Reversing the Court of Chancery’s ruling vacating an arbitration award, the Delaware Supreme Court held in SPX Corporation v. Garda USA, Inc. that the arbitrator’s decision should have been affirmed because the arbitrator’s decision did not manifestly disregard the law. The award under review concerned whether SPX Corporation properly stated certain reserves on its balance sheets in connection with the sale of one of its subsidiaries to Garda World Security Corporation. The net purchase price for the subsidiary was subject to certain adjustments to the SPX balance sheets as set forth in the parties’ Stock Purchase Agreement (“SPA”). SPX was to provide Garda with a pre-closing balance sheet and an “Effective Date Balance Sheet” reflecting those adjustments. Post-closing, Garda challenged SPX’s calculation of the workers compensation reserve on the balance sheet and submitted the matter to arbitration, arguing the reserve calculation violated the SPA. After reviewing the parties’ briefs and addressing several rounds of questions to the parties, the arbitrator determined that SPX had not failed to comply with the SPA and that the balance sheets did not need to be restated. The arbitrator did not provide an explanation for its decision. Garda asked the Court of Chancery to vacate the award, which found that the arbitrator manifestly disregarded the SPA’s terms.
On appeal, the Delaware Supreme Court applied the Delaware Arbitration Act which provides that an arbitration award will be vacated when “the arbitrators exceeds their powers, or so imperfectly executed them that a final and definite award upon the subject matter submitted was not made.” The high court interpreted this provision as analogous to the Federal Arbitration Act which authorizes vacatur of an award where the arbitrator acts in “manifest disregard of the law.” This standard requires a party seeking vacatur to provide that the arbitrator was “fully aware of the existence of a clearly defined governing legal principle but refused to apply it, in effect, ignoring it.” The parties had submitted to the arbitrator two colorable interpretations of the relevant SPA provisions. While the arbitrator’s interpretation of those provisions may have been wrong, it was not without basis in the contract. Accordingly, under the “manifest disregard” standard, the arbitrator’s award was not subject to vacatur. SPX Corporation v. Garda USA, Inc., No. 332, 2013 C.A. No. 7115-VCL (Del. June 16, 2014).
This post written by Leonor Lagomasino.
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