Confirmation / Vacation of Arbitration Awards

Plaintiff raised three arguments in support of her motion to vacate an arbitration award: “(1) that the arbitrator exceed his powers or so imperfectly executed them that a mutual, final, and definite award upon her claims was not made; (2) that the arbitrator acted in manifest disregard of the applicable law and in violation of clear public policy; and (3) that there was an evident material mistake in the description of the facts and evidence presented at the hearing with respect to [Plaintiff’s] claims.” Ultimately, the Court found her arguments “did not overcome the substantial deference that courts must give to an arbitrator’s decision on review.”

The Court specifically looked at the applicable law under both the ADEA and the age-discrimination provisions of the THRA, finding Plaintiff was unable to “demonstrate that the arbitrator misinterpreted the law – much less that the arbitrator exceeded his authority such that [Plaintiff] is entitled to vacatur of the arbitrator’s judgment.” Moreover, “[t]he fact that the arbitrator chose to weigh [a witness’s] detailed testimony more heavily than [another witness’s] vague answers in concluding that a valid non-discriminatory reason existed for [Plaintiff’s] lesser pay does not amount to an action in excess of the arbitrator’s power, a ‘manifest disregard of the law,’ or an ‘evident material mistake’ in the facts of the award. It does not even amount to a ‘serious error,’ a case in which we would still be bound to uphold the arbitrator’s decision.”

Marshall v. SSC Nashville Operating Co., LLC d/b/a SAVA Senior Care and Greenhills Health Rehabilitation Center, No. 16-5751 (6th Cir. April 18, 2017)

This post written by Nora A. Valenza-Frost.

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A federal court confirmed an arbitration award, denying a motion to vacate where the movant failed to cite any basis for vacatur under section 10 of the Federal Arbitration Act (FAA). Instead, the movant sought vacatur of the award on two grounds – manifest disregard of the law and public policy – both of which it acknowledged are not listed within section 10. The respondent argued that following the Supreme Court’s decision in Hall Street, neither ground, independent of any provision under section 10, is an adequate basis for vacatur under the FAA.

The Court agreed, but also noted that the First Circuit has not “squarely determined whether [its] manifest disregard case law can be reconciled with Hall Street.” However, the Court looked to the First Circuit’s dicta, which stated that Hall Street compels the conclusion that the manifest disregard standard survives only as a judicial gloss on § 10. With regard to the movant’s public policy argument, the Court noted that although there has been no discussion following Hall Street by the First Circuit about whether a violation of public policy survives as a basis for vacatur under the FAA, to the extent that it survives, it, too, would only do so as a judicial gloss on section 10.

The Court also rejected the movant’s arguments raised only in its reply brief that the arbitrator exceeded his powers, citing section 10(a)(1)–(4) as a plausible basis for vacatur. The Court reasoned that any perceived errors made by the arbitrator in his contractual interpretations did not amount to a decision “unfounded in reason and fact” or “based on reasoning so palpably faulty that no judge, or group of judges, ever could conceivably have made such a ruling.” As such, the Court denied the motion for vacatur and confirmed the award.

Sanwan v. Lindsay, No. 16-12469-RWZ (USDC D. Mass. May 5, 2017).

This post written by Gail Jankowski.

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Last month the Southern District of New York granted DCH Auto Group’s motion to confirm a favorable arbitral decision dismissing a pro se plaintiff’s arbitration with prejudice, over a host of different challenges seeking vacatur of that decision. The plaintiff, Marciano, brought workplace discrimination claims against DCH. During the course of the litigation, plaintiff was represented intermittently by outside counsel, notified of various discovery delinquencies, made multiple requests for extensions of time to comply with said deficiencies or other deadlines, and was warned at least twice that no further extensions would be granted. The arbitrator ultimately dismissed the arbitration with prejudice based on these factors, as well as the detriment DCH faced with having to defend a case that had already been litigated for two-and-a-half years but not proceeded beyond discovery.

The court systematically rejected all seven of Marciano’s challenges to the arbitration decision. First, the court found no wrongdoing by DCH where the AAA made a mistake in providing a pre-corrected version of the arbitration decision. Second, the court rejected the claim that the arbitrator was guilty of misconduct for failure to hear evidence because the allegedly ignored evidence was unsolicited, submitted long after the operative deadline, and the arbitral decision was likely already made before the submission. Third, there was no non-speculative evidence of bias by the arbitrator. Fourth, the allegedly improper ex parte communications did not prejudice Marciano because they were mainly comprised of exchanges between DCH and the AAA (not the individual arbitrator), contained non-dispositive procedural questions, and were not “untoward.” Fifth, the court rejected Marciano’s challenge that DCH’s participation in the arbitration required vacatur. Sixth, the arbitrator was justified in refusing Marciano’s request to further postpone the arbitration proceedings because of the numerous extension requests that had been granted throughout the proceedings and because Marciano had adequate notice and ample time to respond by the deadlines. Finally, the court found no manifest disregard of the law on the arbitrator’s behalf and noted that Marciano failed to, despite notice, adequately respond to discovery inquiries regarding her disability status—a threshold issue in the case. Accordingly, the court granted DCH’s motion to confirm and denied Marciano’s motion to vacate.

Marciano v DCH Auto Grp., Case No. 11-9635 (USDC S.D.N.Y. Apr. 27, 2017)

This post written by Thaddeus Ewald .

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A court has granted a petition to confirm an arbitration award despite the defendant’s argument that the arbitrator acted in manifest disregard of the law. While acknowledging questions regarding the continuing viability of manifest disregard for the law as a basis for vacating arbitration awards, the court decided the case assuming that it is still the law, but found that the developer had not met the heavy burden of showing “that the arbitrator knew the applicable law, and yet chose to ignore it.”

The case arose from a claim by the plaintiff, an architect, that the defendant, a developer, failed to pay for the architect’s services and used its drawings without authorization. The defendant argued that five decisions of the arbitrator showed manifest disregard for the law: (1) awarding damages for debts incurred before the developer was formed, in contravention of the developer’s operating agreement; (2) awarding lost profits, despite a contractual waiver of consequential damages; (3) awarding copyright damages despite a lack of evidence that the drawings were copyrightable; (4) awarding two sets of copyright damages for the same drawings; and (5) deciding the copyright question despite it being outside the scope of the arbitration clause.

The court found that the defendant failed to meet its burden regarding the third and fourth decisions regarding copyright damages because it failed to raise these issues during arbitration. Regarding the award for debts incurred before the developer’s formation, the court found that it was not clear whether the arbitrator’s decision was based on veil piercing, a finding that a contract other than the operating agreement was controlling, or concessions by the defendant in testimony, and thus manifest disregard for the law had not been shown. As to the award of lost profits, the court found that the contract that contained the waiver of consequential damages contained other provisions suggesting that this waiver did not apply to lost profits. Finally, regarding the arbitrator’s authority over copyright infringement claims, the court found the contract language was broad enough and the case law cited by the parties was unclear enough to make it impossible to say that the arbitrator’s decision showed manifest disregard for the law.

The Knabb Partnership v. Home Income Equity, LLC, Civil Action No. 17-373 (E.D. Pa. April 19, 2017)

This post written by Jason Brost.

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