Ask the Adr Professionals

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News You Can Use from the National Arbitration Forum

I know that appeals of an arbitrator's decision are limited. What are the parameters?

Arbitration is thought to be an effective legal alternative and its dual benefits of affordability and efficiency are well documented. Those benefits are derived, at least in part, by the finality of the arbitrator's decision. Grounds for judicial review of arbitration decisions, in turn, are typically limited as set forth in the Federal Arbitration Act ("FAA"), similar state statutes, and the common law "manifest disregard" standard of review.

Congress enacted the FAA against a backdrop of hostility to arbitration in which "unlimited review" of an arbitration decisions was often the norm.

The FAA's standards in 9 U.S.C. §10 (a) for vacating an arbitrator's decision are narrow. On a motion by the non-prevailing party, the FAA provides that a court may vacate an arbitration award and, at its discretion, order a rehearing only in circumstances where (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators; (3) the arbitrators were guilty of misconduct or misbehavior by which the rights of any party were prejudiced; or (4) the arbitrators exceeded their powers.

Years later, the U.S. Supreme Court created an additional standard of review for vacating arbitration awards-manifest disregard of the law. In other words, even where the arbitrator did not exceed the power granted by the contract, a result could be so egregious that a court would not let it stand.

Commentators argue that these narrow grounds of review are part of arbitration's appeal-providing a shorter framework for decisions, coupled with limited appeal rights, reduces arbitration's cost to a fraction of the cost of litigation.

May parties contract for greater judicial review of an arbitrator's decision?

While limitations on judicial review provide real benefits to some contracting parties, some parties wish to expand the "default" scope of review set forth in the FAA and similar state laws.

To date, courts have split on whether parties may expand judicial review of arbitration decisions otherwise available under the FAA. Some commentators have argued that "broadening" the FAA's vacatur standards by contractual agreement is consistent with the fundamental objective of the FAA, ensuring enforcement of parties' arbitral agreements. …