an arbitration result are primarily intended to address procedural flaws, judicial consideration of any substantive grounds has been limited.

Read Also – Latest judgment of the supreme court on arbitration

Although courts have evaluated arbitration awards for the arbitrator’s “manifest disregard of the law,” usually on the grounds that this would exceed the arbitrator’s powers under section 10(a)(4), whether this is still a reason to invalidate an arbitration result after Hall Street is an “open question.” Gen. Dynamics Land Sys., Inc. v. Samaan, 835 F.3d 593, 600 (6th Cir. 2016).

Read Also – Arbitration Definition and Process

Legality of Judicial Review Provisions

Arbitration gives parties the ability to arrange their conflict settlement on mutually agreed terms that are precisely tailored to their relationship, hence, allowing them to resolve complicated problems quickly. Parties can choose their decision-maker (typically a person with particular experience), identify the arbitrable issues, and specify the processes to be employed in the arbitration, unlike in traditional litigation. These characteristics typically persuade parties to forego the regular judicial process in favor of the private, speedier, and more predictable process which therefore becomes efficient. The benefits of arbitration, on the other hand, come at a large cost to the non-prevailing party. The Federal Arbitration Act (FAA) and state arbitration statutes limit the scope of judicial review to procedural flaws in arbitration awards.

Read Also – Validity of the Arbitration Agreement

Grounds for Vacating an Award under the FAA

1) Firstly, where the award was obtained through corruption, fraud, or other unethical means; 

(2) Secondly, where the arbitrators’ partiality or corruption was obvious; 

(3) Third, where the arbitrators were guilty of misconduct in refusing to postpone the hearing, henceforth, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or hence, of any other misbehavior that prejudiced the rights of any party; or 

(4) Forth, where the arbitrators exceeded their powers, or 

(5) Fifth, where the arbitrators exceeded their powers

These reasons usually target the overall fairness and impartiality of the arbitration procedure rather than the award’s substantive merits. Review of an arbitrator’s judgment under the FAA is “one of the narrowest standards of judicial review in all of American Jurisprudence, therefore” as one court put it. 512 F.3d 294, 305 (Uhl v. Komatsu Forklift Co.) (6th Cir. 2008).

Read Also – Is arbitration a good fit for your company?

Freedom of Parties 

Despite the general discretion of parties to agree on arbitration terms, parties may not change or eliminate the four statutory grounds for vacating an arbitral award in section 10(a) by contract. 552 U.S. 576, 581–84; Hall St. Assocs., LLC v. Mattel, Inc. (2008). Because the legislative grounds for vacating an arbitration result are primarily intended to address procedural flaws, judicial consideration of any substantive grounds has been limited.

Although courts have evaluated arbitration awards for the arbitrator’s “manifest disregard of the law,” usually on the grounds that this would exceed the arbitrator’s powers under section 10(a)(4), whether this is still a reason to invalidate an arbitration result after Hall Street is a “open question.” Gen. Dynamics Land Sys., Inc. v. Samaan, 835 F.3d 593, 600 (6th Cir. 2016).

Read Also – Guide to win an arbitration hearing

Legality of Judicial Review Provisions

Due to the FAA’s narrow grounds for review, parties have tried to get around it by adding extended judicial review provisions in their contracts. The big question is whether parties can set their own judicial review criteria for arbitration awards. Before the United States Supreme Court’s judgment in Hall Street in 2008, federal circuit courts were split on whether parties might amend judicial review under the FAA by contract.

Section 10(a) of the FAA established strict criteria for reviewing arbitration awards, which has been construed to exclude reconsideration of awards for legal errors or substantial evidence has hence been said in Prudential–Bache Trade Servs. Inc. v. Kyocera Corp., 341 F.3d 987, 994 (9th Cir. 2003). (en banc). The FAA required a court to confirm an arbitration result unless the arbitrator violated one of the four statutory grounds.

Read Also – Latest Arbitration Cases in India

Judicial Review Provisions and Uniform Arbitration Acts

The Uniform Arbitration Act or the Revised Uniform Arbitration Act are the models for most state arbitration statutes, hence, this standard legislation, like the FAA, prohibits parties from changing the grounds for judicial review by contract. 23 cmt. B of the Revised Uniform Arbitration Act (2000).

The Uniform Arbitration Act, for example, was passed in Washington. In Washington, judicial review of an arbitration ruling is restricted to the eight reasons set out in the law, hence, the case of Steinmetz v. Malted Mousse, Inc., 79 P.3d 1154, 1158 (Wash. Ct. App. 2003). Parties are unable to “establish their own review boundaries.” Schneider v. Setzer, 872 P.2d 1158, 1160–62 (Wash. Ct. App. 1994); cf. Barnett v. Hicks, 829 P.2d 1087, 1093 (Wash. 1992). (concluding that parties cannot waive a trial de novo under the mandatory arbitration statute in order to seek immediate review of an arbitration award in the court of appeals).

Read Also – Guide to Information Technology in Arbitration

State Interpretations of Judicial Review Provisions

Most states interpret their arbitration legislation to exclude expanded judicial review of an arbitration result, meanwhile in line with Hall Street’s interpretation of the FAA. St. James-Brookfield, LLC v. Brookfield Country Club, Inc., 696 S.E.2d 663, 666 (Ga. 2010).

Following Hall Street, parties in several jurisdictions may amend the scope of court review of an arbitration result while proceeding under state law. Recently, the Volt judgment of the United States Supreme Court backs up the idea that parties may seek to conduct their arbitration using state-law standards of scrutiny, hence, they contradict with the FAA.

Read Also – Union Representation in Employment Arbitration

As there is a strong presumption that the FAA, not state law, rules apply both to the arbitration and on appeal, the parties’ arbitration agreement must specifically cite state law to regulate the agreement and the standards of judicial review. 614 F.3d 1062, 1066–67; Johnson v. Gruma Corp., 614 F.3d 1062, 1066–67; Johnson v. Gruma Corp., 614 F.3 (9th Cir. 2010).

Conclusion

When writing their arbitration agreement, parties that opt to use arbitration to resolve their issues should seek appellate counsel. Appellate counsel can advise on the scope of an arbitrator’s decision that can be appealed, how to structure an arbitration agreement that allows for favorable judicial review, and the dangers that an unfavorable decision poses for substantive merits appellate review, such as legal or factual errors.

Read Also – Arbitration and Conciliation – Two sides of the same coin, yet different.

References

https://scholarship.law.marquette.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1493&context=mulr

https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=5214&context=uclrev

https://www.jstor.org/stable/20722458

Related Posts

Leave a Reply