The Expanding Scope of Judicial Review of Arbitration Awards: Where Does the Buck Stop?

Article excerpt

Although arbitration awards are meant to be final, some judicial review remains a vital part of the arbitration process. Yet the question still facing courts today is this: What is the proper scope of judicial review of arbitration awards? This article examines the unresolved tension between, on the one hand, the limited grounds for review in the Federal Arbitration Act, and on the other, common law grounds for review and expanded judicial review provisions negotiated by the parties themselves. The author concludes that it is undesirable to make arbitration more complicated and expensive by altering the statutory grounds of review.

Arbitration is a contractual form of dispute resolution. It involves submitting the parties' dispute to one or more impartial decision makers for a final decision that is binding on the parties. Most often the parties agree to put an arbitration clause in their transaction documents (known as a future disputes clause); less often they agree to arbitrate a dispute after the dispute arises by entering into a submission agreement. The parties typically provide in their arbitration or submission agreement the range of issues to be decided by the arbitrator, the scope of relief the arbitrator can award, and many of the procedural aspects of the process itself. The role of the judiciary in the arbitration process is limited. Yet it cannot be said that there is a body of reliable, uniform precedents to guide parties when an appeal is appropriate on statutory or common law grounds.

This article examines the statutory and common law bases for judicial review of arbitration awards and how courts have interpreted them. Part I provides an overview of the legal grounds for judicial review under the Federal Arbitration Act (FAA). Part II discusses the common law "manifest disregard of the law" doctrine. Part III addresses the issue of parties establishing their own standard of judicial review. Part IV discusses various policy considerations that support the finality of arbitration awards.

In the early 20th century, arbitration agreements were made specifically enforceable by federal legislation. The first modern arbitration statute in the United States was New York's Arbitration Act of 1920.' Soon thereafter, Congress enacted the United States Arbitration Act of 1925, often referred to by U.S. practitioners as the Federal Arbitration Act (FAA) .2 The FAA represents strong public policy in favor of arbitration and the freedom to contract. Accordingly, as the use of arbitration in business disputes has increased over the years, so has the FAA's reach.

The Supreme Court has made the FAA the nationwide standard governing virtually all forms of commercial arbitration. Its jurisprudence makes plain that federal law preempts state law that is inconsistent with or "undermine [s] the goals and policies of the FAA."3

I. Judicial Review under the FAA

It has been said that "arbitral awards are nearly impervious to judicial oversight."4 This is a bit of an overstatement. Awards are subject to judicial review under § 10 of the FAA. The scope of this review is narrow. This is what gives rise to the greater efficiency of arbitration. If courts were free to intervene more liberally in the arbitration process, the advantage of a speedy and less costly resolution of disputes by private arbitration mechanisms would certainly disappear.

Section 10(a) of the FAA vests courts with jurisdiction to review an arbitration award only where the process has been "tainted in certain specific ways."5 This provision is the source of authority for most judicial review of arbitration awards. It provides, in relevant part, that a reviewing court may vacate an award only:

(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. …