Most business people know that arbitration provisions in contracts can help avoid litigating matters in court before unsophisticated juries or elected state court judges. Some use them to avoid litigating in “judicial hell holes.”
However, in spite of the benefits of arbitration, some businesses have been reluctant to use arbitration provisions due to very limited appeal rights. In fact, the bases for review of an arbitration award by a court are practically nonexistent.
Section 10(a) of the FAA establishes the grounds on which a court may set aside an arbitration award:
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where 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.
9 U.S.C. § 10(a).Section 11 provides the only grounds for modification of an award:
(a) Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing or property referred to in the award.
(b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.
(c) Where the award is imperfect in matter of form not affecting the merits of the controversy.
The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.
9 U.S.C. § 11.
Court review of an arbitration award made under the FAA is “extraordinarily narrow” and “exceedingly deferential,” Prestige Ford v. Ford Dealer Computer Servs., Inc., 324 F.3d 391,393 (5th Cir. 2003). Vacatur or modification is available only on the limited grounds set forth in §§ 10 and 11. 552 U.S. at 588, 128 S. Ct. at 1405. Parties may not contract to expand judicial review beyond the bases set forth in the statutes. Id.
A recent revision to the AAA Rules provides for appellate review by a AAA appointed panel.
These rules are fully set out at http://go.adr.org/AppellateRules. In short, they provide a review based on the written record without oral argument and contemplate a ruling witin 90 days. The appeal process is started by filing a notice of appeal within 30 days of the arbitration award.
If you need help adding some appeal to your arbitration agreements, contact me.